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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Tools for Estate Planning

Mr. Sanjay Mehta, 70, created a revocable trust in which he is also the trustee and transferred his flat to it, with his son as beneficiary after his death. Which statement is correct?

Because the trust is revocable, Sanjay keeps control and can take the flat back, so income from it is taxed in his hands while the power to revoke exists. The son does not become owner at the time of transfer.

  1. AThe trust is irrevocable because assets were transferred
  2. BThe flat is treated as legally owned by the son from the day of transfer
  3. CBecause the trust is revocable, Sanjay retains control and the income remains taxable in his hands while he retains the power to revokeCorrect
  4. DProbate is mandatory for the flat in all cases

Explanation

In a revocable trust the settlor can take back the assets, so he retains control. Under the Income-tax Act, income from assets transferred under a revocable transfer is taxed in the transferor's hands. The son has no ownership until the trust operates in his favour after Sanjay's death.

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