Question 1

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.

Question 2

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

Accepted Answer

The responsibility of preserving the estate's existence as a separate taxpayer falls under the responsibility of the estate's accountant or tax professional. The executor or administrator is responsible for collecting the assets, paying the debts and taxes, and distributing the property.

Question 3

Briefly discuss the reasons for establishing a trust.

Accepted Answer

Possible tax savings,professional management of assets,restrictions on the donee's use or consumption of assets,protect assets from creditors.

Question 4

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

Accepted Answer

An executor is not able to create an inter vivos trust since an executor only has power over a deceased person's estate. The other options (A, B, and D) are all capable of creating an inter vivos trust.

Question 5

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 6

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 7

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

Accepted Answer

The term "sprinkling" relates to the discretionary distribution of income among various beneficiaries, not mandatory distribution.

Question 8

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 9

Which of the following statements is incorrect?

Accepted Answer

Subchapter K of the Internal Revenue Code contains the special rules applicable to partnerships, not estates and trusts. The rules governing estates and trusts are primarily found in Subchapter J.

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

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 12

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 fiduciaries. Therefore, none of these options should be excluded.

Question 13

Revocable trusts means

Accepted Answer

The answer of Revocable trusts means
...

Question 14

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 15

Identify which of the following statements is false.

Accepted Answer

Assets in a revocable trust do avoid probate.

Question 16

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. This means that if the trust receives income from dividends, for example, and distributes that income to the beneficiary, the beneficiary will also report that income as dividends on their personal tax return. This approach is different from the accumulation approach, where the trust pays tax on the income it receives and the beneficiaries do not report any income until they actually receive distributions from the trust.

Question 17

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 earned on U.S.Treasury bonds is taxable and will be included in Gary's taxable income, while the $15,000 interest earned on State of New York bonds is tax-free and will not be included in Gary's taxable income. Therefore, Gary has $10,000 of taxable interest income and $15,000 of tax-free interest income. The trust may still be responsible for paying any taxes owed on the interest earned, but this does not affect Gary's taxable income.

Question 18

Identify which of the following statements is false.

Accepted Answer

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

Question 19

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. Instead, it is taxed to the trust itself or to the beneficiaries, depending on the terms of the trust and the distribution of income.

Question 20

Identify which of the following statements is false.

Accepted Answer

The answer of Identify which of the following statements is...

Quiz 27: Income Taxation of Trusts and Estates

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

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

Briefly discuss the reasons for establishing a trust.

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

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

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?

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

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?

Which of the following statements is incorrect?

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

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

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

Revocable trusts means

Beneficiaries of a trust may receive

Identify which of the following statements is false.

The conduit approach for fiduciary income tax means

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?

Identify which of the following statements is false.

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

Identify which of the following statements is false.