Answer to Question #104523 in Finance for Milan

Question #104523
In 2012, Larry creates a trust with Ted as trustee. Ted (as trustee) may distribute income and principal to Susie, Jeff and Leon to provide for their health, education, maintenance and support at his discretion. In 2012, the trust has $15,000 of interest and $15,000 of dividends. Additionally, the trust received $115,000 for the sale of an asset with a basis of $100,000. In 2012, $15,000 is distributed to Susie, $10,000 is distributed to Jeff and $5000 is distributed to Leon. How much income does each of Jeff, Susie, Leon and the trust report for 2012 and why?
1
Expert's answer
2020-03-06T10:50:25-0500


As a General rule, a trust as a trust property is built according to the following scheme: the person establishing the trust property (settlor of the trust) stipulates that some property will be managed by one or more persons (trustees) in the interests of other one or more persons (cesfuis que trust). In Anglo-American law, fiduciary ownership (trust) is a form of ownership, the peculiarity of which is that one person is the owner of the property transferred to him by another person for certain purposes specified by the founder of the trust. The acquirer-the Trustee-uses the received property not quite freely, not at his own discretion, but in accordance with the purposes specified to him by the Trustee. This person exercises his right not for himself, but for other beneficiaries; moreover, the beneficiary can act as the founder of the trust, as well as other persons specified by them. As a result, there is a kind of "splitting" of property rights, when one part of the powers - management, disposal of property - belongs to one person, and the other part - the use of income, benefits from the property transferred to management - to another. This understanding of a trust as a trust property in Anglo-American law still exists today.


Therefore, Susie, Jeff, and Leon receive interest and dividends from the trust use of the property. And the trust receives income from the sale of property in the amount of 115,000-100 000=15000



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