- 15 Marks
TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates
Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.
Question
Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.
For the year ended 30 September 2014, the Trust income amounted to ₦3,120,000. Each of the beneficiaries receives an annuity of ₦150,000 every year while the expenses incurred on the administration of the Trust was ₦57,500 per annum. The trustee is on a remuneration of 2% of the Computed Income.
Chief Zeta instructed that discretionary payments of ₦22,500, ₦17,500, ₦15,000, and ₦12,500 respectively should be made to Alpha, Beta, Cepha, and Delphi respectively. In addition, nine of the ten portions of the remainder of the Computed Income should be shared equally among the four children.
Chief Zeta has requested you to supervise the administration of the above Trust.
You are requested to:
a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)
b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)
c. Compute the income of the Trust. (3 Marks)
d. Determine the amount due to each beneficiary. (6 Marks)
e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Beneficiaries, Computed Income, Discretionary Payments, Estates, Income Tax, Trusts
- Level: Level 2
- Topic: Taxation of Trusts and Estates
- Series: MAY 2015