Question

Where a beneficiary is under a legal disability and is presently entitled:

		Trustee pays the tax at the highest marginal rate
		Trustee pays the tax on behalf of the beneficiary at marginal tax rates
		Beneficiary pays the tax at the highest marginal rate
		Beneficiary pays the tax at marginal rates

Answer 1

According to the taxation laws for Trust, a trust or beneficiary is taxed depending on whether the beneficiary is presently entitled to get a share of the trust income and whether he is under a legal disability.

If a beneficiary is not entitled to get a share of the trust income then the trustee is taxed on that income at the highest Marginal tax rate.

However, if a beneficiary is entitled to get a share of the trust income but under a legal disability the trustee will pay tax on behalf of the beneficiary at marginal tax rates.

Conclusion

Based on above provisions since the beneficiary is entitled to get a share of the trust income but under a legal disability therefore the trustee will pay tax on behalf of the beneficiary at marginal tax rates.

Therefore OPTION B IS CORRECT.

Reasons for Other options are as follows:

Option A: Trustee pays the tax at the highest marginal rate - This provision will be applicable only if beneficiary is not entitled but in the question it is given that beneficiary is entitled to get a share of the trust income therefore this option is not true.

Option C: Beneficiary pays the tax at the highest marginal rate - Since the beneficiary is under a legal disability in the question therefore he will never be personally liable for tax therefore this option is not true.

Option D: Beneficiary pays the tax at marginal rates - Since the beneficiary is under a legal disability in the question therefore he will never be personally liable for tax therefore this option is not true.