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Buckwold12e_ch17_Review - CHAPTER 17 TRUSTS Review...

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CHAPTER 17 TRUSTS Review Questions 1. What is a trust, and how does it differ from a partnership and corporation? 2. Briefly explain the basic unique features of a trust? 3. What are the definitions of a testamentary trust and an inter vivos trust? 4. What are the differences between a personal trust and a commercial trust? 5. Explain when a trust is liable for tax in Canada. 6. What are the unique features for determining the taxable income of a trust? 7. “A trust is considered to be an individual for tax purposes and therefore its taxation year is the calendar year.” Is this statement true? Explain. 8. Compare the methods for calculating tax payable for testamentary trusts and inter vivos trusts. 9. A trust can deduct from taxable income amounts allocated to a beneficiary. Identify the unique features of this process and how the allocation may differ from allocation made by a partnership. 10. “Capital assets held by a trust are only subject to tax on a disposition that results from a sale or when they are distributed to beneficiaries.” Is this statement correct? Explain. 11. How does a spousal testamentary trust differ from a non-spousal testamentary trust? 12. What is an income trust? Briefly explain why they are used.
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Solutions to Review Questions R17-1. A trust is an arrangement whereby a person (the settlor ) places property under the management of a trustee for the benefit of one or more persons ( beneficiaries ) . Unlike a corporation, a trust does not have the status of a legal person. The format of a trust is closer to that of a partnership in that its existence is created by the writing of a trust document or deed spelling out the obligations of the trust. Unlike a partnership, a trust is a separate taxable entity. R17-2. Unique features of a trust: Income earned by a trust can be taxed in the trust or all or some of the income can be allocated to beneficiaries and taxed as part of their income [S104(13)]. The trust claims a deduction in computing net income for income allocated to beneficiaries [S.104(6)]. Thus, trust income is only taxed once. Income taxed in the trust forms part of the trust’s capital and is not
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Buckwold12e_ch17_Review - CHAPTER 17 TRUSTS Review...

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