Question 1

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is simple or complex? When is this determination made?

Accepted Answer

The answer of Tax professionals use the terms simple trust...

Question 2

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase.
-A trust that can accumulate rather than distribute its accounting income.

Accepted Answer

A Complex Trust can accumulate income instead of distributing it, unlike a Simple Trust which must distribute all its income within the tax year.

Question 3

The Circle Trust reports some exempt interest income for the year. How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?

Accepted Answer

The answer of The Circle Trust reports some exempt interest...

Question 4

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase.
-A trust whose income is taxed to the donor, not the beneficiaries.

Accepted Answer

A trust whose income is taxed to the donor is commonly known as a Grantor Trust.

Question 5

Corelle is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries Kathie, Lynn, Mark, and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each. For the current calendar year, the trust incurs ordinary business income of $40,000, a long-term capital gain of $20,000 allocable to corpus), and a trustee commission expense of $4,000 allocable to corpus). Use the format of Exhibit
20.5 in the text to address the following items:
a. How much income is each beneficiary entitled to receive?
b. What is the trust's DNI?
c. What is the trust's taxable income?
d. How much is taxed to each of the beneficiaries?

Accepted Answer

The answer of Corelle is a simple trust that correctly...

Question 6

Does the distributable net income of an estate or trust always equal its deduction for distributions to beneficiaries?
Are the two amounts ever equal in amount? Answer for estates, simple trusts, and complex trusts.

Accepted Answer

The answer of Does the distributable net income of an...

Question 7

The Yeoman Trust has generated several Federal income tax credits for this tax year. Which taxpayers), if any, can use these credits in computing a Federal income tax liability?
e.g., the grantor, the trust, its income beneficiaries, its remainder beneficiaries) Answer for estates, simple trusts, and complex trusts.

Accepted Answer

The answer of The Yeoman Trust has generated several Federal...

Question 8

List at least three nontax reasons that you might suggest to your client Chan that she should consider shifting some income and assets to a trust.

Accepted Answer

The answer of List at least three nontax reasons that...

Question 9

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase.
-The fiduciary in charge of an estate.

Accepted Answer

An executor is the person named in a will to handle the distribution of a decedent's estate.

Question 10

The Ming Trust distributes an asset to its income beneficiary that shows a realized gain. What are the Federal income tax consequences of the distribution? What if the asset shows a realized loss?

Accepted Answer

The answer of The Ming Trust distributes an asset to...

Question 11

The trustee of the Miguel Trust can distribute any amount of accounting income and corpus to the trust's income beneficiaries, Paula and George. This year, the trust incurred the following: Tax able interest income$\$ 40,000$ $\begin{array}{lc}
\text { Tax-exempt interest income } & 20,000 \
\text { Long-term capital gains-allocable to corpus } & 10,000 \
\text { Fiduciary's fees-allocable to corpus } & 6,000
\end{array}$ The trustee distributed $40,000 to Paula and $40,000 to George. 
a. What is Miguel's trust accounting income?
b. What is Miguel's DNI?
c. What is Miguel's taxable income?
d. How much gross income is recognized by each of the beneficiaries?

Accepted Answer

The answer of The trustee of the Miguel Trust can...

Question 12

The Gomez Trust is required to distribute $80,000 annually split equally between its two income beneficiaries, Lara and Byron. If trust income is not sufficient to pay these amounts, the trustee can invade corpus to the extent necessary. During the current year, the trust reports DNI of $60,000. Byron receives an additional $30,000 discretionary corpus distribution.
a. How much of the $40,000 distributed to Lara is included in her gross income?
b. How much of the $70,000 distributed to Byron is included in his gross income?
c. How much of these distributions are first-tier distributions or second-tier distributions?

Accepted Answer

The answer of The Gomez Trust is required to distribute...

Question 13

Identify the parties that are present when an estate is created and their key duties. Then do the same for a trust.

Accepted Answer

The answer of Identify the parties that are present when...

Question 14

The Raja Trust operates a welding business. Its current-year cost recovery deductions properly amount to $75,000.
Raja's accounting income was $100,000 of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee. Ruby also received a
$25,000 discretionary corpus distribution. Raja's DNI was $80,000. Identify the treatment of Raja's cost recovery deductions.

Accepted Answer

The answer of The Raja Trust operates a welding business....

Question 15

Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? How is it used in computing the parties' taxable incomes?

Accepted Answer

The answer of Consider the term distributable net income as...

Question 16

Corelle is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries Kathie, Lynn, Mark, and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each. For the current calendar year, the trust incurs ordinary business income of $40,000, a long-term capital gain of $20,000 allocable to income), and a trustee commission expense of $4,000 allocable to corpus). Use the format of Exhibit
20.5 in the text to address the following items:
a. How much income is each beneficiary entitled to receive?
b. What is the trust's DNI?
c. What is the trust's taxable income?
d. How much is taxed to each of the beneficiaries?

Accepted Answer

The answer of Corelle is a simple trust that correctly...

Question 17

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

Accepted Answer

The answer of The Gibson Estate is responsible for collecting...

Question 18

Consider the term fiduciary accounting income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?

Accepted Answer

The answer of Consider the term fiduciary accounting income as...

Question 19

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase.
-A synonym for executor.

Accepted Answer

Administrator is a synonym for executor, both refer to individuals appointed to manage the estate of a deceased person.

Question 20

The DaSinzi Estate has two equal income beneficiaries Rollo and Luisa) and one remainder beneficiary Coco).
The estate operates a business and generates cost recovery deductions. Which taxpayers)
e.g., the deceased, the estate, Rollo, Luisa, or Coco) if any, can deduct these items?

Accepted Answer

The answer of The DaSinzi Estate has two equal income...

Quiz 20: Income Taxation of Trusts and Estates

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is simple or complex? When is this determination made?

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust that can accumulate rather than distribute its accounting income.

The Circle Trust reports some exempt interest income for the year. How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust whose income is taxed to the donor, not the beneficiaries.

Does the distributable net income of an estate or trust always equal its deduction for distributions to beneficiaries? Are the two amounts ever equal in amount? Answer for estates, simple trusts, and complex trusts.

List at least three nontax reasons that you might suggest to your client Chan that she should consider shifting some income and assets to a trust.

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -The fiduciary in charge of an estate.

The Ming Trust distributes an asset to its income beneficiary that shows a realized gain. What are the Federal income tax consequences of the distribution? What if the asset shows a realized loss?

Identify the parties that are present when an estate is created and their key duties. Then do the same for a trust.

Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? How is it used in computing the parties' taxable incomes?

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

Consider the term fiduciary accounting income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A synonym for executor.

The DaSinzi Estate has two equal income beneficiaries Rollo and Luisa) and one remainder beneficiary Coco). The estate operates a business and generates cost recovery deductions. Which taxpayers) e.g., the deceased, the estate, Rollo, Luisa, or Coco) if any, can deduct these items?