Trusts use is on the rise amongst paraplanners, but what do we need to consider when choosing the right type of trust? This article from Quilter explores exactly, and brings it to life via a case study with Ben and Anne.
With frozen inheritance tax (IHT) thresholds, soaring property and assets values, and pensions coming into scope for IHT from April 2027, more families than ever will be impacted by IHT. As a result, the demand for IHT planning and trust solutions is rising month on month.
Matching a trust solution to client objectives can be daunting, but by focusing on the following 3 areas we can start to break down the complexity:
- Access – does the settlor require access to the capital (and perhaps growth) after they have made a gift into the trust?
- Flexibility – does the settlor know exactly who should benefit and is sure this won’t change or would they value a trust which allows beneficiaries to evolve?
- IHT efficiency – is the settlor looking to reduce their estate to reduce and IHT liability now or in the future?
By matching client objectives with these areas, finding the right trust solution becomes much simpler process.
Example:
Ben (62) and Anne (58) have an estate of £1.1m plus pension savings of £750,000 between them. They have two children and hope to have grandchildren in the future. Their objectives include:
- Reducing their estate to reduce or avoid IHT
- Providing a legacy for their children and possible future grandchildren
- Retaining a level of access to aid retirement spending, although the level is unknown currently
If we look at the three key areas discussed above:
- Access – Ben and Anne require access, but the level is currently unknown so this needs to be flexible and protect against inflation over time
- Flexibility – The beneficiaries are their children, but the trust must allow future unborn grandchildren to be included
- IHT efficiency – The objectives include reducing the estate for IHT purposes so the trust needs to be one that can help remove a sum of capital outside their estate in the future i.e. a potentially exempt transfer or chargeable lifetime transfer.
Looking at Quilter’s trust range, we can match these outcomes to arrive at a particular solution:
- Access is required, but this needs to be flexible and evolve over time. This could be a loan trust or Lifestyle Trust. A Discounted Gift Trust is considered but it is felt the fixed nature of the withdrawals does not match the objective.
- PLUS – Flexibility over who can benefit is needed. Therefore, the discretionary loan trust or Lifestyle Trust (which is underpinned by a discretionary trust) are possible solutions
- PLUS – IHT efficiency is a key objective, Ben & Anne are looking to reduce their estate. As the loan trust does not reduce the estate, it just removes the growth on the capital, the Lifestyle Trust is considered the most suitable solution
Using this simple example, you can see how focussing on what really matters to a client helps to match client objectives with the right trust solution. This process can be followed using our trust decision tool on our website along with more information on each of the trusts we offer: Trust range | Quilter
Other IHT solutions might also be suitable however, this case study only considers the trust solutions on offer from Quilter’s Investment Platform.
Main image: alex-shute-bGOemOApXo4-unsplash
