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Exam 19: Income Taxation of Trusts and Estates

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Question 31

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When a trust distributes an in-kind asset with a realized loss,most likely this loss should be allocated to and immediately deducted by the first-tier beneficiaries.

A) True
B) False

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Question 32

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The entity is controlled by state-level probate laws.

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Question 33

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The Eagleton Trust generated distributable net income (DNI) this year of $120,000,one-third of which was portfolio income,and the balance of which was exempt interest.Under the terms of the trust,Clara Eagleton is to receive an annual income distribution of $40,000.At the discretion of the trustee,additional distributions can be made to Clara or to Clark Eagleton III.This year,the trustee's distributions to Clara totaled $50,000.Clark received $100,000.How much of the trust's DNI is assigned to Clara?

Subchapter J applies a modified ____________________ principle in deriving the tax liability for estates,trusts,and their beneficiaries.

Entity accounting income is controlled by the terms of the ____________________ or ____________________.

Harry,the sole income beneficiary,received a $40,000 distribution from the Lucy Trust,in a year when the trust's distributable net income was $30,000.Harry's AGI can increase by as much as $40,000.

A gift to charity is deductible on an estate's Form 1041 if it is made within ____________________ ____________________ of the end of the tax year.

Generally,an administrative expense should be claimed on the decedent's estate tax return,because it is subject to a higher marginal tax bracket than is the estate's taxable income.

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

The entity's AMT liability is paid proportionately by the income beneficiaries.

Beneficiary Terry received $40,000 from the Urgent Trust.Trust accounting income for the year was $100,000.The trust generated $30,000 in cost recovery deductions.How much can Terry deduct with respect to the cost recovery deductions that Urgent generated?

The first step in deriving the fiduciary's taxable income is to determine its ____________________ ____________________.

The trust instrument provides that Tamara,the sole income beneficiary,is to receive $8,000 annually.If the trust accounting income is not sufficient to pay this amount,the trustee is empowered to invade corpus to the extent necessary.During the current year,the trust has distributable net income (DNI) of $100,000,including $25,000 of tax-exempt interest.In accordance with the trust instrument,$8,000 is paid to Tamara.How much income is taxable to Tamara for the current year?

The Watson Trust incurred the following items during the year. What is Watson's deduction for the tax preparation fees?

The decedent's estate must terminate by the third anniversary of the date of death.

Can a trust or estate claim a deduction for cost recovery? Explain.

This year,the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) . Nano distributed $30,000 cash to Horatio,its sole income beneficiary. Nano is a complex trust. Nano's distribution deduction is:

The Crown Trust distributed one-half of its accounting income to Lee this year.Lee also is allocated one-half of Crown's credit for building low-income housing.

Which,if any,of the following statements relates to the tax treatment of both estates and trusts?

Income is taxed to the creator of a(n)____________________ trust.