Newsletter
GIFT TAX IS PAYABLE ON IN-SURANCE TRUSTS
The Ministry of Finance (MOF) has authorized some commercial banks, including Grand Commercial Bank and Hua Nan Commercial Bank, to be engaged in insurance trust business. Insurance trusts, which combine trusts with life insurance, are a new financial product in Taiwan. But the banks' efforts to develop this business have been hindered by the fact that the creation of a trust in favor of a beneficiary other than the settlor creates a liability for gift tax. The MOF recently stated that in view of the fact that the proceeds of an insurance policy are not taxed and a trust for the settlor's own benefit does not incur any tax liability, the government does not at present feel it appropriate to abolish gift tax on trusts for the benefit of others; and that to do so would allow wealthy people to avoid tax liability by using trusts as a means to transfer their assets.
According to banks, people buying this kind of product generally choose to create the trust for the benefit of the settlor, while making their child both settlor and beneficiary. The parent, as legal guardian, signs the trust deed on the child's be-half. However, the disadvantage of this ap-proach is the risk that if the parent dies, the beneficiary's new legal guardian, or even the beneficiary himself, may, as settlor, seek to alter the terms of the trust, so that the purpose for which the parent originally created the trust may not be achieved.