Question

Woody wants to transfer some of the income from his investment portfolio to his daughter Wendy, age 10. Woody wants the trust to be able to accumulate income on Wendy’s behalf and to meet any excessive expenses associated with her chronic medical conditions. Furthermore, Woody wants the trust to protect Wendy against his premature death without increasing his Federal gross estate. Thus, Woody provides the trustee with the powers to purchase insurance on his life and to meet any medical
expenses that Wendy incurs. The trust is created in 2008. A whole life insurance policy with five annual pre-
mium payments is purchased during that year. The trustee spends $30,000 for Wendy’s medical expenses in 2018 (but in no other year). Woody dies in 2019. Has the trust been tax-effective? Explain.

Answer 1

A mnor child trustis designed to manage and protect assets for a child untill they reach a specified age,some minor trusts are intended to provide funds to benefit a minor child during childhood.

If a trust fund is invested solely in life insurance investment bonds,there will normally be no requirement to register the trust with the revenue and customs or to complete tax returns.this is because life insurance investment bond generates no actual income and is exempt from capital gains tax.a trustee tax return is required when the settlor has died, a trust does not come to an end simply because the settlor has died or initial assets have been realised.

So, in this case, the trust is tax effective only when settlor is dead and in others it is exempt from tax .