Deck 23: Estates and Trusts

Question 1

A person appointed by the court to administer the affairs of a decedent when no such person was named in the will is called a(n) ______________________________.

Answer 1

administrator

Question 2

A person who is named in a decedent's will to serve as the personal representative of the decedent in administering the estate and who is appointed by the court to serve in that capacity is called a(n) ___________________________________.

Answer 2

executor

Question 3

A gift of real property is referred to as a(n) _____________________________________.

Answer 3

devise

Question 4

A gift of personal property is referred to as a(n) _______________________________.

Question 5

A trust that is created during the life of a person is called a(n) __________________ trust.

Question 6

A trust that comes into being upon the death of a person pursuant to provisions in the will of the decedent is called a(n) __________________________________ trust.

Question 7

That party to a trust who is entitled to the income earned on trust assets is called the _______________________________________.

Question 8

That party to a trust who is entitled to the principal or corpus of the trust is called the _______________________________________.

Question 9

That party to a trust who takes title to trust property and administers the property for the benefit of others is called the __________________________________.

Question 10

The party to a trust agreement who created the trust is called the _____________ _______________________________.

Question 11

A term used to refer to having died with a will is _______________________________.

Question 12

A term used to refer to having died without a will is ____________________________.

Question 13

The recipient of personal property being distributed pursuant to a will is called a(n) ________________________________________.

Question 14

For the most part, the basis used in accounting for estates and trusts is the ___________________________________ basis.

Question 15

The first reference source in determining whether an item pertains to trust income or trust principal is the ___________________________________________.

Question 16

The second reference source in determining whether an item pertains to trust income or trust principal is ________________________________________.

Question 17

A trust, unlike an estate, is an accounting entity and a legal entity.

Question 18

Under the Revised Uniform Principal and Income Act (of 1962), the rights of income beneficiaries begin at the time assets are actually transferred to the trustee.

Question 19

If the income beneficiary and principal beneficiary are the same person, a built-in clash of interests still exists between these interests.

Question 20

Generally accepted accounting principles are the last resort in attempting to determine whether a transaction pertains to principal or income.

Question 21

Except at certain points in time, the cash basis of accounting fits in best with the underlying objective of the fiduciary.

Question 22

It is usually unnecessary to use the accrual basis of accounting at the end of probate administration.

Question 23

Probate is the process of determining the value of a person's estate for tax purposes.

Question 24

When a person dies, the title to his or her property passes to the probate court temporarily.

Question 25

A legacy is a gift of personal property.

Question 26

The probate estate includes all items included for federal estate tax purposes.

Question 27

The burden of state inheritance taxes usually falls on the recipient of the property.

Question 28

The account Estate Principal reflects the net worth of an estate.

Question 29

Depreciation is optional under the Revised Uniform Principal and Income Act (of 1962).

Question 30

Under the Revised Uniform Principal and Income Act (of 1962), "unusual charges" are to be charged against principal.

Question 31

The nature of the transactions of an estate is different from the nature of those of a trust.

Question 32

_____ The basic task of a trust fiduciary (a trustee) is to

A) Settle disputes between the principal beneficiaries and the income beneficiaries.
B) Prepare the appropriate tax returns relating to the trust.
C) Account for the assets entrusted to him or her in a manner that reflects their net worth.
D) Account for the assets that flow in and out of his or her control.
E) Prepare reports for periodic accounting to the courts.

Question 33

_____ Under the Revised Uniform Principal and Income Act (of 1962),

A) Testamentary trusts are deemed to be created at the termination of probate proceedings.
B) Inter vivos trusts are deemed to be created at the time of death.
C) The accrual basis is required.
D) The cash basis is required.
E) None of the above.

Question 34

_____ In determining whether a transaction pertains to principal or income, which of the following is not a point of reference unless specified?

A) Case law.
B) State law.
C) Generally accepted accounting principles.
D) Trust agreement.
E) None of the above.

Question 35

_____ Under the Revised Uniform Principal and Income Act (of 1962), the accrual basis (in most respects) is not required

A) At the time of the decedent's death.
B) At the conclusion of probate administration.
C) At the beginning of an income beneficiary's rights.
D) At the end of an income beneficiary's rights.
E) None of the above.

Question 36

_____ A person who takes title to trust property is known as a(n)

A) Trustee.
B) Trustor.
C) Executor.
D) Administrator.
E) Principal beneficiary.

Question 37

_____ Under the Revised Uniform Principal and Income Act (of 1962), which of the following does not hold true?

A) Gains on dispositions of principal assets increase principal.
B) Losses on dispositions of principal assets decrease income.
C) Costs of investing and reinvesting principal assets are to be charged against principal.
D) Stock dividends go to principal.
E) None of the above.

Question 38

_____ Under the Revised Uniform Principal and Income Act (of 1962), which of the following does not hold true?

A) Extraordinary repairs paid out of principal may not be recouped from income.
B) Liquidating dividends are considered to be principal.
C) Taxes levied on gains allocable to principal are to be charged against principal.
D) Trustee's fees are to be shared equally between principal and income.
E) None of the above.

Question 39

_____ Under the Revised Uniform Principal and Income Act (of 1962), which of the following does not hold true?

A) Depreciation is mandatory.
B) Losses of any business in which principal is invested are charged to income.
C) Income taxes attributable to trust income are chargeable against income.
D) Insurance premiums on principal assets are chargeable against income.
E) None of the above.

Question 40

Prepare the journal entry or entries required for each of the following inde-pendent items:
a. The executor discovered a coin collection worth $500.
b. The executor received payment of the decedent's life insurance policy for $40,000.
c. The executor received bond interest of $5,000, of which $1,000 related to a period before the decedent's death.
d. The executor paid personal liabilities of the decedent totaling $2,500.
e. The executor paid estate taxes of $7,000.
f. A portion of the estate's bonds were sold to raise cash. The proceeds were $15,000; the decedent's cost was $17,000. The value of the bonds at the time of the decedent's death was $14,000.
g. Income taxes relating to estate income, totaling $3,000, were paid.
h. The executor made a cash distribution of $9,000 to the income beneficiary.
i. The executor transferred $45,000 of principal cash to the trustee.
j. The trustee's fee of $400 was paid.
k. Income taxes relating to a gain on the sale of principal assets, totaling $6,000, were paid.
l. The trustee paid $1,800 in legal fees relating to defending title to the trust's assets.
m. Interest expense of $7,200 was paid on the mortgage relating to the apartment house held by the trust.
n. A business in which principal is invested reported a loss of $8,500 for the year.
o. The trustee received a loan prepayment fee of $500 relating to a loan made by the trustee.
p. Depreciation expense of $3,600 was recorded on trust assets with simultaneous settlement being made.
q. Major unexpected repairs totaling $4,200 were paid out of trust principal. These repairs should benefit the next seven years, counting the current year.