REG 46 - Fiduciary Taxation

Question 1

Pat created a trust, transferred property to this trust, and retained certain interests. For income tax purposes, Pat was treated as the owner of the trust. Pat has created which of the following types of trusts?
	A.  	Simple.
	B.  	Grantor.
	C.  	Complex.
	D.  	Pre-need funeral.

Answer 1

B. When the individual creating a trust retains certain interests in the trust, the trust is known as a grantor trust and the income from the trust is taxed to the grantor.

Question 2

The Simone Trust reported distributable net income of $120,000 for the current year. The trustee is required to distribute $60,000 to Kent and $90,000 to Lind each year. If the trustee distributes these amounts, what amount is includible in Lind's gross income?
	A. $0
	B. $60,000
	C. $72,000
	D. $90,000

Answer 2

C. The amount of income recognized by the beneficiaries is the lower of the amount distributed ($150,000) or distributable net income ($120,000). Thus, Kent and Lind will recognize income of $120,000. Since they received total distributions of $150,000, the income recognized is 80% ($120,000/$150,000) of the amount received. Thus, Lind’s income is 80% x $90,000, or $72,000.

Question 3

Income in respect of a cash basis decedent
A. Covers income earned before the taxpayer’s death but not collected until after death.
B. Receives a stepped-up basis in the decedent’s estate.
C. Must be included in the decedent’s final income tax return.
D. Cannot receive capital gain treatment.

Answer 3

A. Income is only included on a cash-basis taxpayer’s final income tax return if the taxpayer had actually or constructively received the income before death. After death income with respect to the decedent is reported by the decedent’s estate. Thus, income in respect of a cash basis decedent covers income earned before the taxpayer’s death but not collected until after death.

Question 4

The standard deduction for a trust or an estate in the fiduciary income tax return is
	A.  	$0
	B.  	$650
	C.  	$750
	D.  	$800

Answer 4

A.

Question 5

Jay properly created an inter vivos trust naming Kroll as trustee. The trust’s sole asset is a fully rented office building. Rental receipts exceed expenditures. The trust instrument is silent about the allocation of items between principal and income.

Among the items to be allocated by Kroll during the year are insurance proceeds received as a result of fire damage to the building and the mortgage interest payments made during the year.

Which of the following items is(are) properly allocable to principal?
Insurance proceeds on building
Current mortgage interest payments

Answer 5

Yes, No
Only extraordinary items are allocated to principal; that is, payments that are made irregularly. Regular payments are allocated to interest.
The insurance proceeds are unusual and were made only once. They are allocated to principal. The interest payments are made at regular intervals and so are allocated to interest.

Question 6

T/F: Income earned in the year of the decedent’s death can either be included in the estate’s income tax return or the last income tax return of the decedent.

Answer 6

False.
Income and expenses are reported on a decedent’s final individual income tax return up to the date of death. Income actually and constructively received through the date of death is included on the final return. When the decedent was on the cash basis, some income will not be received until after the date of death. The income not received before the date of death is included on the estate tax return because it is part of the property owned by the decedent at the time of death.