Jack Mason is a single parent with three minor children. His will provides for the creation of a trust for the benefit of his three children. His entire net estate is to be placed into the trust, and the trustee is authorized to approve disbursements to the children until they reach the age of 25. Upon reaching the age of 25, each child is to receive their proportionate share of the trust principal and income. For example, the first child to reach age 25 will receive one-third of the trust principal and income. The next child to reach age 25 will receive one-half of the trust principal and income at that time.
The following facts relate to the trust between the time of Mason’s death and the first child’s 25th birthday.
a. The following assets were transferred to the trust after the settlement of Jack Mason’s estate:
Cash, $100,000; stock in IBM, $150,000; investment in real estate partnership, $400,000; and forest land, $200,000.
b. Subsequent to Mason’s death, an investment in a limited partnership was discovered. The investment was valued at $40,000.
c. One-half of the investment in the real estate partnership was sold for $220,000.
d. Dividends on the IBM stock were received in the amount of $20,000. The dividend was declared prior to Mason’s death.
e. All cash balances were invested in a short-term interest-bearing account, and the trust received $5,000 in interest.
f. The trustee for the benefit of the children approved disbursements in the amount of $32,000. Disbursements are first considered to be a distribution of available trust income and then as a distribution of trust principal.
g. Trustee’s fees in the amount of $10,000 were paid. All such fees are to be allocated equally between principal and income.
h. Eight percent bonds with a face value of $80,000 were purchased for $84,000. The bonds have a remaining life of five years, and any premium is to be amortized.
i. Income from the harvest of timber in the amount of $22,000 was received. The trust document calls for a charge against income for depletion. Depletion is calculated based on a units-of-output method that is based on board feet of timber harvested. Approximately 11% of the total board feet are represented by this harvest. The land is expected to have a residual value of $60,000 after removal of the timber.
j. Real estate taxes on the land in the amount of $6,000 were paid. Such taxes are considered a component of trust income.
k. The real estate partnership made a distribution of income in the amount of$22,000to the trust.
l. A semiannual interest payment on the bonds was received by the trust.
m. The trustee paid $6,000 of taxes on trust income.
n. IBM stock with a basis of $60,000 was sold for $80,100.
Prepare a schedule to determine the amount of trust principal to be received by the first child to reach the age of 25. The schedule should show the cash balance available at any point in time.

  • CreatedApril 13, 2015
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