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“Trust” is a very widely used word in the English language, and apart from its most common usage – “Trust me, I’m a…” – it’s also a significant word that permeates our entire legal system, and is frequently misunderstood.

Trust investments as well as simple trust funds, are held in the name of a Trustee, but the assets and the income of the Trust belong to the beneficiary or beneficiaries. It’s not unusual, especially when the Trustee is a parent of the beneficiary, for the Trustee to have significantly extended powers to deal with the capital or income of the trust, or both.

In a bid to avoid extensive exploitation by trustees who may wish to lower the tax they pay (and many people wish this!), the tax rates on “unearned income” (itself a contradiction in terms) received by minors produces a very high tax burden.

There is one shelter for this and that is a testamentary trust - one set up by a will and the subsequent death of the creator of the trust. Children aged 17 or less pay adult tax rates on income from a testamentary trust.

This is a perfect way to assist your children in lessening the financial burden of educating their kids.

The only minor catch is that you have to die for the benefit to start.