Empower Minors: Testamentary Trust Tax Advantages

Income distributed to minors from a Testamentary Trust is considered ‘excepted trust income’ and is taxed at standard adult marginal tax rates instead of higher penalty rates, resulting in potential tax savings. Consider a scenario involving beneficiaries Ron and Tracey, who are minors and beneficiaries of a Testamentary Trust. When the trust generates income, distributing it equally between Ron and Tracey can result in substantial tax savings due to the special tax provisions for Testamentary Trusts. They will not be taxed at a penalty rate like the other trusts.