FOR FINANCIAL ADVISERS ONLY TRUST RANGE

THE GIFT TRUST CASE STUDY

INTRODUCTION

The Gift Trust is designed to enable the Settlor(s) to pass assets by way of an Inheritance Tax efficient gift to the , for the benefit of beneficiaries. After 7 years the assets are completely outside of the Settlor(s) estate for Inheritance Tax purposes.

The trust form is designed for use with plans issued by RL360 and is designed to allow distribution of the plan proceeds to the trustees without the need for a grant of /letters of administration/ confirmation.

The Settlor(s) has the option of establishing the trust as either a Bare Trust or a . There are important differences between the two trust provisions in their Inheritance Tax treatment.

If the Bare Trust form is selected, any previous lifetime transfers For this reason, the Settlor must the Settlor will make a potentially made by the Settlor within the not be named as a . If exempt transfer (PET) for preceding seven years. In addition, he/she is, then this will prejudice Inheritance Tax purposes. the Trust Fund will be treated the tax effectiveness of the trust. Each Appropriate Share will as being “relevant property” for Regardless of which version of the form part of the estate of the Inheritance Tax purposes, with trust is chosen, the trust will avoid relevant Named Beneficiary. periodic charges to tax at 10 yearly Isle of Man Probate. intervals and tax on property If the Discretionary Trust form is exiting the Trust or possibly on the For further information regarding selected, the making of the Trust termination of the Trust, if the value the Gift Trust and the implications will be a chargeable lifetime transfer of the Trust Fund at the relevant of establishing it on either a Bare (CLT) of value by the Settlor for time exceeds the nil rate band. or Discretionary basis, please refer Inheritance Tax purposes, and to our Guide to Trusts. Inheritance Tax at lifetime rates Whichever form of trust is will be immediately payable on chosen, any increase in the the value of the plan transferred value of the Trust Fund will be to the Trustees that exceeds the outside the Settlor’s estate for nil rate band, taking into account Inheritance Tax purposes.

1 CASE STUDY Five years pass and Charlotte’s IMPORTANT NOTES grandchildren, having shown Charlotte, who is resident and artistic and academic promise, For financial advisers only. Not to domiciled in the UK, has recently want to go to independent be distributed to, nor relied on by, received an amount of £500,000 schools. Charlotte discusses retail clients. She is divorced and has two adult the academic promise of her sons (Jamie and Simon) both of grandchildren with the other If the ‘relevant person’ is UK whom are married, each having trustees and all agree that they resident at the time of their death one child (Audrey and Jeremy should receive some capital. and they were the last remaining respectively). life assured on the plan, then The trustees execute a distribution any income tax liability would Charlotte contacts her financial from the plan to realise £40,000 fall on that individual at his or adviser as she is aware of her and pay school fees and her highest marginal rate. If the potential Inheritance Tax liability associated expenses of £20,000 death of the UK resident ‘relevant and wishes to reduce this. She for each grandchild. There is no person’ does not bring the plan wants some of her wealth to be UK tax liability arising from the to an end, then subsequently if used for the benefit of her children part-surrender of the plan as the the plan is surrendered in trust, and grandchildren but is not sure proceeds are within a cumulative there may be an income tax which particular family members annual limit of 5% of the liability on the trustees if they are to benefit, how much each payment(s) made into the plan.. are UK resident or on any UK should receive and precisely when resident beneficiaries where the distributions should be made to Four years later, Jeremy drops trustees are non UK resident. them. After researching the market out of school and takes up with her financial adviser recommends the ’wrong crowd’. Charlotte Finally, please note that every a RL360 offshore plan. discusses the situation with the care has been taken to ensure other trustees. Having carefully that the information provided is Charlotte decides to invest considered the matter, the correct and in accordance with our a payment of £275,000. As trustees exercise their power of understanding of current law and she will never need access to appointment (irrevocably) to practice with Her Majesty’s Revenue this investment, her adviser exclude Jeremy from benefit. and Customs (HMRC) as at April recommends the use of a Gift 2019. You should note however, Trust set up on a Discretionary Had Charlotte selected the that we cannot take on the role of basis. Establishing this trust Bare Trust version, it would an individual taxation adviser and will trigger a UK inheritance not have been possible for independent confirmation should be tax chargeable transfer but the trustees to amend the obtained before acting or refraining as she has never previously beneficiaries and therefore from acting upon the information made a chargeable transfer, exclude Jeremy from benefit. given. The law and HMRC practice the availability of her nil rate are subject to change. band means that no immediate inheritance tax is payable.

Charlotte has decided to be one of the trustees and her solicitor has also agreed to act as .

RL360 Insurance Company Limited. Registered Office: International House, Cooil Road, Douglas, Isle of Man, IM2 2SP, British Isles. Registered in the Isle of Man number 053002C. RL360 Insurance Company Limited is authorised by the Isle of Man Financial Services Authority.

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