- 55 years old
- Accumulated some wealth during her working life
- She’s not sure when she’ll retire
- Concerned about inheritance tax (IHT)
- Keen to provide some extra provision for her retirement
- Believes her state and company pension is sufficient for her normal living expenses but does not know what disposable income she will need.
A flexible retirement planning solution
After talking through her objectives with her professional adviser she invests £300,000 into a Wealth Preservation Account (WPA). This allows her to potentially reduce the inheritance tax payable when she dies, whilst being able to receive periodic payments back from the trust in future years.
- the people who she wants to run the trust [trustees] and
- those she wants to eventually benefit [beneficiaries]: her two children along with their children, if they have any in the future
- the dates for any future payments back to her. These are not fixed and the trustees she selects can defer these payments if they want to. The trustees also have the option of paying money to the beneficiaries at any time should they want to.
This flexibility is what attracted Joan to the WPA.
Joan continues to work and therefore doesn’t need any payments from the trust. Any that fall due during this time can be deferred by the trustees, if they decide to. This money therefore remains inside the trust and potentially grows.
At 65 she decides to retire and starts to draw her pension. She finds that the pension is sufficient for her needs and she does not need any payments from the trust – the trustees continue deferring these payments. A couple of years later she wants to visit her sister who lives in Australia, but the cost of the trip would not be covered by her normal pension income, so she asks the trustees not to defer any payments that year. She receives a lump sum which she then uses to cover the travel expenses and goes to visit her sister.
When Joan reaches 70 she finds that her pension income is now insufficient to maintain her standard of living and the trustees of the WPA allow some payments to be made each year. This can continue at each anniversary, giving flexibility to tailor the amount withdrawn to Joan’s needs at that time. If she does not need any benefit, it can be retained within the trust and this arrangement can continue for the rest of her life or until the investment is exhausted, if this happens sooner. In addition to the payments to her, the trustees can pay money to the beneficiaries; Joan’s children and potential grandchildren at any time.
- The value of investments can fall as well as rise and you should speak to a professional adviser to ensure that any investment is suitable for you.