Practice Test GeeksCTFA - Certified Trust and Fiduciary Advisor Practice Test
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Trust Taxation and Accounting Flashcards

6 cards from real CTFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Trust Taxation and Accounting flashcards as text

  1. Under the principal and income rules, how are stock dividends typically allocated between income and principal in a trust?

    Answer: Cash dividends are income; stock dividends are principal

    Under the Uniform Principal and Income Act, cash dividends are allocated to income while stock dividends and stock splits are allocated to principal.

  2. What is the purpose of a unitrust conversion in a traditional income trust?

    Answer: To pay beneficiaries a fixed percentage of trust assets annually instead of actual accounting income

    A unitrust conversion replaces the trust's accounting income with a set percentage of the trust's value (e.g., 3–5%), aligning distributions with total return investing.

  3. Which IRS form do trust beneficiaries receive to report their share of trust income?

    Answer: Schedule K-1 (Form 1041)

    Schedule K-1 (Form 1041) reports each beneficiary's allocable share of trust income, deductions, and credits that must be included in their personal tax return.

  4. A charitable remainder trust (CRT) provides which primary tax benefit to the donor at the time of contribution?

    Answer: A partial charitable income tax deduction based on the present value of the remainder interest

    The donor receives an income tax deduction equal to the actuarial present value of the remainder interest that will pass to the charity at the trust's termination.

  5. Under IRC Section 642(c), charitable deductions for trusts differ from individual charitable deductions in which way?

    Answer: Trust charitable deductions are limited to amounts actually paid from gross income pursuant to the trust instrument

    Under IRC Section 642(c), a trust may deduct amounts paid for charitable purposes only if the trust document specifically authorizes charitable distributions from gross income.

  6. What is the net investment income tax (NIIT) rate imposed on undistributed trust net investment income?

    Answer: 3.8%

    Trusts pay an additional 3.8% net investment income tax on undistributed net investment income above a very low threshold (approximately $3,100 in 2024).