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Unformatted text preview: 20-1Chapter 20 Solutions Income Taxation of Trusts & Estates (2011) updated: August 13, 2010 21. AttributeSimple TrustComplex TrustTrust could incur its own tax liability for the year Yes (e.g., if capital gains are allocable to corpus) Yes Trust generally distributes all of DNI Yes Depends on the terms of the agreement Trust can deduct its charita- ble contributions in the year of, or the year after, payment No, cannot make such payments Yes Trust could claim a foreign tax credit No, such credit is assigned to pertinent taxpayers ratably, based on receipt of entity accounting income Yes Maximum tax rate on net long-term capital gains = 15% Yes Yes AMT preferences and adjustments flow through to beneficiaries ratably Yes Yes Amount of personal exemption $300 $100 or $300 depending on whether corpus or charitable payments are made 22. Ordinary income $400,000 Net passive income 50,000 Personal exemption (100) Deductible fees (10,000)Fiduciary taxable income taxed at ordinary rates $439,900 2010 income tax on $439,900 $152,940.50 Tax on dividend income (at 15%) 3,000.00 Total tax $155,940.50 p. 20-7 24. The make-up and magnitude of entity accounting income is virtually under the control of the grantor and his/her tax adviser, if appropriate language is included when the will or trust instrument is drafted. Thus, it is critical that the tax adviser become aware of the wishes of the grantor to set up a trust and become active during the drafting phase of the engagement. In the present example, Shirley can receive almost any amount that Betty wishes (even amounts less than that illustrated in b. below), if the proper language is used in the controlling instrument. a. “Interest income, rental revenues, and capital gains are allocable to income; fiduciary fees and cost recovery are allocable to corpus.” Shirley receives a check for $235,000. b. “Capital gains, rental revenues, and one-half of interest income are allocable to corpus; cost recovery expenses, one-half of interest income, and fiduciary administrative fees are allocable to income.” Shirley receives a check for $11,500....
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This note was uploaded on 09/09/2011 for the course TAX 5015 taught by Professor Kelliher,c during the Spring '08 term at University of Central Florida.
- Spring '08