Malcolm Finney outlines tax implications of a so-called Baker trust.
The tax treatment of trusts is complex, and an understanding of trust law is a great help.
The term ‘life tenant’ refers to a beneficiary of a fixed interest trust who is entitled to the trust income as it arises for life; the phrase ‘as it arises’ is important, as it means that no other person is entitled to the trust income before the life tenant. The trust is effectively transparent.
Although a life tenant is entitled for life to the trust income, this is not always the case; for example, the entitlement may cease after a fixed number of years or on the occurrence of a specific event (e.g., marriage). The entitlement may itself be restricted to income arising from only specific trust property, i.e., not all the trust property.
1920s case law
As
