Trusts

Trusts-Inheritance Tax Guide
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Introducing
Trusts
Your wealth is precious – it provides financial security for you
and those you care for. It is, therefore, only natural that you
want to do all you can to manage, protect and enhance the financial
assets you accumulate, not only now but also in the future. Trusts
are often wrongly perceived as complicated structures. When thoughtfully
applied they can deliver a variety of important and lasting benefits,
including the opportunity to help protect your assets, the comfort
of knowing that your wealth is efficiently distributed according
to your wishes and the potential to minimise UK inheritance tax
(IHT).
That is where we can help. Pryce Warner International Group has
a wealth of knowledge and experience to help grow, protect and distribute
your financial assets. Our range of Trusts are designed to be easy
to understand and require the minimum of documentation and administration.
When considering the substantial benefits and peace of mind that
it can bring, the short time it takes to set up a Trust could very
well prove to be time spent wisely.
We recommends that we carry out a review of your needs to advise
you appropriately on how & whether a trust or trusts can be of use
to you.
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Trusts-Inheritance Tax Guide
Here is a check list
1. What is a Trust?
2. Why consider Trusts?
3. The advantages of Guernsey
4. Selecting the appropriate Trust for you
5. Discretionary Trust
6. Discretionary Gift Trust
7. Discretionary Loan Trust
8. Discretionary Wealth Protector Trust
9. Trusts at a glance
Trusts-Protecting your wealth
Your wealth is precious – it provides financial security for you
and those you care for. It is, therefore, only natural that you
want to do all you can to manage, protect and enhance the financial
assets you accumulate, not only now but also in the future. Trusts
are often wrongly perceived as complicated structures. When thoughtfully
applied they can deliver a variety of important and lasting benefits,
including the opportunity to help protect yoAur assets, the comfort
of knowing that your wealth is efficiently distributed according
to your wishes and the potential to minimise UK inheritance tax
(IHT).
That is where we can help. Pryce Warner International Group has
a wealth of knowledge and experience to help grow, protect and distribute
your financial assets. Our range of Trusts are designed to be easy
to understand and require the minimum of documentation and administration.
When considering the substantial benefits and peace of mind that
it can bring, the short time it takes to set up a Trust could very
well prove to be time spent wisely.
Trusts
What will happen to your assets when you die?
This is not a strange question. You work hard to accumulate your
personal wealth, so it is only natural that you want to ensure that
it is distributed according to your wishes. Unless you take appropriate
action, there are a number of factors that could result in your
money not going to the people you want it to – even if you have
made a Will.
Fortunately, with the right advice and some careful planning, you
can put steps in place to help ensure that your assets are distributed
according to your wishes.
Key Questions AND ANSWERS
Does my Will not stipulate who gets my money?
Not necessarily. In some circumstances your assets may not be able
to go to the persons you set out, even though you have written a
Will.
Who could get hold of my money then?
Well, for one, there is the taxman – Trusts can defer or, in certain
circumstances, remove certain tax liabilities, including inheritance
tax. Then there is what is known as ‘forced heirship’. The law in
certain countries can dictate the recipients of some of your assets
when you die and how they are divided. A Trust, where you can choose
your Beneficiaries, may help avoid this and ensure that your assets
are distributed in accordance with your wishes.
So, with a Trust I can say who gets my assets and when?
Yes. A Trust allows you to determine how your assets are distributed
inA the future, something that is particularly useful if some of
your intended Beneficiaries are currently minors, or if you have
concerns about family circumstances.
A further advantage of putting your money into Trust is that, on
death, matters can be settled quickly and delays avoided, such as
those that can arise in obtaining a Grant of Probate or Letter of
Administration.
What if my circumstances change or I change my mind? If your
views or circumstances change you can change the Trustees, the named
Beneficiaries and/or how your assets are split. With certain Trusts,
you can even have access to your capital on an infrequent or regular
basis.
what else do you need to know?
Choosing the right Trust There are different types of Trusts,
each with their own particular features and benefits. Your Financial
Adviser can help you identify which Trust vehicle is best suited
to your specific needs.
Establishing your Trust
Pryce Warner International Group will discuss your circumstances
with you and can help you to structure a Trust based on the individuals
that you wish to benefit from the assets, which you are intending
to place in the Trust. The specific type of Trust that we will recommend
will depend on a number of factors, including whether you are likely
to need access to your capital at any time, need an income from
the investment and how much control you wish to maintain.
Maintaining flexibility
How much control and flexibility you have will depend on the particular
Trust you decide on. Pryce Warner International Group will be able
to help you make the right choice based on your individual circumstances.
How will inheritance tax (IHT) affect
the value of your estate?
FOR UK IHT DOMICILED INVESTORS ONLY
This is a question that deserves some serious thought. The reality
is that, unless you take appropriate action, the IHT net can spreadover
a surprisingly wide area and seriouslyundermine the ultimate value
of your legacy.
Fortunately, with the right advice and some careful forward planning,
your estate’s IHT liabilities can be kept to a minimum, giving you
the peace of mind that comes from knowing future generations will
receive the maximum benefit from your bequeathed savings, property
and other assets.
Key Questions AND ANSWERS
Because I don’t live in the UK, surely I’m not subject to UK
IHT?
Even if you have worked and lived outside the UK for many years,
the UK may be considered your ‘home’ country (known as your ‘domicile’).
If so, the Inland Revenue will include the value of not only your
UK assets but also your worldwide assets in calculating the worth
of your estate for IHT purposes. By establishing a Trust, you can
potentially take wealth out of your estate so that it is not included
in your UK IHT calculation.
How long do I need to live abroad before I lose my UK domicile?
Unfortunately it is not as simple as that. Your domicile is determined
by where you have your fixed and permanent home and to which, when
you are absent, you intend to return. Only if you manage to lose
your UK domicile by choice (which can be a very long and difficult
process), will you be free of any UK IHT.
My estate is probably worth less than the UK IHT exemption level.
Does that not mean that my estate will be more or less IHT-free?
It is very easy to under-estimate the real value of your worldwide
assets. Some assets, for example property, may have dramatically
increased in their value over recent years. Here is a reminder of
what some of those assets may be – the total value of which should
be taken into account when you start planning for IHT:
• The market value of any property you own in the UK or abroad
• The total balances of all your bank accounts
• The market value of any shares or investments you hold
• Any other assets such as motor vehicles, furniture and artworks
• The value of anAy insurance plans that would be paid on your death
Deduct any outstanding loans from this total but also take into
account the fact that these may be repaid or covered by insurance.
I’m still relatively young. Can I postpone IHT planning for a
few years?
It is best to start planning for IHT as soon as you can if you wish
to mitigate your future IHT liability. Establishing a Trust now
could allow you to make the most of the opportunities it offers,
given that some IHT advantages are only fully realised after seven
years have elapsed. This does not mean that your plans are fixed
as Trusts can adapt to changes in your circumstances.
What else do you need to know?
Choosing the right Trust
There are different types of Trusts, each with their own particular
features and benefits. Your Financial Adviser can help you identify
which Trust vehicle is best suited to your specific needs to help
you legitimately reduce your exposure to UK IHT.
Establishing your trust
Pryce Warner International Group will discuss your circumstances
with you and can help you to structure a Trust based on the individuals
that you wish to benefit from the assets, which you are intending
to place in the Trust. The specific type of Trust that they will
recommend will depend on a number of factors, including whether
you are likely to need access to your capital at any time, need
an income from the investment and how much control you wish to maintain.
Benefits that grow over time
By establishing a Trust, you know that any investment earnings in
the assets underlying the Trust fall outside your estate for UK
inheritance tax (IHT) purposes from the date the Trust is established.
However, should you live for seven years from the date the Trust
is established, it is possible that the entire value of the investment
at that time will escape the IHT net.
Maintaining flexibility
How much control and flexibility you have will depend on the particular
Trust you decide on. Pryce Warner International Group will be able
to help you make the riAght choice based on your individual circumstances.
Summary of Terms
Settlor The individual who establishes the Trust
Trustee: Individual(s) or corporate entity(ies) that manage
the Trust assets
Trust Deed: The legal document that sets out how the Trust
assets are to be managed
Beneficiary: The individual(s) that may ultimately benefit
from the assets within the Trust
Letter of Wishes: A document that the Settlor provides to
the Trustees setting out their desires as to how they wish the Trust
to be administered and the Trust assets distributed
Note: If assets in the Trust Fund(s) are distributed out of the
Trust, they will form part of the estate of the Beneficiary and
may be liable to tax.
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What is a Trust?
A long history
The purpose of a Trust arrangement can best be illustrated by a
brief look at the history behind the concept. The origin of Trusts
stretches back to the Middle Ages when English crusading noblemen
would leave their possessions in the hands of ‘Trustees’ – trusted
friends or senior members of the church that they felt able to rely
on to protect their worldly goods. In the unfortunate event that
the crusading knight failed to return, their assets would be dealt
with by their ‘Trustee’ in accordance with their stated wishes.
The modern day Trust
This concept lives on in the modern day, governed by continually
developing legislation. It is by separating the legal ownership
of assets from the potential to enjoy the benefits they provide
that forms the basis of modern international Trust law.
Elements of a Trust
The creation of a Trust relies upon the transfer of legal ownership
of a person’s assets to the control of a Trustee(s), who will then
manage the assets for the ultimate benefit of the chosen Beneficiaries.
The person creating a Trust is known as the Settlor. To create a
Trust, a Settlor transfers legal title of specific assets (which
then form the Trust Fund) to the Trustee(s), who must then hold
and manage the assets in accordance with the terms of the TrusAt
(set out in the ‘Trust Deed’) and the special duties imposed by
law. Only the named Beneficiaries can benefit from income or ultimate
ownership of the Trust assets.
The life of a Trust
An International Trust can last for a maximum of 100 years, which
is known as the Trust Period. The Trust can come to an end at any
time before the 100 years expires, as soon as its purpose has been
satisfied. Once established, however, the Trust is irrevocable.
How a Trust works

Why consider Trusts?
Pryce Warner International Group Trust range can provide you with
a number of opportunities to enhance the effectiveness of your financial
planning and help to protect your wealth. It is not surprising that
an increasing number of people are now taking advantage of the many
benefits that such Trusts offer.
Tax mitigation
By transferring ownership of assets into a Trust, it is possible
to defer or remove certain tax liabilities that would otherwise
erode your wealth.
Family provision
There are many events in one’s life where financial support may
be required. For example, education costs, buying a new home or
financing a wedding. A Trust is an efficient way to help you plan
for such events in your family’s life.
Succession planning
You want your family to be able to enjoy the benefits of your wealth
and be able to determine how your money is directed. A Trust can
be used in a number of ways to ensure that these wishes are met.
Forced heirship
There are countries throughout the world where, upon death, assets
must be divided according to local law. A Trust, with chosen Beneficiaries,
can help ensure that your assets are distributed according to your
wishes.
Confidentiality
Unlike a Will, which becomes a public document at the time of death,
all Trusts are private arrangements and are not required to be publicly
filed. Therefore, they provide a significant level of confidentiality.
Asset protection
Trusts can safeguard assets against strategic risks sAuch as confiscation
or expropriation by the state in the country of the Settlor’s domicile,
residence or nationality.
Avoidance of delays
When an appropriate Trust is in place, the delays that can arise
in obtaining a Grant of Probate or Letter of Administration (documents
required when making a death claim) can be avoided.
Why consider Trusts?
Our Trust range can provide you with a number of opportunities to
enhance the effectiveness of your financial planning and help to
protect your wealth. It is not surprising that an increasing number
of people are now taking advantage of the many benefits that such
Trusts offer.
The advantages of Guernsey
Pryce Warner International Group has chosen Guernsey as a base for
its Trusts as it is widely recognised by industry experts as being
one of the foremost locations for the establishment of a Trust,
based on the flexibility, protection and confidentiality that the
Island’s Trusts Law provides.
Modern legislation
The Trusts (Guernsey) Law, 2007 came into force March 2008 to the
acclaim of the international finance industry. This now features
tighter protection for both Settlors and Trustees and establishes
a foundation from which Guernsey-based Trusts can continue to provide
an excellent basis for successful financial planning.
Confidentiality
A Trust based in Guernsey offers confidentiality, as there are no
public registration requirements. The enhanced Trust law now increases
this confidentiality by applying strict laws on who can receive
information on a Trust and on how information on a Trust is requested.
Taxation
Guernsey-based Trusts are not subject to Guernsey income tax as
long as the Beneficiaries under the Trust are not Guernsey resident
and any income arising is from outside the Island. There are no
gift, capital gains or estate taxes payable in Guernsey that might
affect the value of the assets within a Trust.
Avoiding forced heirship
The Trust law has specific provisions to help avoid the potential
problems caused by laws of forced heirshipA that are applicable
in some countries. This specific law helps to ensure that the intentions
of the Trust can be effectively delivered by the Trustees.
Protection against foreign courts
The enhanced Trust law also provides Guernsey Trusts with protection
against attacks from foreign courts by barring the application of
foreign law in determining validity, variation and administration
of the Trust.
Reputation
Guernsey’s reputation in the fiduciary world is renowned for the
quality of its Trust law and the professionalism of its Trust services.
This was recently reinforced with The Society of Trust Estate Practitioners
(STEP) announcing Guernsey as ‘International Financial Centre of
the Year, 2008’.
Pryce Warner International Group Trust range
A focused range
There is a wide range of Trust structures available in the market
that can be used to cover a multitude of circumstances. Pryce Warner
International’s focused range of Trusts is designed to cover the
majority of situations, providing simple, straightforward Trust
solutions to bring an extra dimension to your financial planning.
In good hands
We will be more than happy to discuss the different types of Trusts
available from Pryce Warner International Group and help you to
determine which will best suit your needs. You can also rest assured
that our formatted Trusts are offered in conjunction with Generali.
Generali is part of Assicurazioni Generali S.p.A (the Generali Group),
which has the benefit of over 175 years’ experience in providing
savings and investment solutions for a wide variety of investment
needs. The Generali Group has a truly global presence, operating
in some 40 markets covering five continents. As one of the world’s
top 50 companies* and a top 5 global insurer*. Pryce Warner International
Group has a wealth of experienceto provide you with solutions which
will give you financial peace of mind.
Your choice
Over the following pages we look at each of the four principal types
of Trust that Pryce Warner International Group can offer and explain
the main features and benefits they provide. Together, these should
provide you with a set of financial options that will, in turn,
allow you to maximise the opportunities available. The four trusts
in our range, summarised below, are described in the following pages:
• Discretionary Trust offering outstanding flexibility
• Discretionary Gift Trust for greater control and UK IHT planning
• Discretionary Loan Trust with the option to enjoy capital, when
required
• Discretionary Wealth Protector Trust for asset protection
Discretionary Trust
A Discretionary Trust is one of the most common and popular Trust
solutions as a result of its ability to achieve a wide range of
objectives, while retaining flexibility.
What is a Discretionary Trust?
One of the most versatile types of Trust available, in that it provides
flexibility in terms of who can benefit from the Trust. In particular,
this flexibility arises because the original Settlor can be both
a Trustee and a Beneficiary under the Trust.
Main features
• The Settlor has the comfort of knowing that although the Beneficiaries
are named, the Trustees have the discretion, if circumstances alter,
to change the Beneficiaries or change the level of beneficial interest
they may have in the Trust at any time in the future. This is often
an important consideration when the Beneficiaries are young when
the Trust is established.
• The Settlor can be a Trustee and a Beneficiary. You might use
this Trust if…
• You are in a position to give away assets but wish to retain the
option to benefit from the Trust yourself in the future.
• You want to be able to have some control over who benefits from
your estate and need the flexibility to change Beneficiaries as
your family circumstances change.
• You do not want your dependants to suffer delays in the distribution
of your wealth, for example, as a result of onerous probate requirements
on death.
• You wish to retain a higher degree of confidentiality when it
comes to your personal finances.
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Trusts in action – case study
Meet
John and Gail Kemp
John and Gail are in their early 40s, live in Mexico and have three
small children under the age of 10. John has recently had a health
scare but the prognosis for a full recovery is extremely positive.
John and Gail Kemp
John and Gail’s needs
The scare has made the couple anxious to seek professional advice
to ensure the best management of their finances and to put in place
financial planning for their three children. They have an amount
of £60,000 to invest now and believe that they will be in a position
to add to this in the future.
The Trust solution
Pryce Warner International Group points out the benefits of a Discretionary
Trust, which would allow them to set up their children as Beneficiaries
and outline their wishes for how the contents of the Trust should
be distributed to their children. As John and Gail’s requirements
are very straightforward, John’s two brothers are deemed sufficiently
experienced to act as Trustees, along with John and Gail, and this
therefore eliminates the costs of professional Trustees. On agreeing
this approach, Pryce Warner International Group recommends that
they invest the £60,000 into a Portfolio Bond holding selected investments
which will allow for future additional payments. John and Gail will
be set up with a Portfolio Bond with their lives as lives assured.
The Plan will be written subject to a Discretionary Trust.
What has been achieved?
By investing in a Choice plan and placing it in a Discretionary
Trust, John and Gail can ensure that it contributes to their children
as they wish it to. While still alive, funds from the plan can be
used for their children if and when required and on their death
the plan will pay a death benefit amount into the Trust. The information
in this case study is for illustrative purposes only and should
not be relied upon for decisions relating to your individualcircumstances.
By giving this information, Pryce Warner International Group is
not prAoviding legal or tax advice. Pryce Warner International Group
l recommends that professional tax advice relating to your individual
circumstances and tax position should be sought at all times.
Discretionary Gift Trust
A Discretionary Gift Trust, as its name implies, can be an excellent
choice if you are ina position to gift your assets, without needing
access to them in the future.
What is a Gift Trust?
A possible solution for UK inheritance tax (IHT) purposes, the Gift
Trust allows the Settlor to give away wealth that will not be needed
in the future. For UK domiciliaries, the assets held within this
Trust have the added benefit of being outside the Settlor’s estate
for UK IHT purposes after seven years, with investment earnings
on those assets being outside the estate immediately. By virtue
of being a Trustee, a Settlor can still have an influence over decisions
related to the Trust assets. Importantly, with the Gift Trust, the
Settlor is not permitted to be a Beneficiary.
Main features
• Suitable where the Settlor wishes to start IHT planning and does
not need access to capital, now or in the future.
• The Trustees and Beneficiaries can be changed as circumstances
change.
• The Trustees have discretion over the level and proportion of
benefit each Beneficiary receives from the fund.
• The Settlor can be a Trustee.
You might use this Trust if…
• You wish to take steps to mitigate possible IHT liability for
your family upon your death.
• You have assets that you will not need to use in your lifetime.
• You are not yet in a position where you wish to finalise the Beneficiaries
under your Trust arrangement and the amount each is to receive.
Trusts in action – case study
Meet
Bob Burrows
A 60 year old widower, Bob Burrows is currently working for a petrochemical
company in Dubai. He loves his job and has no intention of retiring
until he is 65. He then plans to return to England and spend his
retirement in Cornwall. Bob has one child, Antonia, who lives in
London with her husband, Henry, aAnd their twins, Paul and Angela.
Bob had a stroke of good luck with a windfall of £500,000. As he
is UK domiciled, he understands that this could create an inheritance
tax (IHT) problem, as it will take his worldwide assets above the
UK Nil Rate Band threshold*. He therefore consults Pryce Warner
International Group.
Bob’s needs
Bob speaks to Pryce Warner International Group and he tells them
that he wishes to spend £200,000 on luxuries for his retirement.
As he is financially secure, he does not need access to the remainder
of his windfall and wants this to be an inheritance for his family.
The Trust solution
Pryce Warner International Group recommends he invests £300,000
in a Portfolio Bond with the Portfolio Bond placed in a Discretionary
Gift Trust and that Bob should be the life assured. Bob should also
be co-trustee along with his two brothers.
What has been achieved?
As Bob is UK domiciled for IHT purposes, the transfer into the Discretionary
Gift Trust is seen as a UK Inheritance Tax lifetime transfer. As
Bob has not made any transfers in the past, he makes use of the
UK Nil Rate Band threshold* and, therefore, in this case no UK IHT
is payable.
Five years on… Bob turns 65 and returns to England, retiring to
Cornwall as planned. Two years into his retirement he discovers
that one of his grandchildren is having learning difficulties. After
discussing the matter with his family and Trustees, they decide
to advance capital of £20,000 to cover specialist education fees.
Because the advancement is within the cumulative 5% annual withdrawal
limit of an insurance bond, there is no UK tax liability on this
part surrender.
Five years after retirement … Bob is delighted with the performance
of the Portfolio Bond, however it has grown to a value greater than
the UK Nil Rate Band threshold* for inheritance tax. As the Trust
has now been in existence for 10 years, the Trustees advise that
a 10 year charge† to inheritance tax is now due on the value of
the Portfolio Bond over and above the UK Nil Rate BandA threshold*.
The Trustees calculate the charge and make a part surrender from
the Portfolio Bond to pay the tax bill.
Two years on… Bob dies. As he was the life assured on the Portfolio
Bond, the proceeds are distributed to the Beneficiaries by the Trustees.
Because the transfer into the Portfolio Bond happened more than
seven years ago, there is no UK IHT payable as a result of Bob’s
death and Bob’s designated Beneficiaries receive their inheritance.
Income tax will be payable on the profit element of the Portfolio
Bond and there will also be a small inheritance tax distribution
charge when the proceeds are paid to the Beneficiaries, but these
charges are small compared to the inheritance tax that would otherwise
be payable on Bob’s death.
The information in this case study is for illustrative purposes
only and should not be relied upon for decisions relating to your
individual circumstances. By giving this information, Pryce Warner
International Group is not providing legal or tax advice. Pryce
Warner International Group recommends that professional tax advice
relating to your individual circumstances and tax position should
be sought at all times.
What is a Loan Trust?
Suitable for individuals seeking to do some IHT planning but who
do not want to give away their capital, the Loan Trust allows the
Settlor to lend an amount of capital to Trustees. The Trustees then
invest the loan. The Settlor can demand repayment of the loan at
any time and repayments are usually made by way of regular withdrawals.
Any investment earnings on the Trust assets belong to the Trustees
and are automatically outside of the Settlor’s estate for UK IHT
tax purposes.
Main features
• Suitable where the Settlor is not ready to make a gift of capital
but is an effective start to inheritance tax planning.
• The Settlor has full access to their capital at any time.
• The Settlor has the flexibility to start and stop loan repayments.
• The loan repayments will come back into the client’s estate and
can be spent or gifted withinA annual allowances to reduce the Settlor’s
estate.
You might use this Trust if…
• You wish to start inheritance planning that will help to mitigate
IHT liability on your death.
• You may need to have access to your capital at some time in the
foreseeable future.
• You may wish to have a regular income from the Trust, either to
spend or gift.
Discretionary Loan Trust
A Discretionary Loan Trust, in contrast to the Discretionary Gift
Trust, is an ideal way to establish effective UK Inheritance Tax
(IHT) planning but without giving up the ability to enjoy access
to your capital if and when you need it.
What is a Loan Trust?
Suitable for individuals seeking to do some IHT planning but who
do not want to give away their capital, the Loan Trust allows the
Settlor to lend an amount of capital to Trustees. The Trustees then
invest the loan. The Settlor can demand repayment of the loan at
any time and repayments are usually made by way of regular withdrawals.
Any investment earnings on the Trust assets belong to the Trustees
and are automatically outside of the Settlor’s estate for UK IHT
tax purposes.
Main features
• Suitable where the Settlor is not ready to make a gift of capital
but it is an effective start to inheritance tax planning.
• The Settlor has full access to their capital at any time.
• The Settlor has the flexibility to start and stop loan repayments.
• The loan repayments will come back into the client’s estate and
can be spent or gifted within annual allowances to reduce the Settlor’s
estate. You might use this Trust if…
• You wish to start inheritance planning that will help to mitigate
IHT liability on your death.
• You may need to have access to your capital at some time in the
foreseeable future.
• You may wish to have a regular income from the Trust, either to
spend or gift.
Trusts in action – case study
Meet
Jill Thompson Jill Thompson is 60 and just about to retire
from her job as a Senior Manager with a multi-national company Kong.
Jill is very active and is looking forward to travelling and reigniting
her passion for sailing. Jill owns a holiday home in her native
Bognor Regis, in England, in which she intends to spend six months
of every so that she can be close to her two daughters, Lorraine
and Mary. Her daughters have two children each.
Jill’s needs
Jill will have a pension in payment of £60,000 p.a. However, because
of her active lifestyle and costly interests, she estimates that
it will take another £10,000 p.a. for her to be comfortable in her
retirement. Jill also has £200,000 in her bank account and realises
that this, combined with the properties she owns, will create a
potential UK inheritance tax (IHT) issue that she would like to
avoid. Jill also wants to make sure her grandchildren are well looked
after later in life.
The Trust solution
Following a discussion with Pryce Warner International Group, Jill
decides that she should start inheritance tax planning as soon as
possible but, as she needs additional income over the next few years
to support her active lifestyle, she cannot afford to give all of
her savings away immediately.
Pryce Warner International Group recommends that her £200,000 be
invested in an International Portfolio Bond written subject to a
Discretionary Loan Trust.
Pryce Warner International Group set up the Discretionary Loan Trust
with professional Trustees. Her grandchildren are to be Beneficiaries
of the Trust. Jill lends the Trustees £200,000 to invest in an International
Portfolio Bond and she is to be the sole life assured. Jill requests
that the loan is interest free and she requires repayment of the
loan at 5% of the original £200,000 loan per annum.
What has been achieved?
The loan repayments from the the International Portfolio Bond provide
Jill with the additional annual income of £10,000 she needs and,
as they equal 5% of the loan amount, no UK tax is paid on the withdrawal
in the UK.
If Jill lives to the age of 80 (i.e. 20 years at 5% per annum),
the loan will be fully repaid, no UK tax will have been paid and
theA remaining value of the Portfolio Bond will be completely outside
her estate for UK tax purposes.If, on the other hand, Jill dies
before the loan has been repaid, the value of the outstanding loan
is added to the value of her estate and not the total value of the
Portfolio Bond. This means that any growth in the Portfolio Bond
is automatically outside Jill’s estate for UK tax purposes and is,
therefore, free of UK IHT.
Jill also has comfort in the fact that she knows that her grandchildren
will be well looked after later in life.
The information in this case study is for illustrative purposes
only and should not be relied upon for decisions relating to your
individual circumstances. By giving this information, Pryce Warner
International Group is not providing legal or tax advice. Pryce
Warner International Group recommendsthat professional tax advice
relating to your individual circumstances and tax position should
be sought at all times.
Wealth Protector Trust
The effect of this Trust is to remove your assets from your estate.
By taking this step, you can gain control and security as a result
of the legal title to your wealth being held outside your country
of residence.
What is a Discretionary Wealth Protector Trust?
The Discretionary Wealth Protector Trust makes use of the Trusts(Guernsey)
Law, 2007 to help strengthen the Trust by excluding foreign law
on decisions relating to its validity. By transferring your assets
to a Discretionary Wealth Protector Trust, you can potentially remove
these assets from your estate, giving a number of possible benefits
in terms of the protection and eventual distribution of your wealth.
Main features
In addition to other benefits of a Discretionary Trust, a Discretionary
Wealth Protector Trust offers the following:
• The Settlor can make use of asset protection laws in Guernsey,
which can help to protect one’s assets.
• The Settlor can make use of the Guernsey laws that prevent forced
heirship from outside jurisdictions.
• A BeneficAiary’s interest in the Trust Fund is automatically removed
if that Beneficiary becomes bankrupt. You might use this Trust if…
• You wish to do all you can to protect your assets for your family
to enjoy.
• You reside in a country where local laws can dictate how your
estate is distributed on your death.
• You wish to take your assets outside a politically volatile region.
• You wish to keep your options open as far as possible as to who
will benefit from your trust.
Trusts in action – case study
Meet
Tom Anderson
Tom Anderson is 48 and, although UK domiciled for IHT purposes,
he now lives in Kenya. He married at 21 and, within four years,
owned his own company. By the age of 27 he had two children and
had amassed a personal fortune of £8,000,000. However, his subsequent
divorce cost him 50% of what he had previously considered to be
his hard-earned personal wealth.
The Trust solution
Pryce Warner International Group recommends establishing a Trust
governed by Guernsey law. Guernsey Trust law significantly enhances
the defence of a Guernsey Trust against foreign law based attacks
on the validity of the Trust. Pryce Warner International Group suggests
setting up an International Portfolio Bond* written subject to a
Discretionary Wealth Protector Trust for the benefit of his children.
Tom himself is not to be a Beneficiary. The Trust is established
with professional Trustees in Guernsey to manage it.
What has been achieved?
Ten years on, Tom remarries. Unfortunately, after a period of time,
this marriage also fails and Tom goes through another divorce.
However, because he had transferred money into the Discretionary
Wealth Protector Trust for the benefit of his children well before
he met his second wife, and because Guernsey law excludes the application
of foreign law to Guernsey Trusts, he successfully protected the
International Portfolio Bond for the benefit of his children.
The information in this case study is for illustrative purposes
only and should not be relied upon for decisions relatingA to your
individual circumstances. By giving this information, Pryce Warner
International Group is not providing legal or tax advice. Pryce
Warner International Group recommends that professional tax advice
relating to your individual circumstances and tax position should
be sought at all times.
Trusts at a glance
Choosing the Trust that’s right for you
Can the Settlor be a Beneficiary of the Trust? Yes
Flexibility to change Beneficiaries? Yes
Flexibility to change Beneficiaries’ share of the Trust? Yes
Ability to dictate use of assets? Yes (if also a Trustee)
Potential to take assets outside UK IHT net after seven years? Yes
Potential to take growth of assets outside UK IHT net immediately?
Yes
Access for Settlor to capital? Yes (as a Beneficiary)
Is beneficial interest removed in case of creditors? No
Is the transfer of assets unconditional? Yes
Main uses Succession planning. Confidentiality. Avoiding probate
delays. Other potential benefits IHT planning. *Transfer of assets
is a loan, not a gift.
Please note: This brochure is only a guide and the terms of each
Trust may differ depending on an individual’s circumstances – advice
should always be sought from Pryce Warner International Group. Full
details on each of the Trust options are provided in the relevant
Trust Deeds.
Trusts at a glance
 |
 |
 |
 |
 |
| Feature |
Discretionary Trust |
Discretionary Gift Trust |
Discretionary Loan trust |
Discretionary Wealth trust |
| Can Settlor be Beneficiary of the Trust? |
Yes |
No |
No |
Yes |
| Flexibility to change Beneficiaries? |
Yes |
Yes |
Yes |
Yes |
| Flexibility to change Beneficiaries' share of the Trust? |
Yes |
Yes |
Yes |
Yes |
| Ability to dictate use of assets? |
Yes (if also a Trustee) |
Yes (if also a Trustee) |
No |
No |
| Potential to take assets outside UK IHT net after seven years? |
Yes |
Yes |
No |
Yes |
| Potential to take growth of assets outside UK IHT net immediately? |
Yes |
Yes |
Yes |
Yes |
| Access for Settlor to capital? |
Yes (as a Beneficiary) |
No |
Yes* |
Yes (as a Beneficiary) |
| Is beneficial interest removed in case of creditors? |
No |
No |
No |
Yes |
| Is the transfer of assets unconditional? |
Yes |
Yes |
No** |
Yes |
| Main uses |
Succession planning. Confidentiality. Avoiding probate delays. |
IHT planning. Succession planning. |
IHT planning. Regular Income. Make sure capital growth is outside of settlor for UK IHT purposes. |
Asset protection. Guard against forced heirship. |
| Other potential benefits |
IHT planning. |
Confidentiality. Avoiding probade dealys. Make sure capital growth is outside of settlor for UK IHT purposes. |
Confidentiality. |
Succession planning.IHT planning. |
*Transfer of assets is a loan, not a gift.
**Conditions attached to original loan.
General Information
Trusts are normally created for the protection
of assets, deferment or mitigation of tax, creation/maintaining
anonymity and inheritance planning.
A Trust is a legal relationship created by means of a Trust Settlement
or Agreement, which is evidenced by a written document and established
under the Laws of the relevant jurisdiction. The ‘settlor’ of the
trust would transfer ownership of assets to the trustees. Trustees
are appointed in terms of the Trust Settlement to administer the
assets of the trust for and on behalf of ‘beneficiaries’.
A Trust protector may be appointed to represent the beneficiaAries
and to guide the trustees in the exercise of their discretion and
in accordance with the Trust Settlement. There is no legal requirement
in certain jurisdictions to register Trusts. Thus the identity of
the Trust, its settlor and beneficiaries remain intact.
In most circumstances, a Trust is not liable to any form of taxation
provided all the beneficiaries are not resident where the Trust
is located.
What assets may be transferred into a trust?
Stocks and shares in quoted and unquoted companies
Investment portfolios
Real and intellectual property
Bank deposits
Property
Life assurance policies
Offshore trusts offer many advantages, and some
of their more common uses are:
Tax mitigation
Trusts are very efficient in reducing taxes arising on the assets
placed in the Trust and provide an effective shield between the
settlor, the beneficiaries and the Trust assets.
Protection of assets
The legal ownership of the assets are vested in the trustee and
not the settlor and/or beneficiaries. This is particularly useful
where the social and political climate can easily become unstable
in the home country of the settlor and he or she wishes to place
the ownership of his or her assets in a safe and stable jurisdiction.
Preservation of family wealth
Trusts are useful for preserving wealth and passing it intact through
generations whilst at the same time allowing nominated beneficiaries
to enjoy the benefits of that wealth. This is particularly important
with assets that may not be easily divided between beneficiaries
without losing some of their value, such as farming land.
Forced heirship
Some countries have punitive legislation dictating the manner of
wealth distribution on the death of the owner. If the legal requirements
conflict with the wishes of the owner of those assets, most assets
could be transferred into a Trust to protect those assets.
Get
Click here to get your free Guide to inheritance tax
Foundations
The foundation - a perfect instrument for asset protection.
The word foundation is generally automatically perceived as a charitable
or non-profit making organization. In fact only a small percentage
of all foundations are charitable. Most foundations are set up for
the protection of the founders' assets and as a tax benefit.
The actual legalities of a foundation determine that there is no
obligation to be a charitable organisation. The speciality of a
foundation is that it has no actual owners but only a board of officers.
This fact seems to be a minor juridical issue but actually it is
of utmost importance. Once assets have been placed into the foundation
the founder does not legally own them or have a requirement to declare
them. Neither does he own the foundation. This is of particular
interest in cases of bankruptcy, divorce or third party claims.
All types of assets can be owned by a foundation such as bonds,
stocks, real estate and even patents or rights. Using a regular
company structure there would always be a beneficial owner in the
background and relatives or third parties could be informed about
this. With a foundation there is legally no owner and even if somebody
should be aware of a connection between the founder and the foundation
, they can not access the property of the foundation. Due to the
fact that a foundation is a corporate body it allows for easy controlling.
The term of the foundation is unlimited and certain requirements
or specifications may be fixed in the articles. These specifications
can not be altered or revoked at any time, even after the death
of the founder. This ensures that the founders funds are only ever
granted to whom he states.
A foundation is not formed in order to conduct business. It is made
to manage and protect it's own assets. However it is a very common
and useful structure to have a foundation as owner of an offshore
corporation. The profit of the corporation is regularly transferred
to the foundation but should a bankruptcy of the corporation occur,
it would not affect the foundation at all.
Advantages in forming a foundation
- The Founder can transfer assets into the foundation and legally
declare he does not own them
- No assets that belong to the foundation can be seized
- Potential inheritors can not make claims against the foundation
- Foundations are free from taxation
- Foundations are not required to be charitable or non-profit making
organizations