The trust arrangement is being marketed as ‘The Best Start in Life’ and it invests in a choice of Royal Skandia offshore investment bonds within a discretionary trust at outset.
A key feature also allows trust assets to be assigned to the beneficiary absolutely and therefore it is the beneficiary who the taxable event gain is assessable on. Provided the beneficiary has no other income, the tax liability can either be mitigated if the amount is within the individual’s personal allowance limit, or significantly reduced.
Provided the individual lives beyond seven years from the outset of the trust the proceeds may qualify for complete exemption from IHT.
The settlor is able to complete a ‘letter of wishes’ which, although not legally binding, can be used by the trustees as guidance to make decisions about the provision of benefits from the Trust.
In financial planning terms, the settlor may, for example indicate that he or she wishes to fund university education for grandchildren yet unborn, or that part of the benefits could be used as a deposit for a house for one of the existing grandchildren. It is up to the trustees to determine when and how benefits will be paid to the beneficiaries.
Rachael Griffin, head of product law and commercial development at Skandia International, said individuals do not often realise what options could allow them to legitimately optimise and mitigate potential future tax liabilities.
“The ‘Best Start in Life’ Trust illustrates that by planning how a withdrawal is taken, the trustees can reduce the tax liabilities on the settlor or the beneficiary by using just one tax-efficient solution. I cannot stress enough that individuals and trustees should not be deterred by the complexity and instead, with the help of a professional adviser, use the available options to their full advantage.”
