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Trusts

Canada Life’s range of onshore trusts

This briefing note has been written for professional adviser use only.

Canada Life offers a variety of trusts for use in conjunction with new or existing investment bonds and existing life policies. This is a brief introduction to those that are available.

Trust
 

Products

 Bare gift trust

Life assurance Investment bonds

 Bare gift and loan trust

Investment bonds

 Discretionary gift trust

Life assurance Investment bonds

 Discretionary gift and loan trust

Investment bonds

Probate bare trust

Life assurance Investment bonds

Bare discounted gift trust

Investment bonds

Discretionary discounted gift trust

Investment bonds


As well as this note, more information on trusts is available in the following documents, which are available from your account manager or the Technical Services Team at ican@canadalife.co.uk:

  • How Canada Life can help – 8133
  • Trusts Glossary – 8134
  • Choosing an appropriate trust – 8183
  • Introduction to trusts – MKT602

 

Bare Gift Trust

Why would someone use a bare gift trust?

  • This trust allows people to make an absolute gift of an investment into trust.
  • The donor(s) have no right to any further benefit from the investment.
  • In the event of a death claim, by having the policy put into trust, payment can be made swiftly to the surviving trustees for onward payment to the beneficiaries without the need to obtain a grant of representation.

 

What is the inheritance tax (IHT) position for having a policy placed into a bare gift trust?

  • For IHT purposes, the transfer of the investment into trust will be a potentially exempt transfer. This means that as long as the donor lives for seven years, the full value of the policy will be outside of the donor’s estate when they die and, therefore, not subject to IHT.
  • If death occurs before the seven year period has been completed, the amount invested (less any available IHT exemptions and any investment growth) will be assessable for tax.
  • If the value of the transfer is greater than the nil rate band, taper relief may be available.

 

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The donor(s) are automatically appointed as trustees.

 

Who can be beneficiaries?
As this is a fixed trust, the beneficiaries are named individuals. The donor(s) cannot be named as beneficiaries.

 

Can the beneficiaries be changed?
The donor cannot change the beneficiaries after commencement.

 

What is the process for placing the policy into trust?
By completion of the Bare Gift Trust Deed (ref 9016), the donor(s) irrevocably assign their policy to the trustees.



Bare Gift & Loan Trust

Why would someone use a bare gift and loan trust?

  • This trust allows people to make an absolute gift of the growth on an investment to beneficiaries. They do this by making an interest-free loan to the trustees.
  • The investor(s) can recover the amount loaned at any time. They can request that this be done by instalments and receive regular payments until the full amount is returned.
  • In the event of a death claim, payment can be made quickly to the surviving trustees for onward payment without the need to obtain a grant of representation. The trustees must pay the outstanding loan amount back to the estate of the investor and the balance of any monies to the beneficiaries of the trust.

 


What is the IHT position for having a bare gift and loan trust?

  • For IHT purposes, only a £10 gift is made into trust (see below) and this is usually within the annual exemption. Otherwise, it will be a potentially exempt transfer.
  • Any outstanding loan amount will be treated as part of the investor’s estate.

 

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The donor(s) are automatically appointed as trustees.
There must be at least one additional trustee as donor(s) cannot lend money to themselves.

 

Who can be beneficiaries?
As this is a fixed trust, the beneficiaries are named individuals. The investor(s) cannot be named as beneficiaries.

 

Can the beneficiaries be changed?
The investor cannot change the beneficiaries after commencement.

 

What is the process for placing the policy into trust?
The investor(s) set up the trust by completion of the Bare Gift and Loan Trust Deed (ref 8323) with a gift of £10 and then make interest-free loans to the trustees.
The trustees then invest the loan amount into a Select Account or similar.


 

Discretionary Gift Trust

Why would someone use a discretionary gift trust?

  • This trust allows people to make a gift of an investment into trust, without committing to who the ultimate beneficiaries could be.
  • The trustees can distribute payments to any of the individuals or class of beneficiaries entered on the trust document, plus any others they decide to add on later, using their discretion as they see fit.
  • The settlor(s) have no right to any further benefit from the investment.
  • In the event of a death claim, payment can be made quickly to the surviving trustees for onward payment to the beneficiaries without the need to obtain a grant of representation.

 

What is the IHT position for having a policy placed into a discretionary gift trust?

  • For IHT purposes, the transfer of the investment into trust will be a chargeable lifetime transfer. This means that there may potentially be an initial charge to IHT. This will only occur if the investment into our trust, together with any other chargeable lifetime transfers made in the last seven years, is greater than the IHT nil rate threshold for each settlor (£325,000).
  • There may also be an IHT charge when money is taken out of the trust or on every tenth anniversary of the start of the trust, if the value of the trust fund is greater than the IHT nil rate threshold at that particular time.

 

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The settlor(s) are automatically appointed as trustees.

 

Who can be beneficiaries?
The trust document allows for individuals to be named as well as classes of beneficiaries (for example, children, grandchildren, nieces and nephews).

 

Can the beneficiaries be changed?
As the trust is discretionary, the trustees will use their discretion to ultimately determine who will receive benefits. They may choose to note any written wishes received from the settlor(s) as to who should receive benefit, and in what proportion.

 

What is the process for placing the policy into trust?
By completion of the Discretionary Gift Trust (ref 8289), the settlor(s) irrevocably assign their policy to the trustees.


 

Discretionary Gift and Loan Trust

Why would someone use a discretionary gift and loan trust?

  • This trust allows people to make a gift of the growth on an investment to beneficiaries. They do this by making an interest-free loan to the trustees.
  • The investor(s) can recover the amount loaned at any time. They can request that this be done by instalments and receive regular payments until the full amount is returned
  • In the event of a death claim, payment can be made quickly to the surviving trustees for onward payment without the need to obtain a grant of representation. The trustees must pay the outstanding loan amount back to the estate of the investor and the balance of any monies to the beneficiaries of the trust.

 


What is the IHT position for having a policy placed into a discretionary gift and loan trust?

  • For IHT purposes, only a £10 gift is made into trust and this is usually within the annual exemption. Otherwise, it will be a chargeable lifetime transfer.
  • There may also be an IHT charge on every tenth anniversary of the start of the trust, or when money is taken out of the trust after that, if the value of the investment growth in the trust fund is greater than the IHT nil rate threshold at that particular time.
  • Any outstanding loan amount will be treated as part of the investor’s estate.

 

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The investor(s) are automatically appointed as trustees. There must be at least one additional trustee as settlor(s) cannot lend money to themselves.

 

Who can be beneficiaries?
The trust document allows for individuals to be named as well as classes of beneficiaries (for example, children, grandchildren, nieces and nephews).


Can the beneficiaries be changed?
As the trust is discretionary, the trustees will use their discretion to ultimately determine who will receive benefits. They may choose to note any written wishes received from the investor(s) as to who should receive benefit, and in what proportion.

 

What is the process for placing the policy into trust?
The investor(s) set up the trust by completion of the Discretionary Gift & Loan Trust Deed (ref 8290) with a gift of £10 and then make interest-free loans to the trustees.
The trustees then invest the loan amount into a Select Account or similar. 


 

Bare Discounted Gift Trust

Why would someone use a bare discounted gift trust?

  • This trust allows people to make a discounted gift of an investment into a trust.
  • The donor(s) have an absolute right to receive a fixed income on pre-selected dates during their lifetime or until the policy value is exhausted.
  • In the event of a death claim, by having the policy put into trust, payment can be made swiftly to the surviving trustees without the need to obtain a grant of representation. The trustees must still provide the fixed income to the donor(s).

 

What is the IHT position for having a bare discounted gift trust?

  • For IHT purposes there is an immediate discount based on the actuarial value of the income stream.
  • The discounted gift into trust will be a potentially exempt transfer. This means that as long as the donor lives for seven years, the full value of the policy will be outside of the donor’s estate when they die and, therefore, not subject to IHT.
  • If death occurs before the seven year period has been completed, the discounted gift (less any available IHT exemptions) will be assessable for tax.
  • If the value of the discounted gift is greater than the nil rate band, taper relief may be available.

 

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The donor(s) are automatically appointed as trustees.

 

Who can be beneficiaries?
As this is a fixed trust, the beneficiaries are named individuals. The donor(s) cannot be named as beneficiaries.

 

Can the beneficiaries be changed?
The donor cannot change the beneficiaries after commencement.


What is the process for placing the policy into trust?
By completion of the Discounted Trust Account Bare Trust (ref 6612), the donor(s) irrevocably assign their policy to the trustees.


 

Discretionary Discounted Gift Trust

Why would someone use a discretionary discounted gift trust?

  • This trust allows people to make a discounted gift of an investment into trust.
  • The settlor(s) have an absolute right to receive a fixed income on pre-selected dates during their lifetime or until the policy value is exhausted.
  • In the event of a death claim, by having the policy put into trust, payment can be made swiftly to the surviving trustees without the need to obtain a grant of representation.
    The trustees must still provide the fixed income to the settlor(s).

 


What is the IHT position for having a policy placed into a discretionary discounted gift trust?

  • For IHT purposes there is an immediate discount based on the actuarial value of the income stream.
  • The discounted gift into trust will be a chargeable lifetime transfer. This means that there may potentially be an initial charge to IHT. This will only occur if the discounted gift into trust, together with any other chargeable lifetime transfers made in the last seven years, is greater than the IHT nil rate threshold for each settlor (£325,000).
  • There may also be an IHT charge when money is taken out of the trust or on every tenth anniversary of the start of the trust, if the value of the trust fund minus the recalculated discount taking into account any rating imposed at outset is greater than the IHT nil rate threshold at that particular time.

 

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The settlor(s) are automatically appointed
as trustees.

 

Who can be beneficiaries?
The trust document allows for individuals to be named as well as classes of beneficiaries (for example children, grandchildren, nieces and nephews).

 

Can the beneficiaries be changed?
As this is discretionary, the trustees will use their discretion to ultimately determine who will receive benefits. They may choose to note any written wishes received from the settlor(s) as to who should receive benefit, and in what proportion.

 

What is the process for placing the policy into trust?
By completion of the Discounted Gift Trust Account Discretionary Deed (ref 6509), the settlor(s) irrevocably assign their policy to the trustees.


 

Probate Bare Trust

Why would someone use a probate bare trust?

  • So that in the event of a death claim, payment can be made quickly to the surviving trustees for onward payment – without the need to wait to obtain a grant of representation.
  • The trustees then distribute the trust fund in accordance with the donor’s will.

 

What is the IHT position for having a policy placed into a probate bare trust?

For IHT purposes, the value of the trust fund upon death will be included in the donor’s estate.

How many trustees must there be?
There must be a minimum of two individual trustees or one corporate trustee. Individual trustees can be anyone over the age of 18, sane and willing to act. The donor(s) are automatically appointed as trustees.

 

Who can be beneficiaries?
This is a fixed trust for the benefit of the donor(s) and once the trust has been established, the trustees cannot change the beneficiaries.

 

Can the beneficiaries be changed?
The donor cannot change the beneficiary after commencement.

 

What is the process for placing the policy into trust?
By completing of the Probate Bare Trust Deed (ref 8350), the donor(s) irrevocably assign their policy to the trustees.

  

The information regarding taxation is based on our understanding of current legislation, law and HM Revenue and Customs practice, as at December 2016, which may be altered and depends on the individual financial circumstances of the investor. We recommend investors take their own professional tax advice.

This briefing note can also be viewed as a PDF

 

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.