Estate & Trusts

Question 1

The AB trust had DNI of $30,000, fiduciary accounting of $50,000 and distributed $40,000 to beneficiaries during 2013. What amount should the sole beneficiary of the AB Trust report as taxable income from the trust?

Answer 1

$30,000
Beneficiaries are taxed on their share of the trusts income distributed to them, but not more than their share of DNI of the trust

Question 2

What is a Crummey Trust?

Answer 2

A Crummey trust is a “safe harbor” rule that allows the annual gift tax exclusion on gifts to a trust. The gift of future interest provision does not apply to gifts to a Crummey trust if trust assets go to the beneficiaries on or before age 21. Giving the right to the trust income meets the requirement even thought the beneficiaries do not actually withdraw the funds.

Question 3

To what extent is the fee paid to a trustee of a trust deductible on Form 1041?

Answer 3

Deductible to the extent of ratio of taxable income to total income

Question 4

Gardner, a US citizen and the sole income beneficiary of a simple trust, is entitled to receive current distributions of the trust income. During the year, the trust reported:
Interest income from corp bonds $5,000
Fiduciary fees allocable to income $750
Net LTCG allocable to corpus $2,000
What amount of the trust income is includible in Gardner’s gross income?

Answer 4

$4,250
The full amount of a simple trust’s DNI is includible in the beneficiary’s income for the year whether distributed or not. NDI does not include the new capital gains allocable to corpus. In this case, DNI = interest income less fiduciary fees

Question 5

in 2013, RR had a LTCG of $3,000 (allocated to corpus), taxable interest of $2,000 and nontaxable interest of $2,000. The trust distributed $1,600 to beneficiaries. RR trust is a simple trust. The trust’s taxable income is?

Answer 5

$3,700
Capital gain   $3,000
Taxable interest  $2,000
Trustee fee (1/2)  ($200)
Distrib (1/2)          ($800)
exemption          ($300)
Taxable income   $3,700

Question 6

What are 3 attributes of simple trusts?

Answer 6

1. distributes all trust income
2. do not deduct charitable contributions
3. do not distribute trust principal.