About Andrew
Andrew is 55 and recently divorced. He has two children, Daniel and Anna who are both at university. Andrew has £200,000 in savings and gets an annual work bonus of around £50,000, which he wants to put aside for his children’s future.
Andrew’s goals
Andrew wants to put money aside for his children as they grow older. Although, he doesn’t want them to know about the money or have access to it. Andrew’s estate is worth £1m, so he’d also like to reduce any inheritance tax that needs to be paid when he dies.
Getting an investment bond
With the help of a financial adviser, Andrew decides to invest £206,000 into an investment bond. This is made up of his £200,000 savings and his unused annual allowances of £6,000. Andrew can also put his annual bonuses into the bond, as and when he wants.
Choosing a discretionary trust
Andrew chooses to place this bond into our Discretionary Gift Trust. With a discretionary trust, Andrew can make sure he has a say in how and when his children receive any money.
Andrew decides to make himself and his two brothers trustees. He tells his brothers that he wants his investment to be there for Anna and Daniel as an emergency fund, such as a house deposit. Otherwise, it should be left invested until his death as an inheritance for them, or any future grandchildren, however they see fit.
Tax-efficient saving and investing
As there’s no inheritance tax to pay on the initial gift into trust, there’s no exit charges if the trustees make a payment to Anna or Daniel in the first 10 years.
The investment bond benefits from a 5% tax-deferred allowance. This means that the trustees can withdraw up to 5% of the original investment every year for Daniel and Anna, without having to pay any immediate tax on it.
After seven years, Andrew’s initial investment of £206,000 comes out of his estate, meaning there’s no inheritance tax to pay on it. Any money that Andrew puts into the bond, such as his annual bonus, also falls out of his estate after seven years.
Andrew dies when he’s 75. The assets in his trust moved out of his estate after seven years, which results in tax savings. This means the assets can be paid out to Anna and Daniel, without having to wait for a grant of representation.
