STEP Taxation of Trusts and Estates 2

Question 1

Under IRC Section 664, what is the primary tax benefit of a Charitable Remainder Trust (CRT)?

Accepted Answer

The donor receives an immediate charitable deduction based on the present value of the remainder interest

Answer

A CRT donor receives an immediate charitable income tax deduction equal to the present value of the remainder interest that will eventually pass to the charitable beneficiary.

Question 2

A testamentary trust created under a decedent's will becomes irrevocable upon the decedent's death. For income tax purposes, the trust's taxable year:

Accepted Answer

May be any fiscal year elected by the trustee

Answer

Unlike estates, trusts generally must use a calendar year, but a testamentary trust that is part of an estate during estate administration may adopt a fiscal year.

Question 3

Which of the following correctly describes the 'throwback rules' as historically applied to foreign trusts?

Accepted Answer

They impose a tax and interest charge on undistributed net income accumulated in prior years when finally distributed

Answer

The throwback rules tax accumulated income distributions from foreign trusts as if distributed in the year earned, plus an interest charge, preventing tax deferral.

Question 4

For estate tax purposes, the gross estate of a decedent includes life insurance proceeds if:

Accepted Answer

The decedent possessed any incidents of ownership at death

Answer

Under IRC Section 2042, life insurance proceeds are included in the gross estate if the decedent held any incidents of ownership, such as the right to change beneficiaries or borrow against the policy.

Question 5

A trustee of a complex trust elects to treat a distribution made within 65 days after year-end as paid in the prior tax year. This election is made under:

Accepted Answer

IRC Section 663(b)

Answer

IRC Section 663(b) allows trustees of complex trusts to elect to treat distributions made within 65 days after the close of the tax year as made on the last day of that tax year.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Taxation of Trusts and Estates 2