Question 1

You are responsible for the Federal income tax filings of the Tyrone Trust. Summarize the relevant due dates and filing requirements for Tyrone.

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Question 2

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

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Question 3

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 4

Your client Ming is a complex trust that operates exclusively in the U.S. Make a list of five or more tax planning opportunities that you might suggest to Ming.

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Question 5

For each of the following independent statements, choose the best answer.
a. Tax attribute of complex trusts only 
b. Tax attribute of estates only
c. Tax attribute of estates and complex trusts
d. Tax attribute of neither estates nor complex trusts
-The entity's AMT preferences and adjustments pass through to the income beneficiaries.

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Question 6

List and discuss the three major functions of distributable net income (DNI) as that amount is used under Federal income tax law.

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Question 7

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.

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Question 8

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 9

Olsen has been determined to be a grantor trust by the IRS. What are the tax consequences of this tax status?
What are the tax return filing requirements for Olsen and for Peggy, the donor of the trust's assets?

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Question 10

For each of the following independent statements, choose the best answer.
a. Tax attribute of complex trusts only 
b. Tax attribute of estates only
c. Tax attribute of estates and complex trusts
d. Tax attribute of neither estates nor complex trusts
-The entity must file an income tax return if its gross income for the year is $600 or more.

Accepted Answer

This rule applies to both estates and complex trusts, as both entities are required to file an income tax return if their gross income for the year is $600 or more.

Question 11

The Yeoman Trust has generated several Federal income tax credits for this tax year. Which taxpayer(s), 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.

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Question 12

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

Question 14

Marcus has been determined to be a grantor trust by the IRS. Your partner explains that this probably happened because the donor of the trust assets retained excessive powers over the operation of the trust or the use of its assets and income. To what powers is your partner referring?

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Question 15

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 16

For each of the following independent statements, choose the best answer.
a. Tax attribute of complex trusts only 
b. Tax attribute of estates only
c. Tax attribute of estates and complex trusts
d. Tax attribute of neither estates nor complex trusts
-The entity has a legal identity separate from its beneficiaries.

Accepted Answer

Estates and complex trusts are treated as separate entities for tax purposes, meaning they have their own legal identity distinct from their beneficiaries. This allows them to be taxed independently.

Question 17

Your client Pryce is one of the income beneficiaries of the Santiago Trust. Pryce says to you, "I want all of the exempt interest income from Santiago to be allocated to me, as I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

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Question 18

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?

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Question 19

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 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 taxpayer(s), if any, can deduct these items,e.g., the deceased, the estate, Rollo, Luisa, or Coco?

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

Quiz 28: Income Taxation of Trusts and Estates