Estate Planning Guide

53 52 ESTATE PLANNING OPTIONS ESTATE PLANNING OPTIONS BR qualification clock Unlisted Shares The greatest portion of funds invested in BR based estate planning services are invested in unlisted assets (i.e. not in AIM portfolios). Perhaps as much as 90% of BR investments are invested in unquoted shares, mainly in discretionary management services, although around half of current offers make no mention of capital preservation in their strategy. Suitable trades may include renewable energy (underpinned by FiTs) property development finance, infrastructure projects, secondary PFI projects, secured lending, agriculture finance, asset backed trading enterprises and forestry. Even though ongoing access to funds is one of the advantages BR has over other estate planning options, liquidity can be limited due to the nature of the underlying assets. There is no large-scale active secondary market in unquoted shares. Although managers often aim to facilitate withdrawals within weeks, this is not guaranteed, particularly in the event of a downturn or any event which prompts a high number of redemptions. Fund managers can have an influence on unlisted investee companies and ensure the interests they represent are looked after (for example, ensuring there is no surprise secondary listing or sudden expansion into a non-BR qualifying activity). Non-AIM products (or at least the underlying trades) may be less transparent than AIM quoted BR shares. Performance and volatility are more difficult to measure, and the risks are more challenging to assess. Valuations of the underlying assets are less frequent and more subjective. Thorough due diligence and careful manager selection can offset these disadvantages, but unquoted services are typically less diversified than AIM listed 2.7 JAN FEB MARCH APRIL Funds raised and transferred to the manager Counts towards two-year BR qualification period Funds deployed to BR Shares BR qualification clock starts % Available BR Relief: � A business or an interest in a business � Shares in an unlisted company 100 % Relief Available on � Shares controlling more than 50% of the voting rights in a listed company � Land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled � Land, buildings or machinery used in the business and held in a trust that the deceased has the right to benefit from 50 % Relief Available on portfolios, and may specialise in one or two areas, or be project based. While it is possible to self-select BR qualifying investment opportunities, this would require a lot of time on the part of the investor or adviser, as well as some experience of investment analysis and portfolio construction; identifying BR qualifying companies, with decent returns, diversifying across a portfolio at reasonable cost and monitoring the activities of the investees, is no small task. While investing into a single BR qualifying company can be done, it should probably be limited to those with the relevant insights and expertise to fully understand the operations and future business of the company. It’s also worth noting that the lack of diversification across companies and sectors does present greater risk than investment across a portfolio with multiple BR qualifying assets, not just from the conventional investment perspective, but also in terms of qualifying for BR. Discretionary Investment Management This is the task undertaken by specialist BR estate planning services, usually in the form of a discretionary managed service over which the manager has an investment mandate and full discretion to select shares in an unlisted trading company. In addition, such a service will take responsibility for sourcing new investments as older ones are exited. Funds invested with the discretionary manager are typically looked after by a custodian, until they can be placed (usually within 30 days or less). Once placed, depending upon the structure the manager uses, the investor will have beneficial ownership of either: an SPV, a holding company, shares in an unquoted company or shares quoted on AIM. There is no restriction on what can be invested in provided it meets the qualification criteria. Managers are generally looking for low risk opportunities that meet their capital preservation objectives, with the potential for some growth and a reasonable prospect of liquidity. In some cases, the manager may own the underlying investee companies. The underlying investments in the General Enterprise sector are only limited by the BR qualifying rules. The trades include secured lending (if correctly structured), property development, renewable energy projects, hotels, self storage in certain circumstances, forestry and AIM quoted companies, where there is also a spread of trades that are eligible for BR. MEDIA & ENTERTAINMENT 2% ENERGY GENERATION 7% INDUSTRY & INFRASTRUCTURE 12% FINANCIAL SERVICES 15% GENERAL ENTERPRISE 65% SOURCE: MICAP BR market composition by sector 65% GENERAL ENTERPRISE