Because every taxpayer has a tax free threshold, the ideal and totally lawful way to reduce, or even eliminate personal income tax is to spread income to as many different family taxpayers as possible.
Unfortunately this doesn’t work very well if the family consists of husband, wife and a stack of kids under the age of 18 where unearned income in the hands of children is taxed at what some might suggest is a punitive rate – namely 19%.
Grandparents aren’t always around to see their grandchildren as teenagers, which is when they are at their most expensive – money going out for school fees and equipment, uniforms, excursions, sports fees, clothing that’s grown out of before it wears out, and of course to feed their appetites!
Grandparents can help provide for these expenses and one way that is very effective is to establish a testamentary trust for the benefit of their underage taxpayers. The catch? The trust only becomes active, and lifts the tax free income of children from $415 to $18,200 when the benefactor dies.
I prefer to watch them grow up and start earning!