The grantor set up a trust, income to a daughter, remainder to a grandson. To the extent that trust income is used to pay a life insurance premium on the grantor's spouse, Subchapter J rules are ignored, and the income is taxed to the grantor.

Question

Quizplus · Accepted Answer

Subchapter J rules govern the taxation of trust income, but when the income is used to pay life insurance premiums on the grantor's spouse, these rules are ignored and the income is taxed to the grantor. This is known as the "grantor trust" rule. Therefore, the statement is true.

The Grantor Set Up a Trust, Income to a Daughter