Part A
Identify the federal rate of tax payable by each of the following trusts settled by Mrs. A:
(a) On June 1, 2008, Mrs. A settled a maple leaf gold coin on her daughters, B and C, in trust for her grandchildren.
(b) Mrs. A's will provides that her shares of ABC Co. are to be held in trust for her grandchildren.
(c) Same as (b) above; however, subsequent to Mrs. A's death, Mrs. A's daughter, B, transfers assets to the trust.
Part B
Mr. B died on March 15, 2008. Mr. B's will provides that the residue of his estate is to be transferred to a trust for the benefit of his wife, Mrs. B, a resident of Canada. The will provides that the income of the trust is to be paid to Mrs. B. The will also provides for a liberal power to encroach on capital for the benefit of Mrs. B. On Mrs. B's death, the trust's assets are to be distributed to the Bs' children. Mr. B's assets include shares of ABC Inc. which were purchased about 25 years ago for $10 and have a fair market value at his death of $1,000.
REQUIRED
(A) What are the tax consequences to Mr. B arising out of the transfer of the ABC Inc. shares to the trust for Mrs. B?
(B) How would your answer to (A) be different if Mr. B's will provided the trustees with the power to encroach on capital for the benefit of the Bs' children?
Part C
Mrs. Jones died about six years ago. Under the terms of her will, an investment portfolio was settled on Mr. Shrewd and Mrs. Clever, as trustees, for the benefit of her daughter, Hilary Jones. In 2008, the trust will have substantial income comprised almost exclusively of capital gains. The trust has a non-capital loss carryforward which arose three years ago.
REQUIRED
Hilary's income from other sources is substantial with the result that any allocation of income from the trust to her will increase her overall tax liability. Is there any strategy that can be adopted by the trustees in order to reduce the taxes payable in respect of a distribution to Hilary?