Question 1

There is no statutory period after which a decedent's estate must be terminated.

Accepted Answer

There is no specific time limit or statutory period within which a decedent's estate must be terminated. The process can take months or even years depending on various factors such as the size of the estate, complexity of the assets, and any disputes among beneficiaries or creditors.

Question 2

Taxable income not available for distribution to income beneficiaries may still be included in distributable net income.

Accepted Answer

False

Question 3

The standard deduction available to a fiduciary is the same amount available to a married taxpayer filing separately.

Accepted Answer

The standard deduction for a fiduciary (for an estate or trust) is generally lower than the standard deduction for individual taxpayers, including those married filing separately. For estates and trusts, the standard deduction is typically the lesser of $100 or the entity's gross income.

Question 4

In the current taxable year, trust beneficiary B received a distribution exceeding DNI.B will generally not pay tax on the distribution.

Accepted Answer

A trust beneficiary is not generally taxed on distributions that exceed DNI.

Question 5

The Estate of X incurred administration expenses of $42,000.These expenses can be taken as an estate tax deduction to reduce X's taxable estate and can also be deducted for income tax purposes on the estate income tax return.

Accepted Answer

While administration expenses can be deducted either for estate tax purposes or as an expense on the estate's income tax return, they cannot be deducted for both purposes according to IRS rules.

Question 6

Both estates and trusts may pay any income tax due for a year with a timely filed return.

Accepted Answer

The answer of Both estates and trusts may pay any...

Question 7

On February 9, 19X2 trustee T makes a $10,000 payment to a qualified charity out of the gross income of the Alpha trust, a calendar year taxpayer.T may elect to deduct the payment on Alpha's 19X1 or 19X2 income tax return.

Accepted Answer

Trustees can elect to treat charitable contributions made within the first 65 days of a tax year as if they were made in the previous tax year, allowing the deduction to be applied to either year.

Question 8

Since fiduciaries are generally only managing assets and not carrying on a business, their expenses are not deductible.

Accepted Answer

Fiduciaries can deduct expenses that are incurred in the administration of the estate or trust, as these are considered necessary for managing the assets and carrying out fiduciary duties, which can include a business.

Question 9

Decedent D, a calendar year taxpayer, died on October 18 of the current year.The estate of D also must use a calendar year for income tax purposes.

Accepted Answer

The estate of a decedent can choose a fiscal year for income tax purposes, not necessarily the calendar year.

Question 10

An executor may elect to include "income in respect of a decedent" either in the gross estate on the Federal estate tax return or in gross income on the fiduciary Federal income tax return.

Accepted Answer

Income in respect of a decedent (IRD) must be included in the gross income of the estate or the beneficiary who receives it, not in the gross estate for estate tax purposes.

Question 11

If a trust incurs a net operating loss or a capital loss, the trust beneficiaries may deduct the losses under the "conduit" theory for their taxable year within which the trust year ends.

Accepted Answer

Trust beneficiaries cannot directly deduct a trust's net operating loss or capital loss on their personal tax returns. Losses of a trust are generally trapped at the trust level and do not pass through to beneficiaries.

Question 12

Under the terms of the governing trust instrument, the trustee of ABC trust is required to distribute all trust income annually to trust beneficiaries.In the current taxable year, the trust had taxable income of $100,000.However, because of an illness late in the year, the trustee failed to make any actual cash distributions to beneficiaries.The beneficiaries will report and pay tax on the $100,000 of current year trust income even though no actual distribution was made.

Accepted Answer

Under the terms of the trust, the income must be distributed annually to the beneficiaries, regardless of whether or not an actual cash distribution is made. The beneficiaries are still responsible for reporting and paying taxes on the trust income.

Question 13

The categorization of a trust as "simple" or "complex" may vary from year to year.

Accepted Answer

The categorization of a trust as "simple" or "complex" may vary based on changes in the trust's assets or income from year to year.

Question 14

A fiduciary can elect whether or not to recognize a gain for tax purposes on the distribution of appreciated property made in fulfillment of a pecuniary bequest to a beneficiary.

Accepted Answer

A fiduciary does not have the option to elect whether or not to recognize a gain for tax purposes on the distribution of appreciated property made in fulfillment of a pecuniary bequest. The distribution of appreciated property to satisfy a pecuniary bequest generally results in the recognition of gain as if the property were sold for its fair market value on the date of distribution.

Question 15

Upon his death, individual T, a cash basis taxpayer, had an outstanding account receivable of $20,000 for services he had performed prior to death.Because of some uncertainty as to its collectability, this receivable was valued at $15,000 for estate tax purposes.The tax basis of this asset to T's estate is zero.

Accepted Answer

The tax basis of the asset to T's estate is generally equal to its fair market value at the time of T's death, which in this case is $15,000. Since the outstanding account receivable was not yet collected, it does not have a tax basis for T's estate.

Question 16

Income accumulated in a trust for a child less than 19 is taxed at the parents' rates and not the trust's rates.

Accepted Answer

Income accumulated in a trust for a child less than 19 is taxed at the trust's rates, not the parents' rates. This is known as the "kiddie tax" rules, which apply to the child's unearned income, not to income accumulated in a trust.

Question 17

Because a simple trust by definition is a trust that must distribute all income currently to beneficiaries, a simple trust will never have an income tax liability.

Accepted Answer

While a simple trust is required to distribute all its income currently to beneficiaries, it can still incur income tax liability if it has any taxable income that is not distributed or if it earns tax-exempt income that is subject to certain taxes, such as unrelated business taxable income.

Question 18

As a general rule, tax provisions that apply to the income taxation of individuals also apply to the income taxation of fiduciaries.

Accepted Answer

Fiduciaries, such as trustees or executors, are subject to many of the same tax rules as individuals, including income tax rates and deductions. Therefore, tax provisions that apply to individual income taxation generally also apply to fiduciaries.

Question 19

Estate E has a fiscal year ending September 30 of the current year.On October 15 of the current year, the executor distributed $10,000 out of current year income to beneficiary Q, a calendar year taxpayer.Q will report the taxable portion of this distribution on his current year's tax return.

Accepted Answer

The answer of Estate E has a fiscal year ending...

Question 20

If a fiduciary does not elect to recognize gain or loss on the distribution to a beneficiary of appreciated or depreciated property (determined as if the property had been sold at fair market value), the fiduciary's tax basis in the property carries over to the beneficiary.

Accepted Answer

This is known as a non-recognition event under IRC section 1015(a). The beneficiary's tax basis in the property received is equal to the fiduciary's tax basis, adjusted for any additional consideration paid by the beneficiary to the fiduciary.

Quiz 15: Income Taxation of Estates and Trusts