Reyes contributed assets to a trust and designated 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's wife. Reyes pays Federal income tax on $5,000 for the year.

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The trustee paid $5,000 of fiduciary accounting income as premiums for a life insurance policy on Anita, Reyes's wife. This payment is not deductible for income tax purposes, so Reyes must pay Federal income tax on the full $5,000.

Reyes Contributed Assets to a Trust and Designated Daughter Maria