The trust is created in $2022.$ A whole life insurance policy with five annual premium payments is purchased during that year. The trustee spends $$30,000$ for Wendy's medical expenses in $2025($but in no other year$).$ Woody dies in $2026.$

Complete the following paragraph regarding whether the trust has been tax$-$effective.

Assuming that Woody appoints

an independent trusteehimself as trusteehis daughter as trustee

$,$ the trust is tax$-$effective to a limited extent. Generally, since Wendy is subject to a

higherlower

marginal income tax rate than is Woody, the family's Federal income tax liability is

increasedreduced

with respect to all of the investment and capital gain income generated by that portion of his investment portfolio that he transfers to the trust. However, due to his daughter's current age, Woody needs to be concerned about the potential impact of the

capital gainskiddie

tax. The Kiddie Tax applies to a child if: the child is under age $19$ at year end or is a full$-$time student age $19$ to $23$; the child's