INCOME TAXATION OF TRUSTS AND ESTATES

CLASS PROBLEM #1

1. Determine whether trusts in the following situations would be taxable under the provisions of Subpart B (i.e., would it be considered a "simple trust"):

(a) All income is required to be distributed currently, but the trustee distributed 2005 last quarter's income on January 5, 2006.

(b) All income is required to be distributed currently, but the trustee is given the power in his discretion to "sprinkle" such income among the beneficiaries in such amounts as he sees fit.

(c) All income is required to be distributed currently, but the trust instrument requires the trustee to retain a reserve for depreciation out of current income to keep the trust corpus intact.

(d) All income is required to be distributed currently, except that the trust instrument required the trustee to use not less than one-third of the trust income to repay principal installments of a mortgage on rental property of the trust.

(e) Trust agreement requires that all income be paid quarterly to B for life, remainder to X charity on B's death. The trust receives no income allocable to corpus for the year.

(f) Trust instrument provides that all income is to be accumulated until A, the sole income beneficiary, reaches age 18. After A reaches the age of 18, the fiduciary is required to distribute all income currently and may, in her discretion, distribute corpus or accumulated income.

(1) The beneficiary, A, is age 16.

(2) A is 20 years old and the fiduciary distributes all the income that was accumulated during A's minority in addition to all current income.

(3) A is 21 years old and the fiduciary distributes only current income.