Taxation of Inter Vivos Trusts
KNOWLEDGE EXPECTED OF: CFP® Professionals Only
- Define an inter vivos trust.1
- Identify how an inter vivos trust is viewed in relation to the parties to the trust for tax purposes.
- Explain how property transferred into an inter vivos trust may be treated for tax purposes.
- Explain circumstances when a tax-deferred transfer of capital property may be made into an inter vivos trust.2
- Identify circumstances when an election to opt out of a tax-deferred rollover of property into an inter vivos trust may be beneficial, such as:
- Settlor has carry-forward capital losses that may be used to offset capital gains upon deemed disposition of property
- Settlor has capital gain deduction limit that may be used upon deemed disposition of property
- Explain how income earned by an inter vivos trust will be taxed.
- For income retained by a trust
- For income distributed to the beneficiaries
- Explain when property is deemed to have been disposed of by an inter vivos trust.
- For a spousal trust
- For an alter ego trust
- For a joint partner trust
- For all other trusts
- Define a preferred beneficiary of a trust for income tax purposes.3
- Explain the value at which capital property may be transferred to a beneficiary from an inter vivos trust.
- When the trust is irrevocable
- When the trust is revocable
- Identify that an election is available where a preferred beneficiary may be allocated income from an inter vivos trust without having the funds distributed to them.
- Identify the tax year end for an inter vivos trust.
- For an inter vivos trust
- For an inter vivos trust in the year the trust is wound up
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