Hi. Thanks for a very enlightening video. For many people, this seems a better solution than the other trust types. However, one disadvantage that I see with most trusts is that any growth is taxed heavily - 45% on savings-type interest and 38.1% on dividend- type interest. Given that many trusts will last a long time this means that a large proportion of the value of the trust is being lost as much of the growth is not getting compounded. Another disadvantage seems to be that the trust has to be taxed every ten years based on the increase in value. So even if the assets held do not produce any income of any sort, there is a further charge that will impact compounding. Am I misunderstanding this aspect of trusts? If not, would your position typically be that the saving of 40% IHT outweighs these disadvantages? You asked about further topics - I’d be very interested to learn about trust taxation. Keep up the good work!
Hi Gordon - Your points are all good. In the majority of cases this particular Trust uses an Offshore bond which means no taxation on the growth as all growth is retained in the Bond. There is income tax at the person who withdraws the funds highest marginal rate - but only on the growth. Even this can be reduced to Zero by assigniging money to non tax payers - for example minor grandchildren. The periodic charge of 6% is on the value over the Nil Rtae Band Allowance at the time is only paid every 10 years is only 0.6% per year. This is very small. All in all this arrangement is very useful for the majority of people who wish to place assets outside of their estates after 7 years but still retain the right to get ALL that money back over 7 years if required.
If an objective is to ensure that the inheritance tax can be paid off, then Loan Trusts are worth considering. We did a loan trust many years ago, have had back almost all the loan but the growth, outside the state, is now worth more that the original loan in the trust. The point about paying tax before Probate is that ALL of the loan and growth is accessible BEFORE Probate to help pay IHT if needed, not locked in the estate. The loan remains in your estate but the gift and loam trust would take the gift out after 7 years or can be covered during that time with a 7 year term assurance life policy which is cost effective assuming health is not a problem. Do get several opinions if you are considering these forms of investment as they are very complex and you need to be very careful about what investments you use and who is in control of your money.
Thanks Mark - Yes, we do Loan trusts for clients as part of the overall package but the fact that the loan is still inside the estate is a BIG problem. For clients whom we believe will live at least 14 years and who have availabe funds we do the Flexible reversionary trusts first and then put additional funds in a loan trust so at least the growth is outside of the estate and stops the problem getting any worse, & years after the FRT has been set up the loan from the loan trust can be reclaimed leaving the growth, The Capital can then be either put into a new FRT or a gift trust depending on the persons circumstances. In the end there is no one solution fits all and experienced tailored advice is essential
Hi Terry - The flexible reversionary trust is in practice limted to £325,000 every 7 years otherwise immediate IHT at 20 % would be payable on any investment into the trusts exceeding that amount in a 7 year period. Book a free meeting on our werbsite if you would like to discuss it further
have you encountered problems when a trusste has an LPA enacted particualrly if they are a beneficiary of the trust So if you partly establish a trust to cover care fees if required (but to ensure that that fund is outsde of OHT and in fact hoping that care fes are never needed and will be left to the next generation) and a trusste ends up in a home with dementia and is no longer mentally capable, can the trust continue to pay for their care?
Hi Mark - Like all trusts it depends on the wording of the trust but normally there should be no reson why a benificary of a trust cannot be financially supported by the trust
If you are certain you do not want the money back a lifetime gift Trust would be more suitable. However as you say potential care costs need to be considered. A gift trust done for IHT purposes and a Flexible reversionary trust both protect assets from Care home costs provided they are set up correctly
It varies depending on the work we do. The fees are always fixed and not a paid by the hour basis. We quote in writing in advance of any chargeable work being carried out.
@@dartman9265 No Its free and you are able to book a meeting directly into my diary from our contact us page link here - www.bluebond.co.uk/contact-us/
Hi Seems unlikely as you have laid out the question but in fact the question is very valid for all trusts irrelevant of the number of potential benificaries. If all the potential benificiaries die while asets still exist in any trust the trustees can decide to distribute assets to whomevery they determine should benifit as the question is called an ultimate gift over clause and this would have been included as part of the expression of wishes letter
Hi. Thanks for a very enlightening video.
For many people, this seems a better solution than the other trust types. However, one disadvantage that I see with most trusts is that any growth is taxed heavily - 45% on savings-type interest and 38.1% on dividend- type interest. Given that many trusts will last a long time this means that a large proportion of the value of the trust is being lost as much of the growth is not getting compounded.
Another disadvantage seems to be that the trust has to be taxed every ten years based on the increase in value. So even if the assets held do not produce any income of any sort, there is a further charge that will impact compounding.
Am I misunderstanding this aspect of trusts? If not, would your position typically be that the saving of 40% IHT outweighs these disadvantages?
You asked about further topics - I’d be very interested to learn about trust taxation.
Keep up the good work!
Hi Gordon - Your points are all good. In the majority of cases this particular Trust uses an Offshore bond which means no taxation on the growth as all growth is retained in the Bond. There is income tax at the person who withdraws the funds highest marginal rate - but only on the growth. Even this can be reduced to Zero by assigniging money to non tax payers - for example minor grandchildren. The periodic charge of 6% is on the value over the Nil Rtae Band Allowance at the time is only paid every 10 years is only 0.6% per year. This is very small. All in all this arrangement is very useful for the majority of people who wish to place assets outside of their estates after 7 years but still retain the right to get ALL that money back over 7 years if required.
If an objective is to ensure that the inheritance tax can be paid off, then Loan Trusts are worth considering. We did a loan trust many years ago, have had back almost all the loan but the growth, outside the state, is now worth more that the original loan in the trust. The point about paying tax before Probate is that ALL of the loan and growth is accessible BEFORE Probate to help pay IHT if needed, not locked in the estate. The loan remains in your estate but the gift and loam trust would take the gift out after 7 years or can be covered during that time with a 7 year term assurance life policy which is cost effective assuming health is not a problem. Do get several opinions if you are considering these forms of investment as they are very complex and you need to be very careful about what investments you use and who is in control of your money.
Thanks Mark - Yes, we do Loan trusts for clients as part of the overall package but the fact that the loan is still inside the estate is a BIG problem. For clients whom we believe will live at least 14 years and who have availabe funds we do the Flexible reversionary trusts first and then put additional funds in a loan trust so at least the growth is outside of the estate and stops the problem getting any worse, & years after the FRT has been set up the loan from the loan trust can be reclaimed leaving the growth, The Capital can then be either put into a new FRT or a gift trust depending on the persons circumstances. In the end there is no one solution fits all and experienced tailored advice is essential
Thanks for this helpful video.
Hello, great video. Can the funds added to a reversionary trust be invested in mutual funds to allow it to continue to grow?
Yes that is exactly what is done with the investment
Hi, is the Flexible Trust limited to 325,000 per person per 7 years? Or could I put a lot more into the trust upfront?
Hi Terry - The flexible reversionary trust is in practice limted to £325,000 every 7 years otherwise immediate IHT at 20 % would be payable on any investment into the trusts exceeding that amount in a 7 year period. Book a free meeting on our werbsite if you would like to discuss it further
have you encountered problems when a trusste has an LPA enacted particualrly if they are a beneficiary of the trust So if you partly establish a trust to cover care fees if required (but to ensure that that fund is outsde of OHT and in fact hoping that care fes are never needed and will be left to the next generation) and a trusste ends up in a home with dementia and is no longer mentally capable, can the trust continue to pay for their care?
Hi Mark - Like all trusts it depends on the wording of the trust but normally there should be no reson why a benificary of a trust cannot be financially supported by the trust
I gather this is not suitable where you dont want the money back?
Also, I guess this kind of trust does not protect you from long term care cost?
If you are certain you do not want the money back a lifetime gift Trust would be more suitable. However as you say potential care costs need to be considered. A gift trust done for IHT purposes and a Flexible reversionary trust both protect assets from Care home costs provided they are set up correctly
Hello
How much do you charge for your services
It varies depending on the work we do. The fees are always fixed and not a paid by the hour basis. We quote in writing in advance of any chargeable work being carried out.
@@Inheritancetaxadvice
Is there a cost for the initial consultation
Thanks
@@dartman9265 No Its free and you are able to book a meeting directly into my diary from our contact us page link here - www.bluebond.co.uk/contact-us/
What happens if ma granpa made a trust for his nine kids and they all die
Hi Seems unlikely as you have laid out the question but in fact the question is very valid for all trusts irrelevant of the number of potential benificaries. If all the potential benificiaries die while asets still exist in any trust the trustees can decide to distribute assets to whomevery they determine should benifit as the question is called an ultimate gift over clause and this would have been included as part of the expression of wishes letter