A testamentary trust is established in a will to hold assets for a minor beneficiary until they reach the age of 25. What is a primary tax advantage of this trust structure for the beneficiary's income while a minor?

Question: A testamentary trust is established in a will to hold assets for a minor beneficiary until they reach the age of 25. What is a primary tax advantage of this trust structure for the beneficiary's income while a minor?

Answer options: ✅ The trust income is taxed at the graduated personal rates of the minor beneficiary.

• The trust income is tax-exempt until distribution.
• The trust income is taxed at a flat rate, usually the highest marginal rate.
• The trust income is taxed at the parent's marginal tax rate.

Correct answer: The trust income is taxed at the graduated personal rates of the minor beneficiary.

Explanation: For beneficiaries who are minors, a testamentary trust can be established to hold assets. Income earned by the trust for the benefit of a minor, and paid out to them, is generally taxed at the minor's lower graduated personal tax rates under section 104(2) of the Income Tax Act, provided the trust is not an 'alter ego' or 'spousal' trust.