Question 1

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

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Question 2

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.
  
The trustee distributed $40,000 to Paula and $40,000 to George.

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Question 3

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.

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Question 4

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

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Question 5

Explain how the Federal income tax law applies to a fiduciary entity like a trust. Is the tax structure similar to that of an individual? A partnership?

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Question 6

Counsell 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 has 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 Figure 28.3 in the text to address the following items.

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Question 7

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?

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Question 8

Counsell 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 has 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 Figure 28.3 in the text to address the following items.

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Question 9

The Moot 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?

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Question 10

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?

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Question 11

The Willa estate reports $100,000 DNI, composed of $50,000 dividends, $20,000 taxable interest, $10,000 passive income, and $20,000 tax-exempt interest.Willa's two noncharitable income beneficiaries, Shanna and Tom, receive distributions of $75,000 each.How much of each class of income is deemed to have been distributed to Shanna? To Tom? Use the following template to structure your answer.

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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 has DNI of $60,000.Byron receives an additional $30,000 discretionary corpus distribution.

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Question 13

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? Where is it used in computing the parties' taxable incomes?

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Question 14

Is a trust subject to the alternative minimum tax? Or does the trust "pass through" AMT items to its grantor and beneficiaries?

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Question 15

The Leonardo Estate operates a business and generates cost recovery deductions. Which taxpayer(s), if any, can deduct these items, e.g., the deceased, the estate, the income or remainder beneficiaries?

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Question 16

In computing Federal taxable income, can the trust or estate use its distributable net income (DNI) as its deduction for distributions to beneficiaries? Explain.

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Question 17

The Gibson Estate is responsible for the income in respect of a decedent (IRD) of Juanita Gibson, the deceased. Define the term IRD and describe its treatment for Federal tax purposes

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Question 18

The Yan Estate is your client, as are many of the decedent's family members. Determine the tax effects of the indicated losses for the Yan Estate for both tax years.The estate holds a variety of investment assets, which it received from the decedent, Mrs.Yan.The estate's sole income and remainder beneficiary is Yan, Jr.

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Question 19

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

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Question 20

There are several business tax credits that the Yeoman Trust has generated for this tax year. Which taxpayer(s), if any, can use these credits in computing a Federal income tax liability? Explain.

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Quiz 28: Income Taxation of Trusts and Estates