Question

a testamentary trust has been designated as a graduated rate estate (gre). in accordance with the decedent's will, the widow and the decedent's adult son each receive 40% of the gre's income and the remaining 20% of the gre's income is retained in the gre. briefly describe the income tax consequences of the income earned and retained by the gre, and the income distributed by the gre to the widow and son.

Answer 1

A testamentary trust designated as a Graduated Rate Estate (GRE) has specific income tax consequences for the income earned and distributed. The retained income is taxed at the trust level, while the distributed income is taxed in the hands of the recipients as individuals.

Step-by-step explanation:

A testamentary trust designated as a Graduated Rate Estate (GRE) has specific income tax consequences for the income earned and distributed. In this case, 40% of the GRE's income is distributed to both the widow and the adult son, while the remaining 20% is retained in the GRE.

For the income earned by the GRE and retained, it will be subject to taxation at the trust level based on the applicable graduated tax rates. The trust will need to file a separate tax return and pay taxes on the retained income.

As for the income distributed to the widow and son, it will be taxable in their hands as individuals. They will need to report this income on their personal tax returns and pay taxes based on their individual tax brackets.