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
In trust accounting, what does the term 'accounting income' refer to?
Answer: Income determined by the trust document and applicable state principal and income law
Accounting income is determined by the trust's governing document and state principal and income statutes, and it governs what is distributable to income beneficiaries.
Which type of trust is required to file Form 5227 with the IRS?
Answer: Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs)
Form 5227 (Split-Interest Trust Information Return) is required annually for charitable remainder trusts and charitable lead trusts to report trust activity.
For federal tax purposes, when does a revocable living trust become a separate taxable entity?
Answer: At the grantor's death
A revocable trust is a grantor trust during the grantor's lifetime—no separate return is required; at death it becomes irrevocable and must file its own Form 1041.
What is a trustee's obligation regarding trust accounting records under the Uniform Trust Code?
Answer: Keep accurate records and provide beneficiaries with a trust accounting upon reasonable request
Under the UTC, trustees must maintain complete and accurate records and provide beneficiaries with trust accountings upon request or periodically as required.
How is depreciation on trust-held real property allocated between trust income and principal under the Uniform Principal and Income Act?
Answer: The trustee must transfer a reasonable amount from income to a principal reserve for depreciation
Under UPIA, the trustee must set aside a reasonable depreciation reserve from income, transferring funds to principal to reflect the asset's decline in value.
What is the income tax treatment of a trust's capital gains when they are not distributed to beneficiaries?
Answer: Capital gains are taxed to the trust at trust income tax rates
Undistributed capital gains are generally taxed to the trust itself at compressed trust tax rates, not passed through to beneficiaries.