Testamentary trusts allow for a tax effective distribution of income after death.
Testamentary trusts are created within and by a person’s Will, but do not take effect until after their death
Any taxable income generated by a testamentary trust is either held by the trust or allocated to the beneficiaries in a tax-effective manner.
Beneficiaries pay tax at their individual marginal rates on the income they receive from the trust. However, beneficiaries under the age of 18 are taxed at normal adult rates instead of the penalty tax rate applied to minors.
This is where the potential for tax savings can be substantial.