Question 1

The Prakash Estate has equal income beneficiaries Sam and Janet. As allowed by the terms of the will, the estate makes no income distributions during the current tax year. The estate's personal exemption is:

Accepted Answer

The personal exemption for an estate or trust in 2021 is $600, and since the estate did not make any income distributions to its beneficiaries, the entire exemption can be claimed by the estate.

Question 2

When a trust distributes an in-kind asset with a realized loss, most likely this loss cannot be immediately deducted by the first-tier beneficiary.

Accepted Answer

The first-tier beneficiary typically takes on the trust's basis in the distributed asset and the loss is treated as a capital loss that can only be deducted against capital gains. If the loss exceeds the first-tier beneficiary's capital gains, it can be carried forward to future years.

Question 3

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee paid $5,000 of this amount as Julio's high school tuition. Reyes pays Federal income tax on $5,000 for the year.

Accepted Answer

The grantor of a trust is taxed on the trust's income if the income is used to discharge the grantor's legal obligation to support a dependent. In this case, the trustee paid Julio's high school tuition, which is a legal obligation of Reyes. Therefore, Reyes is taxed on the $5,000 of income that was used to pay Julio's tuition.

Question 4

Which of the following is a typical duty of an executor of an estate?

Accepted Answer

All of the above duties are typically performed by an executor of an estate. They are responsible for managing the decedent's assets, paying off any debts or liabilities, and distributing the remaining assets to the beneficiaries named in the will. This includes paying for funeral expenses as well.

Question 5

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

Accepted Answer

This is because the first-tier beneficiaries of a trust arrangement are typically the immediate family members of the grantor, while the second tier includes other individuals or entities, such as charities or high-income and high-wealth individuals. This type of planning can help to minimize taxes and maximize the benefits to the beneficiaries.

Question 6

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee accumulated $5,000 of this amount and added it to trust corpus. Reyes pays Federal income tax on $5,000 for the year.

Accepted Answer

The trust, not Reyes, is responsible for paying taxes on the accumulated income that is added to the trust corpus. Reyes would not pay Federal income tax on the $5,000 accumulated by the trust.

Question 7

The Chen Trust is required to distribute its accounting income every year, one-half to Missy Chen, and one-half to the local church's homeless shelter. What is the Chen Trust's personal exemption?

Accepted Answer

A trust is allowed a $300 personal exemption when it is required to distribute all its income annually.

Question 8

Generally, an administrative expense attributable to municipal bond interest should be claimed on the estate's Form 706.

Accepted Answer

Administrative expenses related to municipal bond interest should be included on Form 706 as they are considered a deductible expense for estate tax purposes.

Question 9

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

Accepted Answer

The unextended due date for a calendar-year trust to file its Form 1041 is April 15.

Question 10

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee paid $5,000 of this amount as premiums for a life insurance policy on Anita, Reyes' wife. Reyes pays Federal income tax on $5,000 for the year.

Accepted Answer

The fiduciary accounting income is $50,000 but only $5,000 was paid out as a premium for life insurance. Therefore, Reyes pays Federal income tax on the $5,000 that was paid out for the life insurance policy.

Question 11

Which of the following taxpayers use a Schedule K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries?

Accepted Answer

All of the listed taxpayers, complex trust, partnership, and S corporation, use a Schedule K and K-1 to pass through income, loss, and credit amounts to their owners or beneficiaries. Therefore, the correct option is D, all of the above taxpayers use Schedules K and K-1.

Question 12

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate. Generally, an administrative expense should be claimed on the estate's income tax return.

Accepted Answer

Administrative expenses incurred in administering the estate can be claimed as deductions on the estate's income tax return. However, they will not reduce the estate tax liability, which is subject to a separate set of rules and rates. The given scenario only mentions the estate tax rate and the income tax rate, and thus it is safe to assume that administrative expenses can be claimed on the estate's income tax return.

Question 13

Which of the following taxpayers can be subject to an entity-level Federal income tax?

Accepted Answer

The answer of Which of the following taxpayers can be...

Question 14

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum, a qualifying charity. The trust's personal exemption is:

Accepted Answer

The answer of The Prakash Trust is required to pay...

Question 15

Which of the following is a typical duty of a trustee?

Accepted Answer

All of the above are typical duties of a trustee. Filing tax returns, investing assets, and distributing income are all important responsibilities of a trustee to ensure the proper management and distribution of trust assets.

Question 16

The Code defines a "simple trust" as which of the following?

Accepted Answer

The answer of The Code defines a "simple trust" as...

Question 17

Which of the following is a typical duty of a trustee?

Accepted Answer

Making decisions as to how to invest the trust corpus portfolio is a typical duty of a trustee. While trustees do have some tax-related responsibilities, modifying the language of the trust instrument to lower the entity's Federal income tax would not be considered a typical duty of a trustee. Similarly, while trustees must allocate items between income and corpus using Subchapter J rules, this is not necessarily a typical duty as it may not apply to all trusts.

Question 18

The Prakash Trust is required to pay its entire annual accounting income to beneficiaries Sam and Janet. The trust's personal exemption is:

Accepted Answer

The answer of The Prakash Trust is required to pay...

Question 19

Kip and his wife Biddie file calendar-year Form 1040 joint returns. Kip died this year on April 16. The Form 1040 is filed as a joint return, signed by Biddie and by Kip's executor.

Accepted Answer

A joint return can be filed even if one spouse dies during the taxable year. The surviving spouse can file a joint return with the deceased spouse if the executor or personal representative of the estate signs the return on behalf of the deceased spouse.

Question 20

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

Accepted Answer

Subchapter J of the Internal Revenue Code deals with the taxation of trusts and estates, outlining how these entities are taxed on income.

Quiz 20: Income Taxation of Trusts and Estates

The Prakash Estate has equal income beneficiaries Sam and Janet. As allowed by the terms of the will, the estate makes no income distributions during the current tax year. The estate's personal exemption is:

When a trust distributes an in-kind asset with a realized loss, most likely this loss cannot be immediately deducted by the first-tier beneficiary.

Which of the following is a typical duty of an executor of an estate?

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

The Chen Trust is required to distribute its accounting income every year, one-half to Missy Chen, and one-half to the local church's homeless shelter. What is the Chen Trust's personal exemption?

Generally, an administrative expense attributable to municipal bond interest should be claimed on the estate's Form 706.

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

Which of the following taxpayers use a Schedule K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries?

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate. Generally, an administrative expense should be claimed on the estate's income tax return.

Which of the following taxpayers can be subject to an entity-level Federal income tax?

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum, a qualifying charity. The trust's personal exemption is:

Which of the following is a typical duty of a trustee?

The Code defines a "simple trust" as which of the following?

Which of the following is a typical duty of a trustee?

The Prakash Trust is required to pay its entire annual accounting income to beneficiaries Sam and Janet. The trust's personal exemption is:

Kip and his wife Biddie file calendar-year Form 1040 joint returns. Kip died this year on April 16. The Form 1040 is filed as a joint return, signed by Biddie and by Kip's executor.

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?