Question 1

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 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

Reyes is not responsible for paying income tax on the $5,000 that was accumulated and added to the trust corpus, as it was not distributed to any beneficiaries. The trust itself will pay any necessary income tax on this amount.

Question 2

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

Accepted Answer

The answer of Tax planning usually dictates that high-income and...

Question 3

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

Accepted Answer

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

Question 4

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 5

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 6

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

Accepted Answer

All of these are typical duties of a trustee. They are responsible for filing tax returns, managing investments, and distributing income to beneficiaries.

Question 7

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

Accepted Answer

When a trust distributes an in-kind asset with a realized loss, the first-tier beneficiary usually receives a carryover basis for tax purposes instead of a stepped-up basis, meaning they cannot immediately deduct the loss. The beneficiary can only deduct the loss when they sell the asset and it results in a realized loss at that time.

Question 8

Three months after Brianna Timkin died, her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago. Which of the following statements is true?

Accepted Answer

The $40,000 is included in Brianna's gross estate because it was a payment from a sale of her property completed prior to her death. It will be subject to tax on her estate's income tax return because the income was earned by Brianna's estate.

Question 9

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 estate's personal exemption is $600 when it has equal income beneficiaries and makes no income distributions during the tax year.

Question 10

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

Accepted Answer

While partnerships and LLCs are pass-through entities and are not subject to entity-level Federal income tax, complex trusts can be subject to such tax.

Question 11

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 12

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

Accepted Answer

A simple trust, according to tax regulations, is one that is required to distribute all of its income (but not necessarily its principal) annually to the beneficiaries. This is the defining characteristic that differentiates it from a complex trust, which may accumulate income or distribute principal.

Question 13

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

The personal exemption for trusts is $300. This information is relevant for tax purposes, but it does not affect the requirement for the trust to distribute its accounting income to Missy Chen and the homeless shelter.

Question 14

The trustee of the Epsilon Trust distributed an asset to Telly, a qualifying income beneficiary. The asset's basis to the trust was $10,000, and its fair market value on the distribution date was $25,000. Which of the following statements is true?

Accepted Answer

The answer of The trustee of the Epsilon Trust distributed...

Question 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?

Accepted Answer

All of these taxpayers use Schedules K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries.

Question 16

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 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 grantor retains any interest in the trust. In this case, Reyes designated his daughter as the income beneficiary, which means that Reyes retains an interest in the trust. Therefore, Reyes is taxed on the trust's income, even though the income was paid to his daughter.

Question 17

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

Accepted Answer

One of the main duties of a trustee is to manage and invest the assets held in the trust corpus to generate income for the trust beneficiaries. While a trustee may consult with professionals to minimize taxes, it is not their duty to modify the trust instrument for that purpose. The allocation of items between income and corpus is governed by Subchapter J rules, but this is not the sole responsibility of the trustee.

Question 18

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

Accepted Answer

The answer of Generally, an administrative expense attributable to municipal...

Question 19

The Philmore Estate is subject to a 40% Federal estate tax rate and a 25% Federal and state income tax rate.
Generally, an administrative expense should be claimed on the estate tax return.

Accepted Answer

Administrative expenses, such as legal and accounting fees, can reduce the taxable estate and should be claimed on the estate tax return.

Question 20

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

Accepted Answer

All of these are typical duties of an executor of an estate. They must pay funeral expenses, pay off any outstanding debts or financial liabilities of the deceased, manage and liquidate assets as necessary, and ultimately distribute the remaining assets to the beneficiaries according to the terms of the will or state intestacy laws.

Quiz 20: Income Taxation of Trusts and Estates

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

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

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:

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

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

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

Three months after Brianna Timkin died, her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago. Which of the following statements is true?

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:

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 beneficiaries Sam and Janet. The trust's personal exemption is:

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

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?

The trustee of the Epsilon Trust distributed an asset to Telly, a qualifying income beneficiary. The asset's basis to the trust was $10,000, and its fair market value on the distribution date was $25,000. Which of the following statements is true?

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?

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

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

The Philmore Estate is subject to a 40% Federal estate tax rate and a 25% Federal and state income tax rate. Generally, an administrative expense should be claimed on the estate tax return.

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