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Exam 14: Income Taxation of Trusts and Estates

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Question 21

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A client asks about the relevance of state law in classifying items as principal or income.Explain the relevance.

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In general,state law controls;...

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Question 22

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Sukdev Basi funded an irrevocable simple trust in May 2008.The trust benefits Sukdev's son for life and grandson upon the son's death.One of the assets he transferred to the trust was Jetco stock,which had an FMV on the transfer date of $40,000.Sukdev's basis in the stock was $44,000,and he paid no gift tax on the transfer.The stock's value has dropped to $33,000,and the trustee thinks that now,October 2011,might be the time to sell the stock and take the loss deduction.For 2011,the trust will have $20,000 of income exclusive of any gain or loss.Sukdev's taxable income is approximately $15,000.What tax and nontax issues should the trustee consider concerning the possible sale of the stock?

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Sukdev transferred depreciated property ...

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Question 23

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Outline the classification of principal and income under the Revised Uniform Principal and Income Act.

Administration expenses incurred by an estate

A simple trust

For the first five months of its existence (August through December 2008),the Estate of Christine Lowry had gross income (net of expenses)of $7,000 per month.For January through July 2009,the executor estimates that the estate will have gross income (net of expenses)totaling $5,000.The estate's sole beneficiary is Christine's son,Jonathan,who is a calendar-year taxpayer.Jonathan incurred a large NOL from his sole proprietorship years ago,and $34,000 of the NOL carryover remains but expires at the end of 2008.During 2008,Jonathan received only $5,000 of income from part-time employment.What tax issues should the executor of Christine's estate consider with respect to the reporting of the estate's income?

Revocable trusts means

Identify which of the following statements is false.

Melody Trust has $60,000 of DNI for the current year,$20,000 of rental income and $40,000 of corporate bond interest.The trust instrument requires the trustee to distribute 30% of the trust income to Lee and 70% to Sarah,annually.The trust instrument does not require an allocation of the different types of income to the two beneficiaries.What is the amount and composition of the income reported by Lee and Sarah,respectively?

The Tucker Trust was established six years ago.The trust is required to distribute all of the trust income at least annually to Betty for life.Capital gains are credited to principal.The current year results of the trust are as follows: $\begin{array}{lcc}&&\text { Amounts Allocable to }\\& \text { Income } & \text { Principal } \\\text { Dividends } & \$ 15,000 & \\\text { Rental income from land } & 2,500 & \\\text { Tax-exempt interest } & 7,500 \\\text { Rental expenses } & 500\\\text { Trustee fees }&&\$600\\\text { Taxreturn preparation fee }&250\\\text { Capital gain on stock sale (stock purchased five years ago) }&24,250&6,000\\\text { Distribution of net accounting income }&&1,300\end{array}$ Payment of estimated taxes Compute (a)distributable net income (DNI), (b)the distribution deduction, (c)trust taxable income,and (d)Betty's reportable income and its classification.Charge all of the deductible expenses against rent income.

An example of income in respect to a decedent (IRD) for a cash method of accounting taxpayer is

A trust is required to distribute all of its income annually.It distributes all of the income and $2,000 of principal to the beneficiary.Which of the following statements is correct?

Apple Trust reports net accounting income of $40,000,all from taxable sources.The trustee is required to distribute $15,000 annually to Megan.The trustee also makes discretionary distributions of $30,000,$7,500 to Megan and $22,500 to Caroline.The trust pays $5,000 of the discretionary distributions from corpus.What is the amount of the distribution deduction?

What is the benefit of the 65-day rule?

In which of the following situations will the grantor trust rules apply?

Beneficiaries of a trust may receive

The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income,reduced by net tax-exempt income.

A trust has net accounting income of $30,000,but distributable net income (DNI) of only $25,000 because certain expenses are charged to principal.The trust is required to distribute $10,000 to Alice and it makes a discretionary distribution of $20,000 to Ben.The trust has no tax-exempt income.The amount that Ben reports as gross income is

A trust reports the following results: $\begin{array} { l }&&\text { Allocable to }\\&\text { Income }&\text { Principal }\\ \text { Taxable bond interest}&\$ 20,000\\ \text {Rental income }&10,000\\ \text { Gain on sale of investment land}&&10,000\\ \text {Property taxes }&2,000\\ \text { trustee fees}&&500\\\end{array}$ The trust must distribute all of its income annually.Calculate taxable income after the distribution deduction.

A trust reports the following results: $\begin{array}{ll}\text { Dividend income }&\$20,000\\\text { Capital gains } & 10,000 \\\text { Tax-exempt interest } & 10,000 \\\text { Trustee fees } & 3,000\end{array}$ All of the items above are allocated to income.Calculate the maximum amount of trustee fees that are deductible.