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Tax consequence associated with a defective trust

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Reference no: EM133071511

Your client, Grace and Juan Rodriguez, have three small children, and own a small home in Phoenix, Arizona. You are a CFP professional and helped guide them through the process of setting up a revocable living trust. Grace and Juan put their home and cash accounts into the trust. The trust is named the Rodriguez Family Trust.

1. The Rodriguez Family Trust buys a vacation home which is rented out and holds some marketable securities and cash. The trust received taxable income of $3,000, capital gains of $5,000 and rental income of $12,000. The trust distributed $25,000 to Jim's son, Jimmy. What is the amount that the trust can deduct for distributions made to Jimmy?

A. $5,000

B. $25,000

C. $10,000

D. $15,000

2. Which of the following is not a tax consequence associated with a defective trust?

A. The income tax is shared by the trust and the trust beneficiaries.

B. Known as an asset freezing technique to avoid estate taxes on appreciating assets

C. The trust assets are removed from the Grantor's estate.

D. The Grantor is subject to income tax.

Reference no: EM133071511

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