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Taxation of Estates & Trusts Flashcards

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

Read the first 7 Taxation of Estates & Trusts flashcards as text

  1. What is the 'throwback rule' as it relates to trust taxation?

    Answer: It taxes beneficiaries on undistributed income from prior years when accumulated distributions are made

    The throwback rule taxes beneficiaries on excess distributions that exceed current-year DNI by treating them as if distributed in the year earned.

  2. A charitable remainder unitrust (CRUT) pays a fixed percentage of trust assets revalued annually. How is income taxed to the non-charitable recipient?

    Answer: Using the four-tier ordering rules: ordinary income first, then capital gain, then tax-exempt, then corpus

    CRT distributions follow the four-tier ordering: ordinary income, capital gain, tax-exempt income, and finally corpus return of principal.

  3. Under IRC §645, a trustee and executor may elect to treat a qualified revocable trust as part of the estate for tax purposes. What is the primary benefit?

    Answer: Allows a single Form 1041 filing and a longer fiscal year election

    A §645 election allows the revocable trust and estate to file a single Form 1041 and use a fiscal year, simplifying administration.

  4. What is the estate tax marital deduction?

    Answer: An unlimited deduction for qualifying property passing to a U.S. citizen surviving spouse

    The unlimited marital deduction under IRC §2056 eliminates estate tax on qualifying transfers to a U.S. citizen surviving spouse.

  5. A trust has $50,000 of taxable income and distributes none to beneficiaries. The trust is in the highest federal income tax bracket at what income threshold (approximately, 2024)?

    Answer: $14,451

    Trusts and estates reach the 37% federal income tax bracket at approximately $14,451 of taxable income in 2024, far lower than individuals.

  6. Which provision allows a surviving spouse to use the deceased spouse's unused estate tax exclusion?

    Answer: Portability

    Portability under IRC §2010(c) allows the surviving spouse to add the deceased spouse's unused exclusion amount to their own, preventing waste of the exclusion.

  7. For income tax purposes, what is the holding period of inherited capital assets at the date of death?

    Answer: Automatically qualifies as long-term regardless of how long the decedent held the asset

    Under IRC §1223(11), inherited property is deemed to have a long-term holding period, so any sale immediately produces long-term capital gain or loss.