Question 1

When a trust distributes an in-kind asset with a realized loss,most likely this loss cannot be immediately deducted by the first-tier beneficiary.

Accepted Answer

This is because the first-tier beneficiary receives the asset at its fair market value, and the loss is only realized when the asset is sold. The beneficiary would need to sell the asset and then take a deduction on their personal tax return for the realized loss.

Question 2

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

Accepted Answer

Subchapter J of the Internal Revenue Code deals with the taxation of trusts and estates, outlining how these entities are taxed on income.

Question 3

Kip and his wife Biddie file calendar-year Form 1040 joint returns.Kip died this year on April 16.The Form 1040 is filed as a joint return,signed by Biddie and by Kip's executor.

Accepted Answer

A joint return can be filed in the year of a spouse's death if the deceased spouse's executor signs the return along with the surviving spouse.

Question 4

Which of the following is a typical duty of a trustee?

Accepted Answer

A trustee's typical duty is to manage the trust assets and make decisions related to investments, distributions, and expenses. Modifying the language of the trust instrument for tax purposes may be done by the grantor or professional advisors. Allocating items between income and corpus using Subchapter J rules is a basic accounting function that can be delegated to an accountant or attorney. Therefore, the only duty that is typically performed by a trustee is to make decisions regarding investment of the trust corpus portfolio.

Question 5

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

Accepted Answer

The unextended due date for a calendar year trust to file its Form 1041 is April 15.

Question 6

Three months after Brianna Timkin died,her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago.Which of the following statements is true?

Accepted Answer

The $40,000 is included in Brianna's gross estate as it was received within three months after her death. It is also subject to tax on her estate's income tax return.

Question 7

Which of the following is a typical duty of a trustee?

Accepted Answer

All of the listed duties are typical duties of a trustee. Filing tax returns, investing assets, and distributing income to beneficiaries are all key responsibilities of a trustee.

Question 8

Which of the following is a typical duty of an executor of an estate?

Accepted Answer

All of the above duties are typical responsibilities of an executor of an estate. They are responsible for managing the deceased person's affairs and ensuring that all debts and expenses are paid, assets are properly collected and liquidated, and the remaining net assets are distributed according to the terms of the will or state laws.

Question 9

The Prakash Trust is required to pay its entire annual accounting income to beneficiaries Sam and Janet.The trust's personal exemption is:

Accepted Answer

The answer of The Prakash Trust is required to pay...

Question 10

The Code defines a "simple trust" as which of the following?

Accepted Answer

The answer of The Code defines a "simple trust" as...

Question 11

Which of the following taxpayers use a Schedule K and K-1 to pass through income,loss,and credit amounts to the owners or beneficiaries?

Accepted Answer

All of the above taxpayers use Schedules K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries.

Question 12

The trustee of the Epsilon Trust distributed an asset to Telly,a qualifying income beneficiary.The asset's basis to the trust was $10,000,and its fair market value on the distribution date was $25,000.Which of the following statements is true?

Accepted Answer

The answer of The trustee of the Epsilon Trust distributed...

Question 13

The Prakash Estate has equal income beneficiaries Sam and Janet.As allowed by the terms of the will,the estate makes no income distributions during the current tax year.The estate's personal exemption is:

Accepted Answer

The personal exemption for an estate is $600 for the current tax year. This is because the estate is treated as a separate legal entity for tax purposes, and the personal exemption for an individual in 2021 is $12,550. Since there are two equal income beneficiaries, the estate can claim a personal exemption of $600 for each beneficiary, for a total of $1,200. However, since the estate did not make any income distributions during the tax year, this full amount can be claimed as a personal exemption. Therefore, the answer is (D) $600.

Question 14

Which of the following taxpayers can be subject to an entity-level Federal income tax?

Accepted Answer

A complex trust can be subject to an entity-level Federal income tax, while partnerships and limited liability companies are passthrough entities and do not pay entity-level taxes.

Question 15

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

Accepted Answer

Tax planning often involves using trust arrangements to minimize tax liabilities. Designating high-income and high-wealth individuals as second-tier beneficiaries can help ensure that assets are distributed in the most tax-efficient manner.

Question 16

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate.Generally,an administrative expense should be claimed on the estate's income tax return.

Accepted Answer

Administrative expenses, such as legal and accounting fees, can be claimed on the estate's income tax return to reduce the taxable income subject to the 45% Federal and state income tax rate. However, they cannot be claimed to reduce the taxable estate subject to the 40% Federal estate tax rate.

Question 17

Generally,an administrative expense attributable to municipal bond interest should be claimed on the estate's Form 706.

Accepted Answer

Administrative expenses related to municipal bond interest should be claimed on the estate's Form 706. This is because these expenses are considered a tax-related item and must be reported on the estate tax return.

Question 18

The Rodriguez Trust generated $300,000 in alternative minimum taxable income (AMTI) this year.Concerning the AMTI,the trust is subject to a marginal Federal income tax rate of:

Accepted Answer

Alternative minimum tax (AMT) was designed to ensure individuals, trusts and estates pay a minimum amount of tax even if they have a lot of deductions, exemptions, and credits. The AMT rate is either 26% or 28%, depending on the amount of AMTI earned. In the case of the Rodriguez Trust, the AMTI generated is $300,000 which falls into the 28% bracket. Therefore, the trust is subject to a marginal federal income tax rate of 28%.

Question 19

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

Accepted Answer

The answer of The Prakash Trust is required to pay...

Question 20

The Chen Trust is required to distribute its accounting income every year,one-half to Missy Chen,and one-half to the local church's homeless shelter.What is the Chen Trust's personal exemption?

Accepted Answer

Since the Chen Trust is required to distribute all its accounting income every year, it does not qualify for any personal exemption. Therefore, the personal exemption is $0, making option A incorrect. Option B is also incorrect as there is no mention of a specific amount for a personal exemption. Option D is incorrect because there is no indication that the Chen Trust qualifies for a personal exemption of $600. Therefore, the best and only choice is C, as it correctly states that the personal exemption is $0.

Quiz 28: Income Taxation of Trusts and Estates

When a trust distributes an in-kind asset with a realized loss,most likely this loss cannot be immediately deducted by the first-tier beneficiary.

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

Kip and his wife Biddie file calendar-year Form 1040 joint returns.Kip died this year on April 16.The Form 1040 is filed as a joint return,signed by Biddie and by Kip's executor.

Which of the following is a typical duty of a trustee?

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

Three months after Brianna Timkin died,her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago.Which of the following statements is true?

Which of the following is a typical duty of a trustee?

Which of the following is a typical duty of an executor of an estate?

The Prakash Trust is required to pay its entire annual accounting income to beneficiaries Sam and Janet.The trust's personal exemption is:

The Code defines a "simple trust" as which of the following?

Which of the following taxpayers use a Schedule K and K-1 to pass through income,loss,and credit amounts to the owners or beneficiaries?

The trustee of the Epsilon Trust distributed an asset to Telly,a qualifying income beneficiary.The asset's basis to the trust was $10,000,and its fair market value on the distribution date was $25,000.Which of the following statements is true?

The Prakash Estate has equal income beneficiaries Sam and Janet.As allowed by the terms of the will,the estate makes no income distributions during the current tax year.The estate's personal exemption is:

Which of the following taxpayers can be subject to an entity-level Federal income tax?

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate.Generally,an administrative expense should be claimed on the estate's income tax return.

Generally,an administrative expense attributable to municipal bond interest should be claimed on the estate's Form 706.

The Rodriguez Trust generated $300,000 in alternative minimum taxable income (AMTI) this year.Concerning the AMTI,the trust is subject to a marginal Federal income tax rate of:

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

The Chen Trust is required to distribute its accounting income every year,one-half to Missy Chen,and one-half to the local church's homeless shelter.What is the Chen Trust's personal exemption?