Deck 17: Trusts

Question 1

Which of the following accurately describes one of the rules pertaining to inter vivos trusts?

A)Inter vivos trusts may use the graduated tax rate scale.
B)Inter vivos trusts are allowed the $40,000 exemption in the alternative minimum tax calculation.
C)Inter vivos trusts can deduct personal tax credits.
D)Inter vivos trusts are required to remit quarterly tax instalments.

Answer 1

D

Question 2

Which of the following does not accurately describe a benefit of using a trust?

A)Trusts may be useful for managing the property of those who require assistance managing their affairs.
B)Trusts may be useful to manage the outcomes of an individual's property following their death.
C)Trusts may be useful to hold assets for unborn grandchildren.
D)Trusts may be useful for an additional deduction of personal tax credits for the beneficiary.

Answer 2

D

Question 3

Which of the following applies to a testamentary trust that is designated as a graduated rate estate (GRE)?

A)Tax instalments are required.
B)A non-calendar year may be used for tax purposes.
C)The highest rate of tax will apply to all income.
D)The GRE will become a normal testamentary trust after 48 months.

Answer 3

B

Question 4

A non-spousal trust account holds two buildings as its assets.Building 1 originally cost $150,000 and Building 2 originally cost $210,000.It is now the 21^st anniversary of the trust, and the assets have not been transferred to the beneficiary.The undepreciated capital cost of Building 1 is $85,000 and its market value is $200,000.The undepreciated capital cost of Building 2 is $145,000 and its market value is $190,000.Which costs will be the deemed acquisition values of the buildings for the trust?

A)B1 = $150,000 and B2 = $210,000
B)B1 = $85,000 and B2 = $145,000
C)B1 = $200,000 and B2 = $190,000
D)B1 = $200,000 and B2 = $210,000

Question 5

Which of the following statements is TRUE regarding trusts?

A)Losses that exceed income in a trust are allocated to the beneficiary at the end of the year.
B)The allocation of income from a trust is discretionary.
C)Income that is payable to a beneficiary cannot be deducted from the trust's income.
D)The residence of a trust is determined by the residence of the trustees.

Question 6

Which of the following statements is false with regard to spousal trusts?

A)Property is deemed to have been sold at its cost amount when transferred to the trust.
B)The trust property is deemed to be sold at market value upon the death of the beneficiary (the spouse).
C)Both the spouse and any adult children may receive the capital of the trust prior to the spouse's death.
D)The 21-year rule is waived for the trust's first 21-year anniversary.

Question 7

Alex passed away this year leaving a will bequeathing Alex's spouse, Carey, with $80,000 in cash, in addition to stocks and land, to be held in a spousal trust on Carey's behalf.The trust will pay Carey the annual income generated by the trust during Carey's lifetime.
Additionally, Alex's-33-year old child, Lane, is to receive a building to be held in a trust until Lane reaches the age of 45.Lane will also receive the assets in Carey's trust upon Carey's death.
The assets transferred to Carey consist of land with an ACB of $100,000 and a FMV of $300,000, and stocks valued at $200,000 with a cost base of $150,000.
The building transferred to Lane has an ACB of $200,000, UCC of $180,000, and FMV of $300,000.
Required:
A.Determine the immediate tax consequences (identify the income type and amount) for Alex.
B.Determine the immediate tax consequences for the assets received by the trust for Carey.
(Round all amounts to zero decimal places.Work must be shown for marks to be awarded.)

Question 8

A parent transfers their common shares in their business to non-participating fixed value preferred shares, and common shares in the business are issued to the parent's child who is taking over the operations of the company.This is an example of which of the following?

A)A measure to reduce the tax impact on the growth of the child's shares
B)An estate freeze
C)Income splitting
D)A specified investment flow-through

Question 9

Fill in the blanks with the correct term from the list of terms provided.Do not use any term more than once.
$\begin{array}{|l|l|}\hline \text { A. } & \begin{array}{l}\text { Specific properties of the trust are deemed to be sold and reacquired at their } \\\underline{\quad\quad},\text { realizing tax gains and losses on the deemed disposition. }\end{array} \\\hline \text { B. } & \begin{array}{l}\text { Capital properties (non-depreciable), land that is inventory, resource property, } \\\text { and } \underline{\quad\quad}\text { are deemed to have been disposed of on a trust's } 21 \text { st }\\\text { anniversary date. }\end{array} \\\hline \text { C. } & \begin{array}{l}\text { Properties can be transferred to the beneficiaries prior to the } 21^{\text {st }} \text { anniversary, at } \\\text { their }\underline{\quad\quad},\text { thereby deferring the tax effects. } \end{array} \\\hline \text { D. } & \underline{\quad\quad}\text { (is/are) exempt from realizing a deemed disposition of the } \\ &\text { properties at the first } 21 \text { Year anniversary. }\\\hline\end{array}$