CTFA Trust Taxation and Accounting 2

Question 1

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

Accepted Answer

Cash dividends are income; stock dividends are principal

Answer

All dividends are income regardless of form

Answer

All dividends are principal and cannot be distributed to income beneficiaries

Answer

Stock dividends are income; cash dividends are principal

Question 2

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

Accepted Answer

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

Answer

To convert a revocable trust into an irrevocable trust for tax purposes

Answer

To allow the trustee to use trust principal for investment expenses

Answer

To merge multiple trusts into a single administrative unit

Question 3

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

Accepted Answer

Schedule K-1 (Form 1041)

Answer

Form 1099-INT

Answer

Form W-2

Answer

Schedule B (Form 1040)

Question 4

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

Accepted Answer

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

Answer

A full deduction equal to 100% of the asset's fair market value

Answer

Complete avoidance of estate and gift taxes on contributed assets

Answer

Immediate exclusion of all future appreciation from the donor's estate

Question 5

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

Accepted Answer

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

Answer

Trust charitable deductions are unlimited with no percentage-of-income limitation

Answer

Trust charitable deductions require IRS approval before the return is filed

Answer

Trust charitable deductions apply only to cash gifts, not property

Question 6

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

Accepted Answer

3.8%

Answer

0.9%

Answer

2.5%

Answer

5.0%