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Taxation of Trusts and Estates

Description: This quiz covers the fundamental concepts and rules related to the taxation of trusts and estates. It aims to assess your understanding of the various tax implications and strategies associated with these legal entities.
Number of Questions: 15
Created by:
Tags: taxation trusts estates income tax capital gains tax
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Which of the following is not a type of trust recognized under U.S. tax law?

  1. Revocable Trust

  2. Irrevocable Trust

  3. Charitable Trust

  4. Non-Grantor Trust

Show answer
Correct Option: D
Explanation:

There is no such thing as a Non-Grantor Trust under U.S. tax law.

What is the maximum income tax rate applicable to trusts and estates?

  1. 24%

  2. 35%

  3. 37%

  4. 39.6%

Show answer
Correct Option: C
Explanation:

The maximum income tax rate for trusts and estates is 37%.

Which of the following is not a type of distribution from a trust that is subject to income taxation?

  1. Ordinary Income Distribution

  2. Capital Gain Distribution

  3. Tax-Exempt Income Distribution

  4. Return of Principal Distribution

Show answer
Correct Option: D
Explanation:

Return of Principal Distribution is not subject to income taxation.

What is the basis of property distributed from a trust to a beneficiary?

  1. Fair Market Value at the Date of Distribution

  2. Adjusted Basis in the Hands of the Trust

  3. Original Cost Basis of the Property

  4. Step-Up in Basis to Fair Market Value

Show answer
Correct Option: A
Explanation:

The basis of property distributed from a trust to a beneficiary is generally its fair market value at the date of distribution.

Which of the following is not a factor that determines the amount of the estate tax marital deduction?

  1. Value of the Surviving Spouse's Separate Property

  2. Value of the Decedent's Gross Estate

  3. Amount of Charitable Bequests

  4. Amount of Funeral Expenses

Show answer
Correct Option: D
Explanation:

Funeral expenses are not a factor in determining the estate tax marital deduction.

What is the maximum estate tax rate applicable to estates of U.S. citizens or residents?

  1. 26%

  2. 35%

  3. 40%

  4. 45%

Show answer
Correct Option: C
Explanation:

The maximum estate tax rate for estates of U.S. citizens or residents is 40%.

Which of the following is not a type of generation-skipping transfer tax (GST) exemption?

  1. Lifetime GST Exemption

  2. Annual GST Exemption

  3. Direct Skip GST Exemption

  4. Taxable Termination GST Exemption

Show answer
Correct Option: C
Explanation:

There is no such thing as a Direct Skip GST Exemption.

What is the maximum GST tax rate applicable to generation-skipping transfers?

  1. 26%

  2. 35%

  3. 40%

  4. 45%

Show answer
Correct Option: C
Explanation:

The maximum GST tax rate is 40%.

Which of the following is not a type of trust that is exempt from generation-skipping transfer tax?

  1. Dynasty Trust

  2. Qualified Personal Residence Trust (QPRT)

  3. Grantor Retained Annuity Trust (GRAT)

  4. Charitable Remainder Trust

Show answer
Correct Option: A
Explanation:

Dynasty Trusts are not exempt from GST tax.

What is the purpose of a generation-skipping transfer tax?

  1. To prevent the accumulation of wealth in a single family over multiple generations

  2. To encourage charitable giving

  3. To reduce the national debt

  4. To fund social security programs

Show answer
Correct Option: A
Explanation:

The purpose of the GST tax is to prevent the accumulation of wealth in a single family over multiple generations.

Which of the following is not a type of trust that is commonly used for estate planning purposes?

  1. Revocable Living Trust

  2. Irrevocable Life Insurance Trust (ILIT)

  3. Qualified Personal Residence Trust (QPRT)

  4. Charitable Remainder Trust

Show answer
Correct Option: B
Explanation:

ILITs are not commonly used for estate planning purposes.

What is the primary benefit of using a revocable living trust?

  1. Avoids probate

  2. Provides asset protection

  3. Reduces estate taxes

  4. Provides privacy

Show answer
Correct Option: A
Explanation:

The primary benefit of a revocable living trust is that it avoids probate.

Which of the following is not a type of trust that is commonly used for charitable giving?

  1. Charitable Remainder Trust

  2. Charitable Lead Trust

  3. Donor Advised Fund

  4. Private Foundation

Show answer
Correct Option: D
Explanation:

Private Foundations are not commonly used for charitable giving.

What is the primary benefit of using a charitable remainder trust?

  1. Provides a stream of income to the donor during their lifetime

  2. Provides a tax deduction for the donor

  3. Avoids capital gains tax on the sale of appreciated assets

  4. All of the above

Show answer
Correct Option: D
Explanation:

Charitable remainder trusts provide all of the above benefits.

Which of the following is not a type of trust that is commonly used for tax planning purposes?

  1. Grantor Retained Annuity Trust (GRAT)

  2. Qualified Personal Residence Trust (QPRT)

  3. Irrevocable Life Insurance Trust (ILIT)

  4. Charitable Lead Trust

Show answer
Correct Option: C
Explanation:

ILITs are not commonly used for tax planning purposes.

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