CTFA Trust Taxation and Accounting 3

Question 1

In trust accounting, what does the term 'accounting income' refer to?

Accepted Answer

Income determined by the trust document and applicable state principal and income law

Answer

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.

Question 2

Which type of trust is required to file Form 5227 with the IRS?

Accepted Answer

Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs)

Answer

Form 5227 (Split-Interest Trust Information Return) is required annually for charitable remainder trusts and charitable lead trusts to report trust activity.

Question 3

For federal tax purposes, when does a revocable living trust become a separate taxable entity?

Accepted Answer

At the grantor's death

Answer

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.

Question 4

What is a trustee's obligation regarding trust accounting records under the Uniform Trust Code?

Accepted Answer

Keep accurate records and provide beneficiaries with a trust accounting upon reasonable request

Answer

Under the UTC, trustees must maintain complete and accurate records and provide beneficiaries with trust accountings upon request or periodically as required.

Question 5

How is depreciation on trust-held real property allocated between trust income and principal under the Uniform Principal and Income Act?

Accepted Answer

The trustee must transfer a reasonable amount from income to a principal reserve for depreciation

Answer

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.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA Trust Taxation and Accounting 3