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.

Question

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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.

Reyes Contributed Assets to a Trust, Designating Daughter Maria as the Income