Question #23 of 85Your client has taken the following actions:Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operationFunded the trust with a diversified portfolioNamed herself trustee and specified that, upon her death, her husband is to become the trusteeNamed herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's deathWhich one of the following is an income tax implication of this trust arrangement? A)Your client, the grantor, must pay income tax on all income earned by the trust. B)The trust must pay income tax on earned income that is not distributed. C)The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries. D)Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries.

Income tax refers to the percentile tax imposed by the government on the income earned by an entity.

Answered: the trust with a diversified portfolio…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question #23 of 85

Your client has taken the following actions:

Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operation
Funded the trust with a diversified portfolio
Named herself trustee and specified that, upon her death, her husband is to become the trustee
Named herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's death

Which one of the following is an income tax implication of this trust arrangement?

Your client, the grantor, must pay income tax on all income earned by the trust.

The trust must pay income tax on earned income that is not distributed.

The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries.

Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries.

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