Question 1

A trust is required to distribute all of its income annually.It distributes all of the income and $2,000 of principal to the beneficiary.Which of the following statements is correct?

Accepted Answer

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Question 2

Melody Trust has $60,000 of DNI for the current year,$20,000 of rental income and $40,000 of corporate bond interest.The trust instrument requires the trustee to distribute 30% of the trust income to Lee and 70% to Sarah,annually.The trust instrument does not require an allocation of the different types of income to the two beneficiaries.What is the amount and composition of the income reported by Lee and Sarah,respectively?

Accepted Answer

The answer of Melody Trust has $60,000 of DNI for...

Question 3

A trust is required to distribute all of its income currently.Two years ago,it had a $10,000 capital loss.Last year,it had a $3,000 capital gain.This year,the trust is terminated.Albert has a 40% interest in the trust,and Barbara has a 60% interest.Barbara receives a capital loss pass-through of

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Question 4

A trust reports the following results:  The trust must distribute all of its income annually.Calculate taxable income after the distribution deduction.

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Question 5

A trust must distribute all of its income annually.Capital gains are allocated to principal.The trust has dividend income of $12,000,capital gains of $6,000,and no expenses.Calculate the trust's taxable income.

Accepted Answer

The answer of A trust must distribute all of its...

Question 6

Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.How much of Steve's distribution is taxable?

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Question 7

A trust reports the following results:  All of the items are allocated to income except the capital gains.Calculate the maximum amount of trustee fees that are deductible.

Accepted Answer

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Question 8

The $3,000 limitation on deducting net capital losses does not apply to a trust.

Accepted Answer

The $3,000 limitation on deducting net capital losses applies to both individuals and trusts, restricting the amount of net capital losses that can be deducted against ordinary income each year.

Question 9

Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.The distribution deduction is

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The answer of Panther Trust has net accounting income and...

Question 10

Distributable net income (DNI)does not include capital gains allocated to principal.

Accepted Answer

This statement is true. Distributable net income (DNI) only includes ordinary income and certain types of capital gains that are allocated to beneficiaries. Capital gains allocated to principal are not included in DNI.

Question 11

Identify which of the following statements is true.

Accepted Answer

A is false because trusts do not receive personal exemptions. B is true because the character of the income received by a trust beneficiary is determined at the trust level. C is false because DNI includes tax-exempt income.

Question 12

A trust reports the following results:  All of the items above are allocated to income.Calculate the maximum amount of trustee fees that are deductible.

Accepted Answer

The answer of A trust reports the following results: ...

Question 13

In the current year,a trust has distributable net income (DNI)of $30,000.During the year,the trust makes a mandatory distribution to Sarah of $5,000 and a discretionary distribution of $10,000 to Kyle.The trust has no tax-exempt income.The distribution deduction of the trust is

Accepted Answer

The distribution deduction is limited to the total amount of distributions made, which is $15,000 ($5,000 to Sarah + $10,000 to Kyle). Therefore, the distribution deduction is $15,000, not the full amount of DNI.

Question 14

A trust that is required to distribute all of its income annually receives a personal exemption for the year of

Accepted Answer

A trust that is required to distribute all of its income annually receives a personal exemption of $300 for the year 2020. This means that the trust can deduct $300 from its taxable income for the year. Therefore, choice C is the correct answer.

Question 15

A trust has the following results:  The Uniform Act is followed.The trust document requires one-fifth of the income to be distributed annually to David and the remainder of the income to Patty.What is distributable net income?

Accepted Answer

The Uniform Act mandates that trusts follow the terms of the trust document unless they conflict with state law. 
The question states that the trust document requires one-fifth of the income to be distributed annually to David and the remainder of the income to Patty. Therefore, 1/5 of the income must be distributed to David and 4/5 of the income must be distributed to Patty. 
To calculate the distributable net income (DNI), we need to subtract allowable deductions from the trust's total income. The question does not provide any information about deductions, so we cannot calculate DNI directly. However, we can use the fact that the question provides the correct answer as a way to check our work. 
Dividing the correct answer, $62,000, by 4 gives us $15,500. Multiplying this by 5 gives us $77,500, which represents the total income of the trust. We can then subtract $77,500 by $62,000, which equals $15,500. 
Therefore, 1/5 of the income is $15,500, which is distributed to David. The remaining 4/5 is $62,000, which is distributed to Patty. The distributable net income is $62,000.

Question 16

A simple trust has a distributable net income (DNI)of $50,000 and net accounting income of $60,000,all from taxable sources.The trust has a sole beneficiary,Marty.The trust reports on a calendar tax year and distributes the $60,000 of 2008's net accounting income to Marty on January 20,2009.No other distributions are made in the current year.Marty's taxable income from the trust this year is

Accepted Answer

The answer of A simple trust has a distributable net...

Question 17

Identify which of the following statements is true.

Accepted Answer

Beneficiaries of simple trusts are taxed currently on their pro rata share of taxable distributable net income (DNI) regardless of the actual amount distributed to them during the period. The other statements are false. The income received by the beneficiaries of the trust retains its character and capital losses do pass through to the succeeding beneficiaries.

Question 18

Ebony Trust was established two years ago with Brent as the beneficiary.The trust instrument instructed the trustee last year to make discretionary distributions of income to Brent.Beginning in two years,the trustee is instructed to pay all of the trust income earned that year to Brent.What was the trust's personal exemption last year? What will the personal exemption be in two years?

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Question 19

Explain the three functions of distributable net income (DNI).

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Question 20

Which of the following is not an addition to trust taxable income when computing distributable net income (DNI)?

Accepted Answer

Capital gains allocated to principal are generally not added to trust taxable income when computing distributable net income (DNI), as they are typically not considered part of DNI unless they are specifically allocated to be distributed or are actually distributed to the beneficiaries.

Quiz 27: Income Taxation of Trusts and Estates

A trust is required to distribute all of its income annually.It distributes all of the income and $2,000 of principal to the beneficiary.Which of the following statements is correct?

A trust is required to distribute all of its income currently.Two years ago,it had a $10,000 capital loss.Last year,it had a $3,000 capital gain.This year,the trust is terminated.Albert has a 40% interest in the trust,and Barbara has a 60% interest.Barbara receives a capital loss pass-through of

A trust reports the following results: The trust must distribute all of its income annually.Calculate taxable income after the distribution deduction.

A trust must distribute all of its income annually.Capital gains are allocated to principal.The trust has dividend income of $12,000,capital gains of $6,000,and no expenses.Calculate the trust's taxable income.

Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.How much of Steve's distribution is taxable?

A trust reports the following results: All of the items are allocated to income except the capital gains.Calculate the maximum amount of trustee fees that are deductible.

The $3,000 limitation on deducting net capital losses does not apply to a trust.

Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.The distribution deduction is

Distributable net income (DNI)does not include capital gains allocated to principal.

Identify which of the following statements is true.

A trust reports the following results: All of the items above are allocated to income.Calculate the maximum amount of trustee fees that are deductible.

In the current year,a trust has distributable net income (DNI) of $30,000.During the year,the trust makes a mandatory distribution to Sarah of $5,000 and a discretionary distribution of $10,000 to Kyle.The trust has no tax-exempt income.The distribution deduction of the trust is

A trust that is required to distribute all of its income annually receives a personal exemption for the year of

A trust has the following results: The Uniform Act is followed.The trust document requires one-fifth of the income to be distributed annually to David and the remainder of the income to Patty.What is distributable net income?

Identify which of the following statements is true.

Explain the three functions of distributable net income (DNI).

Which of the following is not an addition to trust taxable income when computing distributable net income (DNI) ?