Question

Bonita is considering establishing a trust for her mother that will pay out $1,000 each month. The trust department at a local bank will act as trustee. Bonita will retain the right to revoke the trust and be the remainder beneficiary of the trust. If the trust earns $15,000 for the year, who must pay income tax on earnings?

a. Bonita will pay on $15,000.

b. Bonita’s mother will pay on $12,000, whereas the trust will pay on $3,000.

c. Bonita’s mother pays will pay on $12,000, whereas Bonita will pay on $3,000.

d. The trust will pay on $15,000.

Answer 1

Answer : Option a) Bonita will pay on $15,000

Explanation:

Any assets held by the trustee for the benificiary. Here Bonita first want to establish a trust for her mother and each month she will be pay $1000.

The revokation means, the parties acknowledge and agree that relaeses for up to the certain revokation period to transfer the trustee ship.

Bonita can revoke the trust and be the remainder beneficiarty of the trust.

After revokation she will be the trustee for the trust.

Then she will be pay income tax on her earnings on the trust for the year.

Thus, Option a) is correct and remaining options are incorrect.