CES Taxation of Estates & Trusts 3

Question 1

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

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

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

Answer

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

Question 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?

Accepted Answer

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

Answer

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

Question 4

What is the estate tax marital deduction?

Accepted Answer

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

Answer

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

Question 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)?

Accepted Answer

$14,451

Answer

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

(CES) Certified Estate and Trust Specialist Practice Test

(CES) Certified Estate and Trust Specialist Practice Test

CES Taxation of Estates & Trusts 3