What is the double trust structure and why is it important?
The Wealth Preservation Account includes two distinct and separate trusts:
- The Initial Trust – a bare trust to which you assign legal ownership of the life assurance policies, and
- The Settlement – a discretionary trust to which you assign ownership of all beneficial interests in the life assurance policies, while retaining the right to receive the proceeds from each of the maturing policies.
This unique trust structure is designed to help avoid potential challenges from His Majesty’s Revenue and Customs (HMRC) in respect of gifts with reservation, the general anti-abuse rule and pre-owned asset tax legislation.
How do I register the trusts?
Registration of Wealth Preservation Account / Wealth Preservation Europe Account on the Trust Registration Service (TRS)
If the trustees of the Initial Trust and the Settlement are different, you must:
- create two separate Government Gateway accounts, and
- complete two separate TRS registrations (one for each trust).
If the trustees of the Initial Trust and the Settlement are the same, HMRC allow a concession so that you:
- complete one TRS registration only,
- include “Initial Trust and Settlement” in the Trust name.
Registration of Wealth Preservation Europe Account on the Central Register of Beneficial Ownership of Trusts (CRBOT)
There is no equivalent concession from Irish Revenue for the two trust Wealth Preservation Europe Account structure.
As a result, each trust in the structure must be considered separately for CRBOT purposes, regardless of whether the trustees are the same.
However, non Irish trusts only need to register where the trustees have a business relationship with an Irish company.
For the Wealth Preservation Europe Account structure:
- Only the Initial Trust has a business relationship with Canada Life, as it holds the legal ownership of the policies.
- The Settlement holds beneficial ownership of the rights, benefits and privileges of the policies, but does not have the business relationship.
Accordingly, a single CRBOT registration should be made for the Initial Trust only
You can find more details about registering your trust here
Can the trustees be changed?
You can’t remove a trustee, however, if a trustee refuses to act, or is no longer capable of being a trustee, you can appoint a new trustee in their place.
If a trustee wants to be discharged, they can voluntarily retire as long as there will still be two personal trustees, or one corporate trustee, after the trustee retires. If not, then a new trustee must be appointed to meet the required number of trustees.
If a trustee dies, then we need proof of the trustee’s death, their death certificate would be evidence of this. Again, if this leaves fewer than two trustees, or one corporate trustee, then a new trustee must be appointed to meet the required number of trustees.
Can the trustees of the settlement make payments to my beneficiaries?
Yes, the trustees of the settlement can instruct the trustees of the initial trust to surrender policies before they reach their maturity date and pay the proceeds to your beneficiaries.
When can payments be made to the settlor?
Payments to the settlor are made through maturing policies. Each maturity date must be on a policy anniversary and should be staggered over a number of years.
Is the VAT treatment of discretionary management fees different for the two accounts?
Both accounts have different VAT treatments:
Wealth Preservation Europe Account
The Irish Revenue Commissioners have confirmed that discretionary fund management services are not chargeable to VAT under the Value Added Tax Consolidation Act 2010, as long as the assets being managed are classed as a pooled fund portfolio bond and not a highly personalised bond.
Wealth Preservation Account
VAT is usually chargeable on discretionary fund management fees. The exact status of VAT depends on the service being provided and who it’s being provided to.
Can you add investments to the policy at a later date?
No, the underlying policies can’t accept any more investments. You can pay more money into the trust, although this can only be held for the beneficiaries and cannot be used to give reversionary payments to the settlor.
What happens when the settlor dies?
The policies will continue if there’s a younger life assured. In this case, the trustees can either allow policy maturities for the beneficiaries, or they can defer the maturity dates. The latest date it can be deferred to is the policy anniversary before the 101st birthday of the youngest life assured.
The trustees can then decide if and when they want to appoint the policies to the beneficiaries or surrender the policies and distribute cash.
Can the settlor be a trustee of the discretionary trust?
Yes, from a trust law perspective the settlor can be a trustee, as long as an impartial trustee is also appointed. However, there are good inheritance tax reasons why this should be avoided.
Where can I find out more about the Wealth Preservation Account?
Wealth Preservation Account Client Guide
