A Lifetime Benefit Trust (LBT) is established as a testamentary trust for a disabled beneficiary. Which statement accurately describes a key characteristic or planning consideration for an LBT in comparison to an inter vivos Henson Trust?

Question: A Lifetime Benefit Trust (LBT) is established as a testamentary trust for a disabled beneficiary. Which statement accurately describes a key characteristic or planning consideration for an LBT in comparison to an inter vivos Henson Trust?

Answer options: ✅ An LBT generally allows for capital gains to be taxed at graduated rates within the trust for a disabled beneficiary, unlike an inter vivos trust which is subject to top marginal rates.

• Contributions to an LBT are eligible for federal tax deductions for the donor, similar to Registered Disability Savings Plans (RDSPs).
• An LBT must terminate when the beneficiary reaches age 65, at which point all remaining assets are distributed directly to them.
• Assets held within an LBT are automatically exempt from seizure by creditors of the beneficiary, irrespective of the trust's specific terms.

Correct answer: An LBT generally allows for capital gains to be taxed at graduated rates within the trust for a disabled beneficiary, unlike an inter vivos trust which is subject to top marginal rates.

Explanation: A Lifetime Benefit Trust established in a will can qualify as an 'alter ego' or 'spousal/common-law partner' trust, or sometimes a 'qualified disability trust' (QDT) under the Income Tax Act, allowing it to be taxed at graduated rates, offering significant tax advantages compared to most inter vivos trusts which are typically taxed at the highest marginal rate.