Leonard established a trust for the benefit of his son. The principal amount of the trust is $400,000. The trust is projected to earn approximately 5% per year. In the current year, the trust earned $20,000. Expenses of $4,000 were incurred. Assume that $14,000 is distributed to Leonard's son.a.How much income is taxed to the trust?b.How much income is taxed to Leonard's son?
What will be an ideal response?
| a. | $20,000 income - $4,000 expenses - $14,000 distribution = $2,000 taxed to trust |
| b. | $14,000 is included in Leonard's son's taxable income for the year. |
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