Question

The Taffy Trust is a simple trust. Sean is its sole beneficiary. In the current year, the trust earns $12,000 in taxable interest and $30,000 in rental income. In addition, the trust recognizes a $4,000 long-term capital gain and $1,100 long-term capital loss. The trustee charges a fee of $6,500 for the year. Depreciation related to the rental property is $2,800.

a. If the trust agreement allocates fees, depreciation, and capital gains and losses to corpus, trust accounting income is $42,000.

b. However, if the trust agreement allocates one-half of the fiduciary's fees, as well as all of the capital gains and losses to income, the trust accounting income is:

(i) $39,450
(ii) $41,200
(iii) $44,100
(iv) $46,550

Answer 1

The correct trust accounting income for the Taffy Trust, when accounting for one-half of fiduciary fees and all capital gains and losses as income, is $41,650, which is not one of the provided options.

Step-by-step explanation:

The Taffy Trust's trust accounting income calculation depends on the allocations stipulated in the trust agreement. In scenario b, if the trust agreement specifies that one-half of the fiduciary's fees and all capital gains and losses are allocated to income, we can determine the trust accounting income by making the following calculation:

• Total rental income and taxable interest: $30,000 + $12,000 = $42,000
• Capital gain net of capital loss: $4,000 - $1,100 = $2,900
• One-half of fiduciary's fees: $6,500 / 2 = $3,250 (allocated to income as per the given scenario)
• The trust accounting income is: $42,000 (rental and interest income) + $2,900 (net capital gain) - $3,250 (one-half fiduciary's fees) = $41,650

Therefore, none of the options (i) $39,450, (ii) $41,200, (iii) $44,100, or (iv) $46,550 are correct. the correct trust accounting income based on the trust agreement specification in scenario b is $41,650.