Question 1

An example of income in respect of a decedent is the taxpayer's last paycheck,uncollected at death.

Accepted Answer

Income in respect of a decedent includes any income earned by the decedent before death but not received until after death, such as the taxpayer's last paycheck.

Question 2

A trust might be used by one running for a political office.

Accepted Answer

A trust can be used by a political candidate to manage and protect their assets while also avoiding conflicts of interest. It can also be used to allocate funds for campaign expenses.

Question 3

When a trust operates a trade or business,it can claim a deduction for wages paid to employees.

Accepted Answer

This is true. Trusts are treated similarly to individuals and can deduct wages paid to employees as a business expense.

Question 4

A realized loss is recognized by a trust when it distributes a non-cash asset.

Accepted Answer

The answer of A realized loss is recognized by a...

Question 5

With respect to a trust,the terms creator,donor,and grantor are synonyms.

Accepted Answer

All three terms - creator, donor, and grantor - refer to the person who establishes a trust by transferring assets into it.

Question 6

A complex trust automatically is exempt from the Federal AMT.

Accepted Answer

The answer of A complex trust automatically is exempt from...

Question 7

The decedent's estate must terminate within four years of the date of death.

Accepted Answer

There is no specific time limit for the termination of an estate. However, the process of administering an estate can often take several years depending on various factors such as the complexity of the estate, any legal disputes that may arise, and tax issues.

Question 8

Trusts can select any fiscal Federal income tax year.

Accepted Answer

The answer of Trusts can select any fiscal Federal income...

Question 9

Tax planning motivations usually are secondary to other objectives in deciding whether to create a trust.

Accepted Answer

Tax planning may be a consideration in creating a trust, but it is typically not the primary motivator. Other objectives such as asset protection, estate planning, and providing for beneficiaries are often more important.

Question 10

Like a corporation,the fiduciary reports and pays its own Federal income tax liability.

Accepted Answer

A fiduciary, like a corporation, is a separate legal entity and is responsible for reporting and paying its own Federal income tax liability.

Question 11

A decedent's income in respect of a decedent is subject to the Federal income tax,but it is excluded from the estate tax.

Accepted Answer

The answer of A decedent's income in respect of a...

Question 12

An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.

Accepted Answer

An estate's income beneficiary is entitled to receive regular distributions of income generated by the assets in the estate. The executor is responsible for managing and distributing the assets in accordance with the terms of the will or state law.

Question 13

If provided for in the controlling agreement,a trust might terminate when the income beneficiary reaches age 35.

Accepted Answer

If the controlling agreement provides for it, a trust can be terminated when the income beneficiary reaches a certain age, such as 35. However, this is not always the case and the terms of the trust can vary.

Question 14

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S.state and local bonds.

Accepted Answer

The answer of Estates and trusts can claim Federal income...

Question 15

Generally,capital gains are allocated to fiduciary income,because they arise from current-year transactions as directed by the trustee.

Accepted Answer

Capital gains are typically allocated to the corpus or principal of the trust, not to fiduciary income, unless the trust document specifically directs otherwise or state law allows for such allocation to income.

Question 16

The first step in computing an estate's taxable income is the determination of its gross income for the year.

Accepted Answer

The answer of The first step in computing an estate's...

Question 17

The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent.The executor can decide to claim a $5,000 deduction against the Federal estate tax,and a $20,000 deduction on the estate's income tax return.

Accepted Answer

The statement is true as the executor can claim a $5,000 deduction against the Federal estate tax and a $20,000 deduction on the estate's income tax return, leaving a net cost of $0 for the estate.

Question 18

The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent.The deduction is claimed against the Federal estate tax,unless by election it is claimed on the estate's income tax return.

Accepted Answer

The deductibility of administrative expenses, including the cost of disposing of real property, against the Federal estate tax is provided for in the Internal Revenue Code. However, the executor of the estate can elect to deduct these expenses on the estate's income tax return instead.

Question 19

Corpus,principal,and assets of the trust are synonyms.

Accepted Answer

The terms corpus, principal, and assets are all interchangeable when referring to the property held within a trust.

Question 20

A complex trust pays tax on the income that it retains and adds to corpus.

Accepted Answer

A complex trust is required to pay tax on the income it retains and adds to corpus, whereas a simple trust does not pay tax on such income.

Quiz 20: Income Taxation of Trusts and Estates