About John and Jean
John is 73 and Jean is 71. They have £450,000 in savings that they’d like to set aside for their three grandchildren, aged eight, five and three.
Their goals
John and Jean want to pay for their grandchildren’s school fees, until they’re 18. After that, they want to be able to provide a pot of money to help support them at key points in their lives – to fund a gap year, pay for university fees or help towards a deposit on their first home.
Although the couple want to support their grandchildren and leave them an inheritance, they don’t want the children to have automatic access to the trust when they’re 18.
The Controlled Access Account
With the help of a financial adviser, John and Jean decide to invest £150,000 for each of their grandchildren, into three separate Controlled Access Accounts.
How the payments work
The Controlled Access Account combines an absolute/bare trust with a series of life assurance policies that have different maturity dates. The absolute/bare trust also needs to have an adult beneficiary, so John and Jean appoint James, their son and children's father. Each grandchild is the beneficiary on the individual accounts.
The policies can be set up to mature individually or in groups, at specific dates until the children reach 18. If all the maturity proceeds aren’t needed, the maturity dates can be deferred to a date after the grandchildren’s 18th birthdays. This can be anytime up to the age of 49. This means that payments can be made to the children at important times in their lives.
This is a tax-efficient way for the grandchildren to receive payments that are securely controlled by the trustees, who’ve been appointed by John and Jean. As the CAA is subject to a bare trust with an adult beneficiary and no full surrender option is available, the possibility of the grandchildren forcing a surrender is removed.
Flexible access
John and Jean are able to control when the payments are made to the children as they’ve made themselves and the children’s parents the trustees.
Tax efficiency
The gift into each Controlled Access Account is a potentially exempt transfer and is therefore outside of John and Jean’s estates, as long as they live for seven years after setting the account up.
When it comes to any income tax due from the chargeable event gains on maturity, 99% of the gain will be assessed for tax on each grandchild. The remaining 1% of the gain will fall on the adult beneficiary.
If James, the adult beneficiary, gifts his 1% share of the trust fund or maturity proceeds to the grandchild, he will be making a gift, and this is a potentially exempt transfer (PET) for inheritance tax purposes.
