Thanks to the ingenuity of some folks in the pre zombie days, it seems the trustee of Bearkat Trust can distribute any amount of accounting income and corpus (or retain income if desired) to the trust beneficiaries, Lynda and Karl. This year, the trust earned and incurred the following:
Taxable Interest $70,000
Tax exempt interest 40,000
LT Capital gain (allocated to corpus) 40,000
Fiduciary fees (allocated to income) 10,000
The trustee distributed $60,000 to Lynda and $30,000 to Karl during that year. (Bummer, he distributed nothing to us! And worse, there was no provision to pay for any research on stopping the apocalypse, which seems awful selfish….)
QUESTIONS: Briefly please explain/show computations of all answers, not just a number! You can use the book’s format or how I have shown you. Do NOT prepare a return.
What is Bearkat Trust’s trust accounting income?
What is Bearkat Trust’s taxable Income?
What is Bearkat Trust’s DNI?
What is the trust taxable income after the distribution deduction? What is the trust’s tax, if any?
What elements of the income activity or corpus do each of the beneficiaries receive and how much would be taxable to each of the beneficiaries, if anything? Explain.