A distribution to an estate's sole beneficiary for the current calendar year equaled $15,000, the amount currently required to be distributed by the will. The estate's current year records were as follows:
Estate income $40,000
Taxable interest Estate disbursements $34,000
Expenses attributable to taxable interest
What amount of the distribution was taxable to the beneficiary?
a. $0
b. $6,000
c. $15,000
d. $40,000
Answer:B
Choice "b" is correct. The amount of income an estate beneficiary reports from the estate is limited by the estate's distributable net income, $6,000 in this case. Because the estate distributed $15,000 to the beneficiary, all $6,000 of its distributable net income is taxed to the beneficiary, and the estate will have no taxable income to report. The $9,000 ($15,000 - $6,000) the beneficiary received in cash over the amount of taxable income is treated as a nontaxable distribution of principal.
Choice "d" is incorrect. The estate income must be reduced by the estate disbursements.
Choice "c" is incorrect. The entire distribution to the beneficiary is not taxable to the beneficiary. Some of the distribution is treated as a distribution of principal.
Choice "a" is incorrect. Some of the distribution to the beneficiary is taxable to the beneficiary. Only part of the distribution is treated as a distribution of principal.