Question 1

Identify which of the following statements is false.

Accepted Answer

A

Question 2

Which of the following statements is incorrect?

Accepted Answer

C) Subchapter J contains the rules.

Question 3

An inter vivos trust may be created by all of the following except

Accepted Answer

An executor cannot create an inter vivos trust. An executor is responsible for carrying out the terms of a testamentary trust, which is created upon someone's death through their will. Inter vivos trusts, on the other hand, are created by a living person during their lifetime.

Question 4

For purposes of trust administration,the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.

Accepted Answer

The term "sprinkling" actually relates to the discretionary distribution of income among various beneficiaries.

Question 5

A tax entity,often called a fiduciary,includes all of the following except

Accepted Answer

All of the options listed (estates, complex trusts, and testamentary trusts) are examples of tax entities that are considered fiduciaries. Therefore, none of them should be excluded as being a fiduciary.

Question 6

Briefly discuss the reasons for establishing a trust.

Accepted Answer

The answer of Briefly discuss the reasons for establishing a...

Question 7

Texas Trust receives $10,000 interest on U.S.Treasury bonds and $15,000 interest on State of New York bonds.All $25,000 is distributed to the trust beneficiary,Gary.Which of the following statements is correct?

Accepted Answer

The $10,000 interest on U.S. Treasury bonds is taxable at the federal level, while the $15,000 interest on State of New York bonds is tax-free at the federal level but may be subject to state taxes. Therefore, Gary has $10,000 of taxable interest income and $15,000 of tax-free interest income. The trust will need to pay any taxes owed on the income before distributing it to Gary.

Question 8

Revocable trusts means

Accepted Answer

Revocable trusts are also known as living trusts and allow the grantor to maintain control of their assets during their lifetime while avoiding probate upon their death. The assets in a revocable trust are still considered part of the grantor's estate and subject to estate taxes, so there may not be any tax savings. The grantor can also change the terms of the trust or even revoke it altogether, so they may still be the beneficiary. However, the transferor can demand the assets be returned since the trust is revocable.

Question 9

This year,the Huang Trust received $20,000 of dividends and $30,000 of tax-free interest.It distributes all of its receipts to its beneficiary.How should the beneficiary treat the distribution?

Accepted Answer

The answer of This year,the Huang Trust received $20,000 of...

Question 10

Briefly discuss some of the reasons for using a revocable trust.

Accepted Answer

The answer of Briefly discuss some of the reasons for...

Question 11

Which of the following statements regarding the taxation of a trust is incorrect?

Accepted Answer

An irrevocable trust's income is not taxed to the grantor, but rather to the trust itself. The other statements are correct. Trusts are generally not taxed at favorable rates for income shifting, they are not subject to double taxation, and long-term capital gains in a trust are taxed at a top rate of 15%.

Question 12

The governing instrument for the Lopez Trust contains no definitions of income and principal.The Trust is located in a state that has adopted the Uniform Act.In the current year,the trust reports the following receipts and disbursements:
  What is the trust's net accounting income?

Accepted Answer

The answer of The governing instrument for the Lopez Trust...

Question 13

Identify which of the following statements is false.

Accepted Answer

Trusts do not receive a personal exemption for tax purposes, unlike individuals.

Question 14

The executor or administrator is responsible for all the following estate duties except

Accepted Answer

While the executor or administrator is responsible for collecting assets, paying debts and taxes, and distributing property, they are not responsible for preserving the estate's existence as a separate taxpayer. This responsibility falls on the estate itself as a legal entity.

Question 15

The term "trust income" when not preceded by an explanatory word relates most closely to

Accepted Answer

The answer of The term "trust income" when not preceded...

Question 16

Identify which of the following statements is false.

Accepted Answer

Assets in a revocable trust do avoid probate, so statement C is false.

Question 17

The conduit approach for fiduciary income tax means

Accepted Answer

The conduit approach for fiduciary income tax means that the distributed income has the same character in the hands of the beneficiary as it has to the trust. In other words, if the trust receives interest income, it will distribute interest income to the beneficiaries and they will report it as interest income on their individual tax returns. This approach maintains the integrity of the tax characterization of the income and prevents the trust from being taxed on income that is distributed to beneficiaries.

Question 18

A trust has net accounting income of $15,000.In addition,the trust has a $10,000 capital gain,which is not included in net accounting income.The trust is required to distribute the trust income to the beneficiary.The beneficiary will receive

Accepted Answer

The beneficiary will receive $15,000, which is the net accounting income of the trust. Capital gains are typically not considered part of the distributable net income unless specified otherwise in the trust agreement or by law.

Question 19

Beneficiaries of a trust may receive

Accepted Answer

Beneficiaries of a trust can receive different types of interests depending on the terms of the trust. They may receive an income interest only, a remainder interest only, or both an income and a remainder interest. Therefore, any of the options provided can be correct based on the specific trust arrangement.

Question 20

If a state has adopted the Revised Uniform Principal and Income Act,which of the following statements is correct?

Accepted Answer

The Revised Uniform Principal and Income Act allows the trust document to specify its own definitions of principal and income, which will take precedence over the state law definitions. This means that if the trust document defines trust income in a certain way, that definition will override any other definitions provided by state law.

Quiz 14: Income Taxation of Trusts and Estates

Identify which of the following statements is false.

Which of the following statements is incorrect?

An inter vivos trust may be created by all of the following except

For purposes of trust administration,the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.

A tax entity,often called a fiduciary,includes all of the following except

Briefly discuss the reasons for establishing a trust.

Texas Trust receives $10,000 interest on U.S.Treasury bonds and $15,000 interest on State of New York bonds.All $25,000 is distributed to the trust beneficiary,Gary.Which of the following statements is correct?

Revocable trusts means

This year,the Huang Trust received $20,000 of dividends and $30,000 of tax-free interest.It distributes all of its receipts to its beneficiary.How should the beneficiary treat the distribution?

Briefly discuss some of the reasons for using a revocable trust.

Which of the following statements regarding the taxation of a trust is incorrect?

The governing instrument for the Lopez Trust contains no definitions of income and principal.The Trust is located in a state that has adopted the Uniform Act.In the current year,the trust reports the following receipts and disbursements: What is the trust's net accounting income?

Identify which of the following statements is false.

The executor or administrator is responsible for all the following estate duties except

The term "trust income" when not preceded by an explanatory word relates most closely to

Identify which of the following statements is false.

The conduit approach for fiduciary income tax means

A trust has net accounting income of $15,000.In addition,the trust has a $10,000 capital gain,which is not included in net accounting income.The trust is required to distribute the trust income to the beneficiary.The beneficiary will receive

Beneficiaries of a trust may receive

If a state has adopted the Revised Uniform Principal and Income Act,which of the following statements is correct?