1.The decedent's will states in part "I give, devise and bequeath the sum of $20,000 to Joe". The decedent's personal representative writes Joe a check from the estate for $20,000 and in that tax year the estate has $40,000 DNI. Joe will be income taxable on

a.$20,000.

b.$-0-.

c.$20,000 if a first tier beneficiary , zero if a second tier beneficiary.

d.$-0- if the personal representative makes the section 645 election.

2.Tom, Dick and Harry are the 3 equal residuary beneficiaries of Jill's estate. Jill's personal representative makes a partial estate distribution to each of 100 shares of XYZ Corporation and each 100 share distribution has a basis to the estate of $5,000 and a fair market value on date of distribution of $8,000.Estate DNI in the year of distribution is $20,000. The total DNI that these distributions will carry out for income taxation to the beneficiaries and that will be deductible by the personal representative is

a. $20,000.

b. $15,000.

c. $-0- since these are not cash distributions.

d.$-0-since these are devises of specific property.

3. Jill's will states in part "I give, devise and bequeath the sum of $10,000 to Mary". Jill's personal representative, being short of cash, distributes 100 shares of xyz corporationto Mary in satisfaction of her bequest. On date of distribution the 100 shares of XYZ Corporation stock are worth $10,000. The estate's basis in the stock is $5,000. This transaction results in

a. realization and recognition of $5,000 capital gain by the estate.

b.Mary will taxed on ordinary income of $5,000 assuming there is enough DNI to cover this amount.

c.Mary will be taxed on ordinary income of $10,000 assuming there is enough DNI to cover this amount.

d.Mary will not be taxed because she received specific property, i.e., the XYZ stock, instead of cash.

4.The will of the decedent established a trust for the benefit of his wife and two sons. The trust states that the trustee shall pay to the widow $25,000 a year and $12,500 a year each to his two sons. There are no charitable contributions. For the current year, the distributable net income of the estate was $48,000. What amount is the widow required to include in her gross income?

a.$25,000.

b.$24,000.

c.$12,500.

d.$12,300.

5.Which one of the following statements is correct?

a.after termination, a trust's unused capital loss carryover expires.

b.a trust takes the decedent's basis in assets left to it by the terms of the decedent's will.

c.after termination, a trust's unused capital loss carryover can be used on the individual tax returns of the beneficiaries who succeed to the trust property.

d.a trust tacks on the decedent's holding period to the trust's holding period for assets left to it by the terms of the decedent's will.

6.What problem does the separate share rule alleviate?

a.prevents unequal distributions of tangible personal property from an estate or trust.

b.satisfies state law requirements regarding distributions from the residuary portion or an estate or trust.

c.reduces risk of a successful will or trust contest.

d.prevents a beneficiary being taxed on income accumulated for another beneficiary.

Gifts

7.Gifts or bequests of specific sums of money or of specific property will distributed income tax free to the beneficiary if

a.the fiduciary so elects on the Form 1041 for the estate or trust.

b.they can be paid or distributed only from the income of an estate or trust.

c.paid from the residuary portion of an estate or trust.

d.paid or distributedin not more than 3 installments.

8.Which of the following deductions does not affect trust accounting income?

a.rental expenses.

b.attorney's fees allocable to income.

c.trustee's fees allocable to income.

d.trustee's fees allocable to principal.

9. A trustee distributes $10,000 of income to each of nine trust beneficiaries during its tax year. The trust had $40,000 of tax-exempt interest (municipal bond interest) and $80,000 of corporate bond interest during its tax year. The trust agreement does not specify the type of income to be distributed to each beneficiary. How much of the $10,000 to each beneficiary is taxable income to the beneficiary.

a.none.

b. $6,667.

c.$3,333.

d.cannot be determined from above information.

10. Which one of the following is correct?

a.for fiduciary accounting, the allocation of receipts between income and principal is based primarily on the governing instrument(will or trust agreement) and secondarily on state law (uniform principal and income act).

b.for fiduciary accounting, the accounting period must be identical to the income tax period for the estate or trust (calendar or fiscal).

c.for fiduciary accounting, GAAP (generally accepted accounting principles) apply along with the UP&IA and prevail in the event of a conflict.

d.for fiduciary accounting, a certified fiduciary accountant must prepare the accounting in order for the shortest statute of limitations to apply.

11.Estate's income tax year is February 1 through January 31. Personal representative makes a distribution to residuary beneficiaryZ, a calendar year taxpayer, on March 12017 that carries out $5,000 DNI to Z.Z will report the income

a. on her 2018 Form 1040 only.

b.on her 2017 Form 1040 only.

c. on her 2018 1040 if she properly so elects.

d. on her 2017 1040 if she properly so elects.

12. The trust's final tax termination year ends on June 30. The trust realized $5,000 on capital gain on May 1.The capital gain income

a.will be taxed to the trust as not part of DNI.

b.will be included in DNI.

c.cannot be offset by capital losses in year of termination.

d.will be taxed separately to the beneficiaries but is not part of DNI.

13.By timely filing Form 4810 the personal representative/trustee can

a. reduce the statute of limitations on a filed Form 1041 to 2 years.

b.reduce the statute of limitations on a filed Form 1041 to 1 years.

c.reduce the statute of limitations on a filed Form 1041 to a year and half.

d.amend a timely filed Form 1041.

14. The decedent's will states in part " I give, devise and bequeath a one-third share of all the rest, residue and remainder of my estate to my good friend, Tom, in recognition of his faithful service to me for many years."

a. Tom is clearly a Subchapter J beneficiary of the estate.

b.Tom must make a claim against the estate if he wishes to collect.

c.Tom will have to prove his years of service to collect.

d.Tom's one-third share of the residuary estate might be characterized as compensation income.

15.A qualified revocable trust

a. is limited to a calendar income tax year.

b. must be distributed 100% to a charitable beneficiary upon the death of the grantor.

c.can be treated as an estate with respect to income tax return filing if the proper election is made.

d.is not subject to Subchapter J.

16.Bunching of estate/trust income on a beneficiary's 1040

a.is not possible.

b.may occur in year of estate/trust termination.

c.entitles the beneficiary to a refundable tax credit.

d.will support a beneficiary's claim for malpractice against the fiduciary.

17. Net operating loss and capital loss pass throughs in the year of entity termination

a. will not be useful to beneficiaries unless they itemize deductions on their income tax returns.

b.cannot be used by married beneficiaries who file separate rather than joint 1040s.

c.will be useful to beneficiaries even if they do not itemize deductions.

d.can only be used by beneficiaries who are engaged in operating closely held businesses or have capital gains.

18. Inyear 1 the estate has $4,000 of DNI and the personal representative pays an attorney's fee of $6,000. The estate terminates in year 2.

a.The estate's sole residuary beneficiary is entitled to an excess deductionin year 2.

b.The estate's sole residuary beneficiary is not entitled to an excess deduction in year 2.

c.Estate income tax deductions in excess of DNI will always be wasted to the extent of the excess.

d.Estate income tax deductions in excess of DNI can be carried back 5 years and carried forward 2 years to the extent of the excess.

19. Decedent at death owned 400 shares of xyz having a value as reported on the NY stock exchange of $800 and for which he had paid $300.A federal estate tax was not required for the decedent's estate. The estate sells the 400 shares of XYZ Corporation for $500.

a. the estate recognizes neither capital gain nor loss on the sale.

b.the estate recognizes a short term capital loss on the sale.

c.the estate recognizes a long term capital loss of $300 on the sale.

d. the estate recognizes a short term capital loss of $500 on the sale.

20. 20. The 65 day rule

a.applies to trusts but not estates.

b.allows a fiduciary to treat a distribution to a beneficiary made within 65 days of the end of the preceding tax year as having been made on the last day of the preceding tax year.

c.allows a fiduciary to amend, without penalty, a previously filed form 1041 provided the amendment is filed within 65 days of the filing of the form 1041.

d.applies to estates but not trusts.

21.A pro-rata portion of estate/trust deductions

a.need not be allocated to tax exempt income.

b.is allocated to tax exempt income to the extent any amount of the deductions remains after allocation to taxable income.

c.must be allocated to tax exempt income but only to the extent the deductions consist offiduciary/attorney fees.

d.none of the above is correct.

22. During its taxable year the estate received $35,000 of interest and rental income. The personal representative had few deductions left to reduce the amount of taxable income for that year. The personal representative had made no distributions during the tax year that would have carried out DNI for taxation to the residuary beneficiaries at presumably much lower tax rates. Is the personal representative out of luck?

a.yes and the PR will have a lot of explaining to do to the residuary beneficiaries.

b.no because theestate residuary beneficiaries were already entitled to the income and will be taxed on it regardless of whether it's actually distributed.

c.yes because an order from the probate court will be required to correct the error and the IRS is not bound by state court decisions.

d.no, not if the PR promptly makes sufficiently large estate distributions to the residuary beneficiaries and within 65 days after the end of the tax year.

23. The decedent's will reads in part "I give, devise and bequeath to Mary a sum of money equal to the value of one-third of my residuary estate as finally determined."

a.this is a devise of a specific sum of money and Mary will receive it from the estate income tax free.

b.this is not a devise of a specific sum of money and Mary will be taxed on it to the extent of her share of DNI.

c.satisfaction of this devise will always result in capital gain to the estate.

d.satisfaction of a devise so worded violates the rule against perpetuities.

24.Tom, Dick and Harry, estate residuary beneficiaries, each received a distribution of property from the estate consisting of 100 shares of XYZ, Inc. The stock constituted original estate inventory. The decedent has paid $1,000 for each 100 share lot and each 100 share lot was worth $2,000 when he died. Dick sold his 100 share lot for $1,500 two months after receiving it. Dick

a.realizes and recognizes a long term capital loss of $500.

b.realizes and recognizes a short term capital gain of $500.

c.realizes and recognizes a long term capital gain of $500.

d. realizes neither gain nor loss.

25.The decedent's will states in part "I give, devise and bequeath the sum of $10,000 to Mary and the personal representative shall pay thisbequest in five monthly installments of $2,000 each beginning on the date of my death. Knowing Mary is in desperate need of funds the personal representative pays Mary her bequest in one lump sum of $10,000 two months after the decedent's death. Mary'sbequest

a.will be made to her income tax free.

b.will be subject to income tax depending on the amount of DNI.

c.must be returned to the personal representative for payment in installments.

d.is subject to the claims of the decedent's creditors because it is payable in installments.

26.Distributable Net Income (DNI)

a. will vary depending on the number of estate/trust beneficiaries.

b.applies to estates but not trusts.

c.as a general rule does not include capital gains.

d.does not limit the amount that can be taxed to the estate/trust beneficiaries.

27. The net operating loss deduction

a.cannot exceed 20% of the estate's or trusts DNI.

b.pass through can be used by a beneficiary regardless of the beneficiary's itemization of deductions.

c.is deductible only on an estate's federal estate tax return.

d.is unavailable to estates and trusts.

28.Investment advisory fees paid by an estate or trust

a.are subject to the 4% reduction required by section 67 IRC.

b.are fully tax deductible to the extent listed without objection on a trust accounting.

c.are fully tax deductible.

d. none of the above is correct.

29. Tax free income is

a.excluded from the computation of DNI for trusts but not estates.

b.included in the computation of DNI for complex trusts but not simple trusts.

c.subject to reduction for pro-rata share of expenses.

d.excluded from the computation of DNI.

30.Which of the following are subject to the 2% miscellaneous itemized deductions floor?

a.attorney fees.

b.fiduciary fees.

c.CPA fees.

d.none of the above.

31.A simple trust has ordinary gross taxable income of $30,000(current FAI).It also has $5,000 of capital gains allocated to trust principal. It pays a trustee fee of $5,000 which the trust agreement directs must be paid from trust principal. How much is the trust's accounting income (FAI)?

a.$20,000.

b.$30,000.

c.$25,000.

d.$15,000.

32. Which of the following statements is incorrect?

a.The income tax rates applied to trusts and estates are highly compressed compared to income tax rates for individuals.

b.Form 1041 is the income tax return for mosttypes of trusts and estates.

c.Form 1041 illustrates the conduit theory of income taxation since all taxable income received by an estate or trust is taxed twice, like a C corporation.

d.The taxation of estates and trusts is governed by Subchapter J of the Internal Revenue Code.

33. Which of the following statements is incorrect?

a.The section 645 election allows a qualified revocable trust to choose a fiscal income tax year.

b.The section 645 election is not available if there is a charitable beneficiary.

c.The section 645 election is available in the absence of an estate provided a qualified revocable trust exists.

d.The section 645 election is available to estates and trusts.

34.If no federal estate tax is required for a decedent's estate

a.the section 645 election period can be renewed by the personal representative for a period not exceeding 6 months.

b.the section 645 election period ends when the local probate court enters its order discharging the personal representative.

c.the section 645 election begins on date of death.

d.alternate valuation of a decedent's assets can still be elected.

35.The separate share rule

a.is limited to simple trusts.

b.applies to estates but not trusts.

c.applies to trusts but not estates.

d.applies to estates and trusts.

36.Trust DNI is $10,000. This consists of $3,000 tax exempt interest and $7,000 of taxable interest. The trustee distributes $5,000 to the sole trust beneficiary. The beneficiary's distribution is deemed to consist of

a.zero assuming the trustee elects to have all of the income taxed to the trust.

b.taxable interest of $2,500 and tax exempt interest of $2,500.

c.taxable interest of $3,500 and tax exempt interest of $1,500.

d.taxable interest of $3,500.

37.Mary is the sole beneficiary of a simple trust to whom the trustee is required to distribute all current trust income by the terms of the trust agreement. During the taxable year of the trust it receives $10,000 of DNI(current FAI ). The trustee makes no distributions to Mary notwithstanding the terms of the trust agreement.

a. Mary reports the DNI on her 1040 but has a good claim for refund on the income tax she paid on the DNI.

b.Mary is not taxable on the DNI.

c.Mary is taxable on the DNI.

d.Mary is taxable on $9,700 of the DNI.

38.Mary's will provides in part that she devises the sum of $10,000 each to Tom, Dick and Harry. During the estate's first income tax year the estate has $6,000 of DNI and distributes $10,000 each to Tom Dick and Harry.

a.The personal representative can elect to have the $6,000 of DNI occur in tax year 2 of the estate.

b.The personal representative can elect to have the DNI taxed all to the estate, or all to Tom, Dick and Harry, or partly to the estate and partly to Tom,Dick and Harry.

c.Tom, Dick and Harry will not be income taxed on their distributions.

d.Tom, Dick and Harry will each be taxed on $2,000 of DNI as first tier beneficiaries.

39.Fiduciary Accounting Income (FAI)

a.cannot be accurately determined until the termination of the estate of trust administration.

b.is determined by federal law.

c.rules trump the Subchapter J rules on income taxation.

d.affects the computation of DNI.

40.Bob died on February 20, 2017. His probate estate (Subchapter J estate) includes

a.$10,000 in joint checking with a surviving child.

b.$30,000 IRA naming his widow as beneficiary.

c.$100,000 life insurance policy payable to his widow.

d.declared but unpaid dividends on stock he owns.

41.Which of the following is not part of accounting principal

a.original trust/estate assets.

b.capital gains.

c.stock dividends.

d.return of capital.

42.The trustee of Bill's trust is required to pay to Bill's wife $20,000 per year and, at the trustee's discretion, may distribute trust income or principal to the other trust beneficiary, Bill's son. In 2016 the trustee has DNI of $40,000. The trustee distributes $20,000 to Bill's wife and $50,000 to Bill's son. How much is Bill's son taxed on for 2016?

a.$25,000

b.$20,000

c.$10,000

d.$15,000

43.The personal representative of Bill's estate received the following items in the current tax year. All of the following are considered taxable income except

a.money damages from a personal injury lawsuit Bill had filed but was settled after his death.

b.income from a partnership.

c.interest

d.dividends.

44.Which of the following are adjustments to the estate's/trust's taxable income in arriving at DNI?

a.the distribution deduction is subtracted.

b.the personal exemption is subtracted.

c.tax exempt interest (if any) is subtracted.

d.none of the above is a correct adjustment.

45.All distributions to beneficiaries from estate/trust income or principal(corpus)

a.will subject the beneficiaries to taxation but only if the distributions are mandatory.

b.may subject the beneficiaries to taxation even if from principal but only if the personal representative/trustee so elects.

c.may subject the beneficiaries to taxation only to the extent of FAI.

d.may subject the beneficiaries to taxation to the extent of DNI.

46.A complex trust is

a.any trust agreement containing an income tax savings provision.

b.any trust having more than sixliving beneficiaries.

c.any trust with only tier 1 beneficiaries.

d.any trust that does not qualify as a simple trust.

47.A complex trust receives taxable interest of $12,000, taxable dividends of $4,000, capital gains of $4,000 and pays a trustee fee of $1,000, all charged to income. The trustee makes a discretionary distribution to Tom of $8,000. How much of the distribution to Tom will be characterized as capital gain?

a.-0-

b.$2,484

c.$3,000

d.$2,684

48.At the end of the section 645 election period the qualified revocable trust

a.will have transferred to it all of the assets of the decedent' probate estate.

b.must start filing its income tax returns for calendar years.

c.may continue to file its income tax returns for fiscal tax years.

d.is deemed to become irrevocable.

49.When Subchapter J refers to "income" this reference is to

a.fiduciary accounting income (FAI).

b.gross taxable income.

c.net taxable income.

d.adjusted taxable income.

50.The terms of the governing instrument (will or trust agreement)

a.can trump state law on the subject of estate/trust income and principal definitions.

b. must always defer to state law.

c.must always defer to federal law.

d.cannot be successfully challenged 6 months after date of death (for a will) or creation (for a trust agreement).