You might want to consider making gifts now to intended beneficiaries as these gifts are free of inheritance tax, providing you live for 7 years or more following the gifts.
You can leave £285,000 (for 2006/07) free of inheritance tax to them in your will or you might like to think about setting up a trust. A gift into a trust is considered to be outside of your estate for IHT purposes after 7 years. Trusts can be complicated and so you should ensure that you work with a professional adviser, such as an Independent Financial Adviser, to ensure your needs are met.
Gift trust solutions
At Canada Life, we offer two trusts: the Bare Gift Trust and the Discretionary Gift Trust.
Both enable you to make settlements in trust which are absolute gifts but you will not be able to receive any withdrawals or partial surrenders in future as the policy has been given away. They have the advantage of avoiding delays because there is no need to obtain a Grant of Representation in this respect, on the death of the donor providing there is a surviving trustee to pay.
Bare Gift Trust
This trust is for the benefit of named individuals. There is no flexibility in the trust once it has been established. The trustees cannot change the proportion that a beneficiary will receive or change the actual beneficiaries. Once a beneficiary is aged over 18, they are absolutely entitled to their share of the trust fund and can demand it at any time.
Discretionary Gift Trust
This trust allows the trustees to distribute the trust fund to any beneficiary as they in their complete discretion see fit. The trust also allows for an Appointed Class who can possibly benefit at a later date, if the trustees so decide. The Appointed Class includes the settlor's children, spouse/civil partner (assuming he or she is not also a settlor of the policy) and any other person added by the trustees with the settlor's written consent. It should be noted that the settlor is excluded from all classes of beneficiaries.
Insurance Solutions
Term Protector
Term assurance pays a cash lump sum if you should die or are diagnosed with a terminal illness during the term of cover, anywhere between 3 and 30 years, to a maximum age of 80. With regards to IHT, the sum assured is under trust and covers tax liability on lifetime gifts (7 years). This is achieved by taking out 5 separate policies for terms of 3-7 years.
Lifetime Protector
Similar to term assurance above but provides lifetime coverage. Our flexible cover plan aims to provide a cash lump sum for your dependants whenever you die. Under current law, benefits are paid free of income tax. The policy has guaranteed rates and will not be subject to policy reviews. With regards to IHT the sum assured is under trust and matches the potential inheritance tax liability at outset.
Capital Solution
Inheritance Protection Bond – a discounted gift trust
This is a lump sum investment, written under trust, providing annual income and control as to who benefits from the trust fund. Investment growth is outside of the estate from day one, with further savings after 7 years. A key feature of a discounted gift trust is that there is an immediate inheritance tax saving in the event of death within 7 years. This is because of the way the initial gift into trust is reduced when it comes to calculating IHT. Bare and discretionary trust versions are available.
Other capital solutions are available via your professional adviser and include:
- gift and loan arrangements - these provide for the growth on your capital to be outside of your estate and provide you with a regular stream of income.
We also have a range of trusts available through our subsidiary Canada Life International.
The information regarding taxation is based on our understanding of current legislation, which may be altered and depends on the individual financial circumstances of the investor.
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