Estate Planning Guide

43 ESTATE PLANNING OPTIONS 42 ESTATE PLANNING OPTIONS CONTROLLED ACCESS TO GIFTS Thought Leadership Controlled Access Gifts are essentially outright gifts and it remains important to consider before any gift is made whether the settlor has surplus funds to gift. Once established, the next decision is whether the beneficiaries are suitable as these will be absolute gifts. Sometimes settlors regret their choice of beneficiaries and the application of the funds. One key concern is that the funds will be accessible at age 18. However, it is possible to delay this with some schemes. While it is possible to stipulate when the funds are gifted ultimately, they will be gifted. Utilising the tax position of the beneficiaries can be an advantage especially if they are non-taxpayers who have access to their personal allowance and their capital gains tax exemption. If not, it may be difficult to delay the distribution of funds so it may be important to consider the likely age of the beneficiary at the time of distribution. An alternative to Controlled Access Gifts would be utilising BR as the asset is outside the settlor’s estate. However, the risk profile for a BR solution is likely to be significantly higher and may not therefore be suitable. Nevertheless, Controlled Access Gifts will take seven years to fall outside of the estate unlike the BR Solution which will take two years. So, while well suited for gifts to grandchildren and children Controlled Access Gifts may result in funds being distributed when the circumstances are not ideal. Technical Connection provides applied tax, technical and financial planning ”know how”. www.technicalconnection.co.uk Estate planning is the process of preserving a life’s work in the form of a financial legacy. SIMON HARRYMAN, INVESTMENT DIRECTOR, INGENIOUS EDWARD GRANT FPFS CHARTERED MCSI FRSA DIRECTOR, TECHNICAL CONNECTION Trust Charges When property (including gifts) is transferred in (i.e. a CLT (see page 48)). There are different rates of IHT for lifetime transfers (20%) and transfers made on death (40%). The value of any CLT made in the previous seven years is accumulated and IHT will be charged on any excess over the NRB. The charge for lifetime transfers is also referred to as the immediate charge and if this is paid by the settlor rather than the trust, the amount payable is grossed up to 25%. Death of the settlor within seven years of the establishment of the trust prompts recalculation of the tax due based on 40% IHT and the current NRB. CLTs, and failed PETs made in the seven years before death, including CLTs in the seven years prior to the oldest failed PET are taken into account. Taper relief on the tax due may be available if the settlor dies more than three years after transferring the assets into trust. When trust property ceases to be relevant property (the exit charge), most commonly when capital from a relevant property trust is distributed to a beneficiary. The actual rate of tax depends on whether the charge arises before or after the first ten-year anniversary of the trust. The calculation takes into account the time elapsed since the last charge (or since the trust was set up if no charge has yet been made) and is affected by variables such as values, availability of reliefs and whether there are related settlements (any other trusts settled by the settlor on the same day). But if there was no initial charge or the last periodic charge was nil, there will be no exit charge. Every ten years after the trust was created (the principal charge or ten-year charge). This is applicable for the trust lifetime, even if the settlor has died. The actual rate of tax at which the principal charge is levied varies from trust to trust but is subject to a maximum of 6%. There is a wide range of variables, including the NRB, CLTs made in the seven years before the trust was established, any related settlements, if further property has been added to the trust, any non-relevant property in the trust and accumulated and undistributed income. The 6% equates to the 40% rate on an individual at death so is intended to be the same charge over a generation. Relevant property is, largely, all trust property. The main exceptions are qualifying interests in possession and excluded property. IHT charges in relation to a relevant property trust are charged IHT on two occasions: 1 2