Multiple Choice Questions
1. A couple has written a will that leaves part of their money to a trust fund. The income from this trust will benefit the surviving spouse until death, with the principal then going to their children. Why was the trust fund created?
a. To reduce the estate of the surviving spouse and, thus, decrease the total amount of estate taxes to be paid by the couple.
b. To ensure that the surviving spouse is protected from lawsuits filed by the couple's children.
c. To give the surviving spouse discretion over the ultimate use of these funds.
d. To maximize the earning potential of the money because trust funds generate more income than other investments.

2. The executor of an estate is filing an income tax return for the current period. Revenues of $12,000 have been earned. Which of the following is not a deduction allowed in computing taxable income?
a. Income distributed to a beneficiary.
b. Funeral expenses.
c. A personal exemption.
d. Charitable donations.

3. What is a remainderman?
a. A beneficiary that receives the principal left in an estate or trust after a specified time.
b. The beneficiary of the decedent's life insurance policy.
c. An executor or administrator after an estate has been completely settled.
d. If a legacy is given to a group of people, the remainderman is the last of the individuals to die.

4. In an estate, which of the following is charged to income rather than to principal?
a. Funeral expenses.
b. Investment costs.
c. Property taxes.
d. Losses on the sale of investments.

5. In recording the transactions of an estate, when are liabilities recorded?
a. When incurred.
b. At the date of death.
c. When the executor takes responsibility for the estate.
d. When paid.

6. What is the difference between a testamentary trust and an inter vivos trust?
a. A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals.
b. A testamentary trust is created by a will; an inter vivos trust is created by a living individual.
c. A testamentary trust conveys income to one party and the principal to another; an inter vivos
trust conveys all monies to the same party.
d. A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.

7. Which of the following is a charitable lead trust?
a. The income of the trust fund goes to an individual until death, at which time the principal is conveyed to a charitable organization.
b. Charitable gifts are placed into the trust until a certain dollar amount is achieved and is then transferred to a specified charitable organization.
c. The income of a trust fund goes to a charitable organization for a specified time with the principal then being conveyed to a different beneficiary.
d. A charity conveys money to a trust that generates income for the charity's use in its various projects.

8. The estate of Nancy Hanks reports the following information:

Value of estate assets . . . . . . . . . . . . . . . . . . . . . . . $ 1,400,000
Conveyed to spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000
Conveyed to children . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Conveyed to charities . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000
Funeral expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
What is the taxable estate value?
a. $70,000.
b. $100,000.
c. $180,000.
d. $420,000.
9. An estate has the following income:
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
The interest income was immediately conveyed to the appropriate beneficiary. The dividends were given to charity as per the decedent’s will. What is the taxable income of the estate?
a. $4,400.
b. $5,000.
c. $8,000.
d. $8,400.
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