Discounted Gift Trusts (Part II): The Potential Disadvantages of a DGT into a Discretionary Trust

[In the last article we discussed how these work and their advantages].

The gifted Relevant Property (the settled trust fund minus the “carved out” discount) is now a CLT, not a PET as previously. If this Relevant Property value exceeds any exemptions and the settlor’s remaining NRB, there will be an immediate IHT charge on the excess at 20%, or 25% if the settlor pays the IHT.

© Martin Coulter - Estate Planning Solutions Ltd

Discounted Gift Trusts (Part I): The Tax Savings and The Tax Costs

For well over a decade discounted gift trusts have enabled thousands of clients to make Potentially Exempt Transfers (and latterly Chargeable Lifetime Transfers (CLTs)) while retaining a regular capital withdrawal from the gift. All without falling foul of the FA 1986 gift with reservation of benefit provisions.

© Martin Coulter - Estate Planning Solutions Ltd

Life Assurance Bonds - An Introduction to the Taxation Aspects for the Estate Practitioner

Background

Life assurance bonds are assets found in more and more estates, having been heavily sold by financial advisers, especially banks, during the last 10 or 15 years. In some cases they will be a simple investment held by the deceased, but more competent financial planners and tax advisers may have used life assurance bonds and their cousins, capital redemption bonds, with specific forms of trust.

© Mark Potter

How to complain about financial advice

As part of the administration of an estate, many probate practitioners have asked my firm to advise on the potential for redress as a result of a financial product that they feel was unsuitable. This process starts with understanding what the particular product does, how it was set-up, and what it was meant to achieve – and thus if it was demonstrably unsuitable. This is not always as straightforward as it seems.

© Martin Coulter - Estate Planning Solutions Ltd

Extra Flexibility for IHT Mitigation Plans

One way of getting some immediate reduction in the value of an estate for IHT purposes while retaining an income from the asset value donated is to use a discounted gift scheme (covered in another article on this web site). However, it can be argued that the discount turns out to be of no value if the donor survives the usual target 7 years. So a price has been paid and after 7 years may seem to have been a high one: being locked into a possibly inflexible investment product, usually a life assurance bond, and having a fixed income stream, which may not be required after all.

© Mark Potter - Ethos Financial Management Ltd

Pension Scheme Death Benefits - Inheritance Tax Issues

On considering how a pension fund death benefit will be treated under the Inheritance Tax rules, it is firstly necessary to establish if the capital arises from a source that is crystallised, HMRC jargon for post retirement, or one that is still in the accumulation phase. It is sometimes further necessary to categorise the source as an occupational pension (employer controlled) or a personal pension (member controlled, even if sometimes employer sponsored).

© Mark Potter - Ethos Financial Management Ltd

Trustee Investment Advice and the Financial Crisis

Any practitioner involved in reviewing trust investments over the past 12 months will know how sensitive an issue this has become.

The Association of Private Client Investment Managers’ (APCIMs) benchmark indices, used for trust funds that have an income and/or growth objective, have fallen by over 30%.

© Martin Coulter

Pension scheme death benefits and 'protected rights'

Part of an employed person’s State pension is related to their earnings. The two main earnings related pensions are the old State Earnings Related Pension Scheme (SERPS) and the State Second Pension (S2P) which replaced SERPS in 2002. Some people also have Graduated Pension rights built up prior to 1978, but these are now trivial as the value has not been inflation proofed.

© David Room - Ethos Financial Management Ltd

Death Benefits to Dependants & Charity

Background

Recent figures have shown that an increasing number of clients with large pension funds are deciding to keep these funds invested, taking retirement income by drawdown, rather than spending the entire fund on a fixed annuity income.

© Martin Coulter - Estate Planning Solutions Ltd

Do Discounted Gift Schemes Work?

Inheritance Tax mitigation schemes involving the issue of life assurance bonds are worthy of a sceptical assessment, not least because the commissions paid by insurers to financial advisers who recommend such bonds can be as high as 7.5% of the capital value invested, which will be a potential motivation for self employed advisers and bank employees with targets to meet.

© Mark Potter - Ethos Financial Management Ltd

Where to invest for income in a low interest rate world

Trustees with an obligation to generate an income for entitled beneficiaries have customarily been able to pick from National Savings products and gilts at the bottom of the risk range, cash deposits for liquidity and to buffer fluctuations in capital prices, corporate bonds or structured products and equity income shares where some volatility of capital values over the shorter term is acceptable.

© Mark Potter - Ethos Financial Management Ltd

Equity Release - The Devil is in the Detail

Large numbers of elderly clients continue to regret having taken out these restrictive and costly plans. Meanwhile, the heavily resourced PR Departments of the product providers continue to produce veneer thin analyses, published in the press as “expert guides”, in support of these plans.

Sadly, the many costs and disadvantages of equity release are not discussed in these newspaper articles, and the conclusions are dressed up as independent “tips” and “guidelines” for the elderly. Alas, the market has not changed, and great caution should still be observed in advising on and using an equity release product.

© Martin Coulter - Estate Planning Solutions Ltd

A look back at investment markets in 2008

The reasons why 2008 was the year in which global equity markets collapsed are complex. However, we can now understand the basic causes.

© Mark Potter & David Room - Ethos Financial Management Ltd

Probate – Finances on the First Death of a Married Couple

The Primary Objective -- Income

On death it is the immediate income and cash position of the surviving spouse that is the most pressing personal concern. The spouse is often worried about their own financial security and what income and assets he/she will actually be left with.

© Martin Coulter - Estate Planning Solutions Ltd