TRUSTEE INVESTMENT PLANNING

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TRUSTEE INVESTMENT PLANNING
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• The reasons to incorporate trustee investment as
  part of your service delivery under adviser
  charging
• Trustee investment fundamentals
• Putting it into practice Case study

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These slides and the presentation in which they
are used are put forward for general
consideration only. They are based on fictitious
persons. No action must be taken or refrained
from based on their content. Accordingly, neither
Technical Connection Limited nor any of its
officers or employees can accept any
responsibility for any loss arising of whatever
nature to any person. Professional advice based
on the facts of each case is essential.
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WHY WILL CLIENTS PAY FOR ADVICE?(HOWEVER ITS
DELIVERED)

• Recognition of the limits of their own knowledge
• The adviser has expertise that the consumer
  doesnt possess or cant get by googling
• The adviser makes them aware of the
  need/risk/opportunity

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SO WHAT WILL THEY PAY FOR?
SO WHAT WILL THEY PAY FOR?
Basically, what they perceive as difficult /
complex
EXPERTISE / TIMESAVING
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AND IF WE ARE TALKING ABOUT TAX .

• You cant have missed that its in the news
• Tax and tax planning polarises opinions
• Government committed to action
• So.

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Tax Avoidance
Whats going on?
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A LOT!

• General anti-abuse rule (consultation)
• 50,000/25 income tax relief cap (consultation)
• Enhanced DOTAS more advance information and
  negative publicity
• (Lifting the lid on tax avoidance)
• Continued HMRC success in tribunal/court cases
• Public opinion (Times campaign)

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FINANCIAL PLANNING
GAAR should not affect the centre ground of tax
planning Opportunities to reinforce the power
and effectiveness of acceptable financial
planning for individuals , businesses and
trustees
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TRUSTEE INVESTMENT ADVICEA PERFECT STORM?

• High degree of difficulty
• Adviser charge justifiable
• Relatively high trustee tax rates
• Trusts are an essential part of estate planning

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TRUSTEE INVESTMENT ADVICE A PERFECT STORM ?

• Trustees must take investment advice
• Solicitors and accountants rarely have the
  necessary financial planning skills
• Strong collaboration potential for advisers

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TRUSTEE INVESTMENTS A GROWING MARKET
TRUST STATISTICS

• 176,000 made S/A returns in 2009/10
• Trust income 2,650m in 2009/10
• 900m 1,750m iip
  discretionary
• Income tax 750m in 2009/10
• 150m 600m iip
  discretionary
• Chargeable gains 2,045m in 2009/10

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BARRYS WILL TRUSTS

• Died on 17 May 2005
• 2 years prior to death gifted 20,000 to each of
  his four grandchildren
• Left
• - a widow - two children - four
  grandchildren - two great
  grandchildren

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BARRYS ESTATE

• Jointly held property passes directly to Britney
• - house - contents
• Discretionary Will Trust for investments up to
  available nil rate band
• Life Interest Will Trust for balance of
  investments
• - life interest to Britney - capital to
  children in equal shares on Britneys death

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UNDERSTANDING THE FUNDAMENTALS
TRUSTEE ACT IMPERATIVES
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TRUSTEES MUST TAKE INVESTMENT ADVICE

• Trustee Act 2000
• Wide implied investment powers if not
  specifically provided
• Statutory investment criteria
• Applies to all trusts whenever created

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STATUTORY INVESTMENT CRITERIA

• Diversification
• Suitability
• AND
• Obtain and consider proper advice

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PROPER ADVICE
Advice of a person who the trustees
reasonably believe to be qualified to give it by
his (or her) Ability in Practical experience
of financial other matters
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UNDERSTANDING THE FUNDAMENTALS
TRUST TAXATION
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TRUSTEE TAXATION
Income Tax
IIP (including Bare Trust) Income taxed on IIP
beneficiary at marginal rate
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TRUSTEE TAXATION
Income Tax
IIP (including Bare Trust) Income taxed on IIP
beneficiary at marginal rate

• Discretionary Trust
• Income taxed on trustees at-
• - Standard rate on first 1,000
• 42.5 on dividend income 50 on other income

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TRUSTEE TAXATION

• Income tax other relevant points
• Income assessed on settlor ifsettlor-
  interested trust ie - settlor a beneficiary
  settlors spouse a beneficiary - not
  widow/widower
• 100 rule (on vested or distributed income)
• - Beneficiary is minor unmarried child of
  settlor - Gross income (or income on all
  gifts) exceeds 100

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DISCRETIONARY TRUST INCOME TAX DETAIL
2 STAGE PROCESS
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DISCRETIONARY TRUSTTRUSTEE TAX
Discretionary Trust - Income tax
Income received
Discretionary Trust
Trustee income tax 50/42.5 (if over 1,000)
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INCOME DISTRIBUTION
Discretionary Trust - Income tax
Income received
Discretionary Trust
Trustee income tax 50/42.5 (if over 1,000)
Income distribution trustees must have paid 50
income tax Income taxed on beneficiary as trust
income
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DISCRETIONARY TRUST INCOME TAX DETAIL
STAGE 1 RECEIPT OF INCOME
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THE DISCRETIONARY TRUST INCOME TAX TRAIL

• Interest
• Trustees receive 80 net interest
• 20 income tax already deducted
• Trustees pay extra 30 to HMRC
• Trustees are left with 50 net income
• Note
• Assumes other trust income absorbs 1,000
• Applies even though settlor-interested trust
• 50 45 from 6.4.2013

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THE DISCRETIONARY TRUST INCOME TAX TRAIL

• Dividends
• Trustees receive 80 net dividend
• 8.89 income tax deemed to have been paid
• Trustees pay extra 28.89 to HMRC
• Trustees are left with 51.11 net income
• Note
• Assumes other trust income absorbs 1,000
• Applies even though settlor-interested trust
• 42.5 37.5 from 6.4.2013

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DISCRETIONARY TRUST INCOME TAX DETAIL
STAGE 2 INCOME DISTRIBUTION
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DISTRIBUTION OF SAVINGS INCOME (2012/13)
50 40
20 0
Receives 50 50 50 50 Grossed-up 100 100 100
100 Tax bill 50 40 20 0 (Pay)
reclaim - 10 30 50 Net 50 60 80 100
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DISTRIBUTION OF DIVIDENDS (2012/13)
88.89 grossed-up equivalent
Income received by trustees 80
42.5 of 88.89 37.78 37.78 less tax credit
of 8.89 so tax of 28.89 to pay
Income tax of 28.89 paid to HMRC by the trustees
Income remaining 51.11
80 less 28.89
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88.89 grossed-up equivalent
Income received by trustees 80
42.5 of 88.89 37.78. 37.78 less tax credit
of 8.89 so tax of 28.89 to pay
Income tax of 28.89 paid to HMRC by the trustees
Income remaining 51.11
80 less 28.89
Trustees extra tax on distribution 11.11
Distribution to beneficiary 40
Total liability 40.00 less 28.89 already paid
80 available less 40.00(ie. 50 of 80
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Net trust income 80.00 Tax on dividend
receipt 28.89 Tax on income distribution 11.11
40.00 Net to beneficiary 40.00
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Beneficiary receives trust income 50 40 20 0
Receives 40 40 40 40 Grossed-up 80 80
80 80 Tax bill 40 32 16 0 (Pay) reclaim -
8 24 40 Net 40 48 64 80
INCOME DISTRIBUTION OUT OF DIVIDEND INCOME
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INCOME DISTRIBUTION OUT OF DIVIDEND INCOME
Beneficiary receives trust income 50 40 20 0
Receives 40 40 40 40 Grossed-up 80 80 8
0 80 Tax bill 40 32 16 0 (Pay) reclaim -
8 24 40 Net 40 48 64 80 ORIGINAL GROSSED-UP
INCOME 88.89
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A SOLUTION TO THE PROBLEM? - ADVANCEMENT OF
CAPITAL

• Trustees invest for equity-based capital growth
• Use trustees annual CGT exemption to release
  capital and appoint
• Care over disguised dividend distributions -
  amounts and timing of accumulations/ advancements
• Must be power to advance in trust
• Buttax planning subject to investment suitability

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SUPPLEMENTING INCOME WITH CAPITAL DETAIL
Assuming capital growth year-on-year of same
amount as net dividend At best At
worst Growth 80 80 Tax (exempt)
- (_at_ 28) 22.40 Net 80
57.60
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ANOTHER SOLUTION TO THE PROBLEM?

• Trustees in UK/Offshore bond
• No trustee taxation of income or gains
• No underlying investment constraints
• Trustees withdraw/encash (care which)
• Trustees advance capital
• Must be power to advance capital

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TRUST CAPITAL TAXED AS INCOME?

• Original Revenue view - purpose of payment
• Brodies Will Trustees
• Stevenson -v- Wishart (1987)
• Dont advance if in exercise of a specific
  direction to augment income under trust

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TRUSTEES
Capital Gains Tax
Bare Trusts

• Beneficiary assessed
• 10,600 A/E
• then 18/28 as appropriate

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TRUSTEES
Capital Gains Tax
Bare Trusts
All other Trusts

• Beneficiary assessed
• 10,600 A/E
• then 18/28 as appropriate

• Trustees assessed
• 5,300 A/E
• then 28

Pro rata reduction according to number of
trusts created by the same settlor subject to
minimum of 1,060
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TRUST TAXATIONINHERITANCE TAX

• Inheritance Tax
• Which type of trust?
• IPDI
• Bare Trust
• Trust for disabled
• PET if lifetime
• Capital taxed as part of taxable estate of
  beneficiary entitled to income

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TRUST TAXATIONINHERITANCE TAX

• All other trusts eg. discretionary trust
• CLT
• Periodic charge
• Exit charge

• Inheritance Tax
• Which type of trust?
• IPDI
• Bare Trust
• Trust for disabled
• PET if lifetime
• Capital taxed as part of taxable estate of
  beneficiary entitled to income

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RELEVANT PROPERTY CODE

• CLT on entry
• - possible 20 on excess over NRB - 7 year
  cumulation
• Periodic charge at 10 year anniversary
• - Trustees have NRB - Maximum charge
  6 - Trust fragmentation (Rysaffe)
• Exit charge when property leaves trust IHT
  based on
• - charge on entry (first 10 years) - charge at
  last 10 year anniversary

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RATIONALE
Trust is treated as a person and charges broadly
the same as if individual had owned the
property.and disposed of it every 10 years
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EXAMPLE - JOE

• Periodic charge
• Joe creates discretionary trust for 250,000 on
  1/9/12
• No CLTs in last 7 years
• On 1/9/22, value of trust 750,000
• NRB 500,000
• IHT 250,000 _at_ 6 15,000
• Equates to 2 on 750,000

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EXAMPLE - JOE

• Exit charge
• Property (600,000) distributed in year 8 No
  charge
• Property (1,000,000) distributed on 1/9/28 24/40
  x 1m x 2 12,000

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RELEVANT PROPERTY CODE - COMPLICATIONS

• Added property
• Related settlements
• Income accumulations
• Inter-trust transfers
• Property leaving the trust
• 7 year cumulation periods pre-trust
• Creation recategorised PETs

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UNDERSTANDING THE FUNDAMENTALS
MAKING THE MOST OF THE NIL RATE BAND
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NIL RATE BAND BASICS

• Nil rate band 325,000 in 2012/13
• Nil rate band frozen until 5 April 2015
• Husband and wife will haveCOMBINED nil rate band
  of 650,000
• Can use up to 325,000 on first death or
  transfer percentage not used to survivor for use
  on second death

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BARRY BRITNEY

• NRB when Barry died was 275,000
• Used 74,000 in 7 years before death
• Used a further 201,111 on death by gift to
  discretionary trust

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BARRY BRITNEY

• They have combined NRB of 600,000 (275,000
  325,000)
• TNRB did not exist in 2005 but
• Had all estate passed to Britney then total
  NRB 650,000

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NEW NIL RATE BAND PLANNING

• Can only transfer one nil rate band however
  many spouses you have had in past
• Applies on second deaths from 9/10/07
• Can transfer nil rate bands of spouses who
  died before 9/10/07 this affects IHT
  calculation of widow/widower
• PRs make election within 2 years of second
  death

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(TWICE) MARRIED MAN WHOSE FIRST WIFE HAS DIED
W
H
1
- Did not use NRB
H
W
2
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(TWICE) MARRIED MAN WHOSE FIRST WIFE HAS DIED
PLANNING AS FOLLOWS
1. H dies first must use NRB on first
death gets two NRBs (H and hers) 2. W
dies first must use NRB on first death gets
two NRBs (H and unused from W1) NB You can
only increase NRB by a maximum of 100
H
W
2
2
W
2
H
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TWO NIL RATE BANDS EACH?!

• Second marriage of both current husband and
  wife
• Previous spouses both dead

H
W
650,000
650,000
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A TNRB ALTERNATIVE /FORERUNNER
THE DISCRETIONARY WILL TRUST
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DISCRETIONARY WILL TRUST
H
W
NRB Trust Spouse a potential beneficiary

• Loans
• S103 FA 86
• SP Bonds
• Deeds of variation

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EXISTING WILL INCLUDES TRUST
H
Will Trust
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EXISTING WILL INCLUDES TRUST
Spouse exemption
H
W
2 years
Will Trust

• If discretionary trust, trustees can appoint
  benefits absolutely to spouse
• If appointment within 2 years, treated as made
  by deceased
• NRB of husband NOT used

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TNRB
Does the transferable nil rate band make IHT
planning on death of the first of a coupleto die
unnecessary?
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IHT PLANNING POST TNRB
Married couples with estates of up to combined
NRB Mr and Mrs Osborne House 450,000 Investmen
ts 100,000
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MR AND MRS OSBORNE

• No lifetime planning necessary
• No NRB first death planning generally necessary
• UNLESS

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REASONS TO USE NRB ON FIRST DEATH

• Second marriage and different children to benefit
  from half share on second death

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REASONS TO USE NRB ON FIRST DEATH

• Second marriage and different children to benefit
  from half share on second death
• Desire to move assets away from surviving spouse
  (local authority care charge)

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REASONS TO USE NRB ON FIRST DEATH

• Second marriage and different children to benefit
  from half share on second death
• Desire to move assets away from surviving spouse
  (local authority care charge)
• You think assets given on first death will
  increase in value at a greater rate than the
  increase in nil rate band

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REASONS TO USE NRB ON FIRST DEATH

• Second marriage and different children to benefit
  from half share on second death
• Desire to move assets away from surviving spouse
  (local authority care charge)
• You think assets given on first death will
  increase in value at a greater rate than the
  increase in nil rate band
• Divorce /insolvency protection for children

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REASONS TO USE NRB ON FIRST DEATH

• Second marriage and different children to benefit
  from half share on second death
• Desire to move assets away from surviving spouse
  (local authority care charge)
• You think assets given on first death will
  increase in value at a greater rate than the
  increase in nil rate band
• Divorce /insolvency protection for children
• You qualify for double NRB despite still being
  married

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USING MAIN RESIDENCE IN FIRST DEATH PLANNING

• It can be complicated because need to secure
  survivors tenancy but avoid an IIP
• Use IOUs or Charge Scheme

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SPOUSAL PLANNING ON FIRST DEATH A SUMMARY

• Consider transferable nil rate band first
  effective and simple
• Consider alternatives if circumstances dictate
• Remember , first death planning with residential
  property fraught
• The most common objection to using TNRB is lack
  of control over asset destination.there is an
  answer

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PLANNING FOR SPOUSE ON FIRST DEATH
H
W

• Spouse exemption
• Full transferable NRB available
• No control

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FIRST DEATH SPOUSE PLANNING THE EASY WAY
H
W

• Lifetime gifts to children
• PET survive 7 years gift drops out
• GWR/POAT issues
• No control to H over asset destination

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OVERCOMING THE NO CONTROL OBJECTION
THE QUESTION

• Can you keep control even after death?
• Yet use the transferable nil rate band?

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USING WILL TRUST BUT RETAINING TRANSFERABLE NRB
H

• IIP Trust for wife
• power to appoint to children

• Wife has IPDI
• Spouse exemption
• No use of NRB

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USING WILL TRUST BUT RETAINING TRANSFERABLE NRB
H

• IIP Trust for wife
• power to appoint to children

Trustees appoint to children absolutely

• PET by wife
• 7 year survival gift drops out
• Full transferable NRB still available

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TRUSTEE INVESTMENT ADVICEA PERFECT STORM?

• High degree of difficulty
• Adviser charge justifiable
• Relatively high trustee tax rates
• Trusts are an essential part of estate
  planning

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TRUSTEE INVESTMENT ADVICEA PERFECT STORM?

• Trustees must take investment advice
• Solicitors and accountants rarely have the
  necessary financial planning skills
• Strong collaboration potential for advisers

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LSA2007 WHAT ARE THE RISKS FOR LAWYERS?

• Impact from greater competition with strong
  national brands eg. Co-op
• Fall in market share for established legal firms
• Smaller, non-progressive firms may go out of
  business
• Dual authorisation and complex compliance
  requirements may make ABSs prohibitive.so..
• Joint ventures may offer similar benefits within
  a simpler operating model

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OPPORTUNITIES FOR FINANCIAL ADVISERS

• Potential to offer legal services or become part
  of a firm that offers one stop shop services
• Collaborations become easier
• Scope for increased referrals from a broader
  client range
• Introduction of Legal Ombudsman heightens need
  for trustee investment advice

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INTRODUCTIONS AND REFERRALS FOR FINANCIAL ADVICE
POST-RDR

• The new post RDR adviser categorisation
  (Independent / Restricted) has led professional
  bodies to review stance on referral guidelines

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INTRODUCTIONS AND REFERRALS FROM ACCOUNTANTS

• Institute of Chartered Accountants for England
  and Wales (ICAEW) will allow accountants to refer
  to restricted advisers
• Must first make a case-by-case assessment of
  suitability (not necessary for referral to an
  independent adviser)
• Consistent with existing code of ethics

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INTRODUCTIONS AND REFERRALS FROM SOLICITORS

• Solicitors Regulatory Authority (SRA)
  consultation on independent advice issued in July
• Sets out three possible options for reform of
  existing outcome-based guidelines contained in
  Chapter 6 Solicitors Code of Conduct
• SRA preferred option is the third allows
  clients to make informed choice having first
  discussed with solicitor

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ADVISER CHARGING AND TRUSTS
A FEW THOUGHTS ON THE POTENTIAL TAXATION
IMPLICATIONS IN RELATION TO ADVISER CHARGING ON
PRODUCTS IN TRUST
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ADVISER CHARGES AND TAX IN RELATION TO FINANCIAL
PRODUCTS IN TRUST
The basic model
TRUST
Paid from trust? Poss GWR but likely carve out
FINANCIAL PRODUCT
CASH ACCOUNT
Charge for initial advice
Settlor
No tax
Possible tax (2)(3)
Paid from own funds No tax
(VAT?)
Paid by Settlor? Further gift (Poss N.EXP)
Charge for ongoing advice
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TRUSTEE INVESTMENTCASE STUDY
PUTTING IT INTO PRACTICE APPLIED EXPERTISE
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BARRYS WILL TRUSTS

• Died on 17 May 2005
• 2 years prior to death gifted 20,000 to each
  of his four grandchildren
• Left
• - a widow - two children - four
  grandchildren - two great
  grandchildren

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THE FAMILY
Britney (76)
Mike - Gale (52) (49)
Sheila - Gary (50) (51)
Reece - married (29)
George - married (29)
Isla (24)
Aiden (26)
Josh (5)
Primrose (6)

• Gale has 2 adult children from a previous
  marriage
• Gary and Sheilas marriage is not stable

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BARRYS ESTATE

• Jointly held property passes directly to Britney
• - house - contents
• Discretionary Will Trust for investments up to
  available nil rate band
• Life Interest Will Trust for balance
  of investments
• - life interest to Britney - capital to
  children in equal shares on Britneys death

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BARRYS ASSETS ON DEATH

• House 600,000 in total (50 interest)
• Contents 100,000 in total (50 interest)
• Investment portfolio 500,000
• National Savings Certificates 85,000
• Building Society cash deposit account 166,000

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HOW THE ESTATE DEVOLVED

• Britney
• House
• Contents

Barry
Survivorship
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HOW THE ESTATE DEVOLVED

• Britney
• House
• Contents

Barry
Survivorship
Discretionary Trust Available nil rate band
201,000 (ie. 275,000 less 74,000 previous
lifetime gifts-80,000-6,000 ann ex)
85,000 NS certs 116,000 BS cash
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HOW THE ESTATE DEVOLVED

• Britney
• House
• Contents

Barry
Survivorship
Discretionary Trust Available nil rate band
201,000 (ie. 275,000 less 74,000 previous
lifetime gifts 80,000-6,000 annex)

• Life Interest Will Trust (IPDI)
• Britney life interest
• Children reversionary beneficiaries to capital
• Treated as transfer to Britney for IHT

85,000 NS certs 50,000 BS cash 116,000
BS cash 500,000 Portfolio
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HOW THE ESTATE DEVOLVED (CURRENT VALUES)

• Britney
• House
• Contents

Barry
Survivorship
Discretionary Trust Available nil rate band
201,000 (ie. 275,000 less 74,000 previous
lifetime gifts 80,000-6,000 annex)

• Life Interest Will Trust (IPDI)
• Britney life interest
• Children reversionary beneficiaries to capital
• Treated as transfer to Britney for IHT

85,000 NS certs (120,000) 50,000 BS
cash (63,000) 116,000 BS cash (140,000) 500,00
0 Portfolio (542,000)
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BRITNEYS CURRENT ESTATE
House 1.2m Contents 200,000 Own
investments 100,000 Life interest in
Will Trust 63,000 (cash) 542,000
(investment portfolio)
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THE FAMILYS OBJECTIVES

• Subject to considering the Ground rulesi.e.
  the essential legal and tax issues
• Improving Britneys income without putting
  capital at risk
• Using the trusts to help school fees of Josh
  and Primrose at age 11

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THE FAMILYS OBJECTIVES

• Protection against a divorce claim from Gary
  (Sheilas husband)
• Minimising IHT on Britneys death
• Subject to the main objectives minimising tax
  through tax smart investment/planning
• And subject to achieving the main objectives, is
  it possible to break up and distribute the assets
  of the life interest trust?

103
MEETING OBJECTIVES

• IMPORTANT AND LEGAL TAX ISSUES
• Legal issues
• Powers of investment? Wide
• Invest for the benefit of all beneficiaries
• - discretionary trust - life interest trust
• SIC
• - diversification - suitability - adv
  ice

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MEETING OBJECTIVES

• IMPORTANT AND LEGAL TAX ISSUES
• Tax fundamentals
• Discretionary trust
• - 50/42.5 income tax - CGT annual
  exemption (reduced) - then 28 CGT
• IIP Trust
• - Income taxed on Britney -
  CGT annual exemption (reduced) then 28
  CGT

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MEETING OBJECTIVES

• In determining the strategy keep in mind
• There are two trusts
• Desire not to put capital at risk
• Tax saving can deliver Alpha

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MEETING OBJECTIVES IMPROVING BRITNEYS INCOME

• Life Interest Trust
• Britney entitled to income
• Pays income tax at marginal rate(s)
• Trustees could consider advancing capital
• - trustees power to advance - otherwise
  consent of remaindermen required
• Income tax on capital?
• - irregular
  amount - irregular time - document as
  capital - should be taxed as capital

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BREAKING UP TRUSTS

• Samson v Peay
• Discretionary Trust not possible
• IIP Trust
• - are parties all sui juris? - if so value
  interests and break trust - BUT reversionary
  interest only if beneficiaries alive so their
  interest not ascertained so
• - could advance capital (power?) or - could
  take out indemnity insurance or - could take
  risk

108
BREAKING UP TRUSTS
IIP
Income
Capital
Value of reversionary interest to Sheila and Mike
Capital value to Britney
109
MEETING OBJECTIVES IMPROVING BRITNEYS INCOME

• Discretionary Trust
• Trustees control who gets income/capital
• Britney a beneficiary
• Advance capital
• - no income tax - CGT? Use annual exemption
  or hold-over relief
• Exit charge unlikely
• Trustees could make loans?

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MEETING OBJECTIVES IMPROVING BRITNEYS INCOME

• Trustees making loans to Britney
• Trustees realise cash (CGT?)
• loan to Britney do trustees have power?
• Britney spends loan
• Loan repayable on her death taxable estate
  reduced
• Care s103 Phizackerley
• Avoids any exit charge risk

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USING THE TRUSTS FOR SCHOOL FEES

• Use discretionary trust not IIP trust
• Are Josh/Primrose beneficiaries?
• Power to pay income/advance capital?
• Appoint income to use their personal
  allowances no reclaim of NRTC

112
USING THE TRUSTS FOR SCHOOL FEES

• And with capital
• Appoint capital not taxable in beneficiarys
  hands
• - Use trustees CGT annual exemption
  (2,650) - Use 5 withdrawal from bond
  (see Investments next)
• Exit charge on capital advancement ? IHT
  charge unlikely

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USING THE TRUSTS FOR SCHOOL FEES
DISCRETIONARY TRUST
Use trustees annual CGT exemption or use 5s
from Bond
Powers? to pay
Josh/Primrose
Capital (no tax charge on beneficiary)
Income (use beneficiarys personal
allowance) Care dividend income
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COMPETING OBJECTIVES THERES ONLY SO MUCH TO GO
AROUND

• The more that objectives other than improving
  Britneys income are worked on , the less will be
  available to increase Britneys income
• Tax minimisation can help to increase available
  funds through Tax Alpha
• A tax smart investment strategy can help
• A key role for the financial planner

116
MEETING OBJECTIVES IMPROVING TAX EFFICIENCY OF
TRUSTS

• IIP Trust
• Income taxed on Britney
• Not a higher rate taxpayer
• Income enhancement is a prime objective
• Low yield/growth pressure
• Invest for capital growth and appoint
  capital (on tax grounds)
• - use trustees annual CGT exemption
• - care capital taxed as income
• - care investment suitability and
  investment risk

117
MEETING OBJECTIVES IMPROVING TAX EFFICIENCY OF
TRUSTS

• Discretionary Trust
• Income taxed at 50/42.5
• Appoint life interest to Britney?
• - do trustees have power? - satisfies
  Britneys income needs
• Invest for capital growth
• - reduces income - use CGT annual
  exemption - right investment decision?
• Invest in tax-efficient investments such SP
  Bond
• - non-income producing - tax free
  switching - 5 tax-deferred withdrawals

118
MEETING OBJECTIVES PROTECTION AGAINST DIVORCE

• No claim yet on IIP trust but could be in
  future
• Could settle reversionary interest on
  discretionary trust but care - deprivation
• Sheila a beneficiary of discretionary trust
• No direct claim by Gary but Court may
  attribute value if previous regular
  appointments by trustees
• Tell trustees not to appoint perhaps appoint
  to children instead of to Sheila

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IHT ON BRITNEYS DEATH
Personal Estate IIP Trust capital 1.5
million 605,000 Total estate 2,105,000 IHT
713,200 Payable by estate 508,218
(LPRs) Trustees 204,981 One NRB
Barry used his
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REDUCING IHT

• Britney could release life interest
• - PET - 7 year survival out of
  estate - but she would lose income
• IHT planning difficult on estate mainly
  house/contents
• Possibly Downsize? Equity release? plan
  with cash
• Joint occupation? Full market rent ?
  Unlikely
• Discretionary trust assets already outside
  estate
• Life cover Care cost? Beneficiary funded?
  Keep
• policy outside IIP trust.

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IN SUMMARY

• Need to prioritise the relative importance of
  competing objectives with limited resources
• Tax planning can increase available funds
• Tax smart investments can help to deliver
  greater capacity to meet objectives
• Tax effectiveness must always be secondary to
  investment suitability and risk
  appropriateness.
• For trustee investment always consider the
  legal ground rules first
• Try to balance income provision with capital
  reservation
• Trustee investment represents an excellent
  market for
• - professional collaboration -
  strongly justifiable (and profitable) adviser
  charging

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• Comprehensive technical support and business
  generation for financial planners

• Techlink Professional
• Accredited CPD
• Advanced examination support
• ASK Case related technical support
• Business Generation Initiatives
• Techlink Communicator
• Dynamic client facing website content for
• advised and non advised markets.

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Techlink professional
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• TECHLINK PROFESSIONAL
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TECHLINK COMMUNICATOR
Our complete communication service that enables
you to keep in touch with, inform and inspire
your clients and the professional advisers you do
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Quarterly Newsletters for your clients and
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"FYI our bi-weekly , managed ,self select client
email service.
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FYI Professional, bi-weekly managed e-mail to be
sent to your professional connections.
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CONTACT
www.technicalconnection.co.uk www.techlink.co.uk T
ony Wickenden tkw_at_tecconn.demon.co.uk Tony.wickend
en_at_technicalconnection.co.uk 0207 405 1600
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