ITX - 36

Question 1

Trusts are created when a ___ transfers assets to a ___ on behalf of specified ___.

Answer 1

grantor
trustee
beneficiaries

Question 2

Trusts and estates must file a return if they have more than $___ in gross income for the tax year.

Answer 2

$600

Question 3

When must a trust file a tax return?

Answer 3

When it has any taxable income for the year

Question 4

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?

Answer 4

• Form 1041
• The 15th day of the fourth month following the end of the entity’s tax year
• Yes

Question 5

Trusts must use a ___ year unless they are tax-exempt, charitable, or a grantor trust.

Answer 5

calendar

Question 6

Estates may use __ year.

Answer 6

Either a calendar or a fiscal year

Question 7

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 ___.

Answer 7

• distributed

- retained

Question 8

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.

Answer 8

• beneficiaries

- trust

Question 9

Trusts and Estates: Beneficiaries are taxed on the amount that is ___ even if it is not actually distributed.

Answer 9

required to be distributed

Question 10

Capital gains and interest income required to be distributed to beneficiaries are taxed as ___ to the beneficiaries.

Answer 10

capital gains and interest

Question 11

Income retained and taxable to the trust or estate:

15%

Answer 11

$0 - $2,500

Question 12

Income retained and taxable to the trust or estate:

25%

Answer 12

$2,501 - $5,800

Question 13

Income retained and taxable to the trust or estate:

28%

Answer 13

$5,801 - $8,900

Question 14

Income retained and taxable to the trust or estate:

33%

Answer 14

$8,901 - $12,150

Question 15

Income retained and taxable to the trust or estate:

39.6%

Answer 15

Over $12,150

Question 16

Trust income in a grantor trust will be taxed to the ___.

Answer 16

grantor

Question 17

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.

Answer 17

grantor

Question 18

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.

Answer 18

trust

gross

Question 19

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.

Answer 19

• 5%
• 43
• 5%

Question 20

Grantor trusts do not report income and deductions on Form 1041; rather, all income and deductions are reported on ___.

Answer 20

the grantor’s Form 1040

Question 21

___ trusts are required to distribute all of their accounting income to beneficiaries.

Answer 21

Simple

Question 22

___ trusts cannot make charitable contributions and cannot make distributions in excess of current accounting income (no principle).

Answer 22

Simple

Question 23

Investment expenses incurred specifically for a simple trust’s operation are deductible, without being subject to the __% AGI floor.

Answer 23

2%

Question 24

A simple trust has a standard deduction of $__ and a personal exemption of $___.

Answer 24

$0

$300

Question 25

___ trusts can accumulate income, make charitable contributions, and distribute principal to beneficiaries.

Answer 25

Complex

Question 26

A complex trust has a standard deduction of $___ and a personal exemption of $___.

Answer 26

$0

$100

Question 27

A ___ trust provides that the trust can be revoked or changed by the grantor at any time.

Answer 27

revocable

Question 28

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.

Answer 28

living, or inter vivos

Question 29

A trust’s taxable income is determined by taking ___ income and subtracting a trust’s ___ for distributions.

Answer 29

taxable

deduction

Question 30

A trust’s deduction for distributions cannot exceed its ___.

Answer 30

distributable net income (DNI)

Question 31

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.

Answer 31

• capital
• capital
• capital
• tax- exempt

Question 32

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 ___.

Answer 32

• tax-exempt income
• tax-exempt income
• trust

Question 33

Complex trust: Interest and dividends are all distributed, but __ income is retained.

Answer 33

rental

Question 34

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.

Answer 34

65

Question 35

A trust avoids double taxation on ___ because there is a deduction for any income that is actually distributed to beneficiaries.

Answer 35

DNI (distributable net income)

Question 36

The trust files a return, reporting the income that it ___, and the beneficiary files a tax return, reporting the income ___ or ___ from the trust.

Answer 36

• retains
• received
• payable

Question 37

Estate: personal exemption

Answer 37

$600