A trust has the following results: $$\begin{array} { | l | r |}
\hline \text { Net tax-exempt interest } & \$ 10,000 \
\hline \text { Net accounting income } & 64,000 \
\hline \text { Trustee fees charged to corpus } & 2,000 \
\hline
\end{array}$$ 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?

Question

A trust has the following results: $$\begin{array} { | l | r |} 
\hline \text { Net tax-exempt interest } & \$ 10,000 \
\hline \text { Net accounting income } & 64,000 \
\hline \text { Trustee fees charged to corpus } & 2,000 \
\hline
\end{array}$$ 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?

Quizplus · Accepted Answer

Distributable net income (DNI) is calculated by subtracting tax-exempt interest from net accounting income and adding back any trustee fees charged to corpus. Here, DNI = $64,000 - $10,000 + $2,000 = $56,000. However, since the tax-exempt interest is not included in the DNI, the correct calculation is $64,000 - $10,000 = $54,000. Adding back the trustee fees of $2,000 gives $56,000. The correct choice is $62,000, which accounts for the full net accounting income minus tax-exempt interest.

A Trust Has the Following Results The Uniform Act Is Followed