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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ESTATES AND TRUSTS Dela Cruz / De Vera / Llamado

1. The property, rights and obligations of a person which are not extinguished by his death and those
which accrued thereto since the opening of succession.
a. Assets b. Capital c. Estate d. Income

2. The term applied to the person whose property is transmitted through succession, whether or not he
left a will
a. Decedent b. Transferor c. Transferee d. Grantor

3. The term applied to the answer in No. 2 if he left a will

a. Transferor b. Grantor c. Donor d. Testator

4. The person called to the succession either by the provision of a will or by operation of law
a. Heir b. Devisee c. Legatee d. Trustor

5. The person to whom a gift of real property is given by virtue of a will

a. Heir b. Devisee c. Legatee d. Trustor

6. The person to whom a gift of personal property is given by virtue of a will

a. Heir b. Devisee c. Legatee d. Trustor

7. The person who establishes a trust

a. Heir b. Devisee c. Legatee d. Trustor

8. The person in whom confidence is reposed as regards property for the benefit of another person
a. Devisee b. Trustee c. Legatee d. Heir

9. The person for whose benefit a trust has been created

a. Legatee b. Heir c. Beneficiary d. Trustee

10. For income tax purposes, any person or corporation that holds in trust an estate (or property) of another
person or persons
a. Beneficiary
b. Fiduciary
c. Legatee
d. Devisee

11. Which of the following statements is correct?

a. Estates and trusts are allowed a personal exemption of P50,000 if the executor or trustee is married.
b. The income tax rates for corporate taxpayers apply to taxable estates and trusts.
c. The taxable year of estates and trusts may be calendar or fiscal year.
d. For a trust to be taxable, it must be irrevocable, both as to corpus (principal) and income.

12. Amark Pineda died on January 2, 2021, survived by his wife and four dependent children. He left a net
estate of ₱80,000,000 which is in the hands of an executor. In 2021, the estate had gross receipts of
₱6,000,000, cost of sales of ₱2,500,000, business expenses of P200,000, and non-operating income of
₱350,000. The net taxable income of the estate in 2021 is:
a. ₱800,000 c. ₱3,650,000
b. ₱650,000 d. None of the above.

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2021
Sales/Revenues/Receipts 6,000,000
Cost of Sales (2,500,000)
Gross income from operations 3,500,000
Less: Business expenses (200,000)
Net income from operations 3,300,000
Add: Non-operating income 350,000
Share in GPP net income -
Net taxable income 3,650,000

13. Lola Lilia died on February 2, 2021 leaving a net estate of ₱40,000,000. The estate is in the hands of an
executor. Benji (nephew of Lilia) and Grapes (niece of Lilia) were designated as heirs in Lola Lilia’s
will.

In 2021, the estate had a gross income of ₱2,500,000 and expenses of ₱750,000 on the properties in the
estate. In the same year, the executor distributed the following:

From the properties of the estate ₱250,000

From the estate’s income, to Benji (net of 15% CWT) 187,000
From the estate’s income, to Grapes (net of 15% CWT) 221,000

Benji, a CPA, earned professional fees in 2021 in the amount of ₱760,000, and incurred cost of services
and operating expenses of ₱100,000 and ₱12,000 respectively.

Compute the income tax payable/(refundable) of the estate, Benji (who chose OSD), and Grapes (who
chose to be taxed under the 8% tax regime) in 2021.

a) ₱271,000; ₱44,000; ₱(38,200)

b) ₱199,000; ₱44,000; ₱(38,200)
c) ₱271,000; ₱77,000; ₱8,000
d) None of the above.

Solution below:

Estate of Lola Lilia

Gross income
Less: Deductible expenses
Income distribution (gross of CWT)
Net income from operations
Add: Non-operating income
Share in GPP net income
Taxable net income
Tax due (table)
Less: Tax credits
Tax still due 271,000

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Benji
Sales/Revenues/Receipts
Add: Income received from estate (gross of CWT)
Total sales, revenues, receipts
Cost of services (0 if OSD)
Gross income from operations
Less: OSD (40% of Total Sales/Revenues)
Net income from operations
Add: Non-operating income
Share in GPP net income
Taxable net income
Tax due (table)
Less: Tax credits (15% CWT on income received from estate)
Tax still due 44,000

Grapes
Sales/revenues/receipts/fees -
Add: Income received from estate (gross of 15% CWT)
Add: Non-operating income
Total income
Less: ₱250,000 allowable deduction
Taxable income
Tax due (8%)
Less: 15% CWT
Tax payable (refundable) (38,200)

14. In 2020, Don Juan created a trust for his daughter Bella, and appointed Atty. Chris as the trustee. In
2021, the property Don Juan transferred to the trust, a 10-door apartment, earned rental income of
P237,500 per month, net of 5% withholding tax. Annual cost of revenues of P500,000, and deductible
expenses of P380,000 were incurred in the same year. 30% of the net income of the trust was given
to Bella in 2021.

Determine the income tax still due or income tax payable of the trust in 2021.

a) ₱161,200
b) ₱335,200
c) ₱185,200
d) None of the above.

Solution below:

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14) 2021
Gross receipts (gross of CWT)
Cost of revenues
Gross income
Less: Deductible expenses
Net income
Special deduction – 30% of net income (gross of CWT)
Net income after special deduction
Add: Non-operating income
Share in GPP net income
Taxable net income 1,484,000

Tax on 800,000 = 130,000

Tax on 684,000 x 30% = 58,200
Tax on 1,484,000 335,200

Less: 5% CWT
Tax Payable

15. Don Ybarra cut relations with his son for disobeying his wishes. However, since he wanted to continue
taking care of his 2 grandchildren, he decided to establish a trust for the benefit of the two.

In 2018, he established such a trust, appointed Atty. Damaso as trustee, and donated thereto the
following income-producing properties:

(1) A vacant lot with rentals of ₱200,000 monthly, gross of withholding tax of 5%; and
(2) An office building with a monthly rental income of ₱95,000, net of withholding tax of 5%.

In 2021, ordinary trust expenses totaled ₱1.3 Million, of which ₱300,000 was non-deductible for tax
purposes. Atty. Damaso distributed to each of the beneficiaries ₱212,500 each, net of the 15% CWT.

Compute income tax payable of the trust in taxable year 2021.

a) ₱267,000
b) ₱522,000
c) ₱342,000
d) None of the above.

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15) Solution:

16. Almira created two trusts, Trust 1 and Trust 2 with different trustees but with a common beneficiary.
The following data pertain to the trusts and the beneficiary’s own account:

Trust 1 Trust 2 Beneficiary

Gross Income P450,000 P1,090,000 P250,000
Allowable Deductions 75,000 125,000 100,000
Income distributed to beneficiary
(gross of CWT) 150,000 175,000

If the BIR decides to consolidate the taxable income of the 2 trusts, how much income tax shall be
paid by Trust 1 and Trust 2, respectively?

(a) ₱43,116 ; ₱151,384

(b) ₱0 ; ₱127,500
(c) ₱127,500; ₱194,500
(d) None of the above

16) Cons.
Trust 1 Trust 2 Trust
Gross income 450,000 1,090,000
Less: Deductible expenses (75,000) (125,000)
Income distribution (gross of CWT) (150,000) (175,000)
Net income from operations 225,000 790,000
Add: Non-operating income 0 0
Taxable net income 225,000 790,000
Income tax due (table) 0 127,500

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Trust 1: 194,500 x =

Trust 2: 194,500 x =

The End!!!

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