Question

Estate Finance Family Tax Plan Question

1. On January 2, 2000, Larry creates a trust with Tenleytown Trust Company as trustee. The trustee must distribute income to Susie. On January 2, 2005, the trust will terminate and the property will be distributed back to Larry. Assume that the trust is a grantor trust as to Larry under § 671.  

In 2001, the trust had the following receipts:

$50,000 of dividends from publicly traded stock.

$10,000 of interest from corporate bonds.

$10,000 from the sale of 1 limited partnership unit of David LP that has a basis of $5,000. The limited partnership unit was sold to Larry.

$10,000 from the sale of 1 share of publicly traded stock that has a basis of $1,000. The stock was sold on an exchange.

$10,000 of interest received from Larry on a loan that the trust made to Larry in 2000.

How much of the income is reported by the trust, how much is reported by Susie, and how much is reported by Larry? For each receipt analyze how much if any of each receipt is taxable income and how much income (if any) each of the trust, Susie and Larry report as a result of the trust's receipts.

Answer 1

Income of Larry : $69000 (Breakup below)

$50,000 of dividends from publicly traded stock. (Assume Larry property given to trust)

$10,000 of interest from corporate bonds.(Assume Larry property given to trust)

$9,000 Income from the sale of 1 share of publicly traded stock (Assume Larry property given to trust)

Income of Trust : $15000 (Breakup below)

$5,000 Income from the sale of 1 limited partnership unit of David LP that has a basis of $5,000. The limited partnership unit was sold to Larry.

$10,000 of interest received from Larry on a loan that the trust made to Larry in 2000.

Susie Income : Nil.