ITX - 36 Flashcards
Trusts are created when a ___ transfers assets to a ___ on behalf of specified ___.
grantor
trustee
beneficiaries
Trusts and estates must file a return if they have more than $___ in gross income for the tax year.
$600
When must a trust file a tax return?
When it has any taxable income for the year
A taxable trust and estates file Form ___ to report income and distributions to beneficiaries. The due date is ___. Is an automatic 6-month extension available?
- Form 1041
- The 15th day of the fourth month following the end of the entity’s tax year
- Yes
Trusts must use a ___ year unless they are tax-exempt, charitable, or a grantor trust.
calendar
Estates may use __ year.
Either a calendar or a fiscal year
The income of a trust or estate is taxed to the beneficiaries if it is ___, and it is taxed to the trust if it is ___.
- distributed
- retained
The income of a trust or estate is taxed to the ___ if it is distributed, and it is taxed to the ___ if it is retained.
- beneficiaries
- trust
Trusts and Estates: Beneficiaries are taxed on the amount that is ___ even if it is not actually distributed.
required to be distributed
Capital gains and interest income required to be distributed to beneficiaries are taxed as ___ to the beneficiaries.
capital gains and interest
Income retained and taxable to the trust or estate:
15%
$0 - $2,500
Income retained and taxable to the trust or estate:
25%
$2,501 - $5,800
Income retained and taxable to the trust or estate:
28%
$5,801 - $8,900
Income retained and taxable to the trust or estate:
33%
$8,901 - $12,150
Income retained and taxable to the trust or estate:
39.6%
Over $12,150
Trust income in a grantor trust will be taxed to the ___.
grantor
When a grantor creates a trust and retains certain powers or control over the trust, the trust is considered a ___ trust, and the trust income will be taxed to the grantor.
grantor
The grantor trust rules require the grantor to report ___ income as though the grantor still owned the trust assets. These rules do not require inclusion of trust assets in the grantor’s ___ estate.
trust
gross
A trust is not considered reversionary if the grantor’s interest is ___% or less at the time the trust is funded. The trust will be reversionary unless it has a duration of approximately ___ years. However, if the grantor’s reversionary interest exceeds ___%, income tax liability arises.
- 5%
- 43
- 5%
Grantor trusts do not report income and deductions on Form 1041; rather, all income and deductions are reported on ___.
the grantor’s Form 1040
___ trusts are required to distribute all of their accounting income to beneficiaries.
Simple
___ trusts cannot make charitable contributions and cannot make distributions in excess of current accounting income (no principle).
Simple
Investment expenses incurred specifically for a simple trust’s operation are deductible, without being subject to the __% AGI floor.
2%
A simple trust has a standard deduction of $__ and a personal exemption of $___.
$0
$300
___ trusts can accumulate income, make charitable contributions, and distribute principal to beneficiaries.
Complex
A complex trust has a standard deduction of $___ and a personal exemption of $___.
$0
$100
A ___ trust provides that the trust can be revoked or changed by the grantor at any time.
revocable
A revocable trust must be a ___ trust because the grantor must be alive in order to exercise the power to revoke or amend the trust.
living, or inter vivos
A trust’s taxable income is determined by taking ___ income and subtracting a trust’s ___ for distributions.
taxable
deduction
A trust’s deduction for distributions cannot exceed its ___.
distributable net income (DNI)
Distributable net income (DNI) includes ___ gains, to the extent included in accounting income, and ignores ___ losses, unless used to offset ___ gains. DNI also includes ___ income.
- capital
- capital
- capital
- tax- exempt
Income distribution deduction (IDD) does not include any ___ income, as the ___ income is not part of the trust’s taxable income. The IDD does not include capital gains, as capital gains are typically taxed to the ___.
- tax-exempt income
- tax-exempt income
- trust
Complex trust: Interest and dividends are all distributed, but __ income is retained.
rental
A complex trust can deduct actual distributions made, up to ___ days after the end of the trust’s tax year, subject to the distributable net income (DNI) ceiling.
65
A trust avoids double taxation on ___ because there is a deduction for any income that is actually distributed to beneficiaries.
DNI (distributable net income)
The trust files a return, reporting the income that it ___, and the beneficiary files a tax return, reporting the income ___ or ___ from the trust.
- retains
- received
- payable
Estate: personal exemption
$600
