International financial advisers have admitted that trust planning is the area they most struggle to understand or where they need more guidance, International Adviser can reveal.
Of the 180 respondents to a survey conducted by Old Mutual International in November 2019, 41% believed this to be the case.
This was followed by 28% finding recent Isle of Man regulatory changes difficult to grasp.
International advisers also admitted they face many barriers when recommending trusts to clients.
Nearly one in three (29%) said their customers did not want to give up control of their assets.
Over a quarter (27%), however, claimed that trust structures are too complicated for clients, as many found them difficult to understand – mirroring advisers’ sentiments.
Prove the value of financial advice
OMI, part of Quilter, said that if advisers are confident in their knowledge, and can articulate the benefits trusts can bring to financial planning, they could prevent clients from taking a ‘DIY’ approach to this area.
Rachael Griffin, head of trusts and technical solutions at Quilter, said: “Trusts can significantly reduce a person’s exposure to inheritance tax and also ensure the right people get the right proportion of assets at the right time.
“However, they have got a reputation for being complicated and difficult to set up. While this in many cases is a misnomer, it does present a good opportunity for advisers to demonstrate their skill and the value of their advice.
“Trust planning should therefore be top of the list of areas for advisers to swot up on if they feel unsure about them.
“If advisers feel confident about trusts, any potential concerns that clients have regarding this area of financial planning can be mitigated through having a greater understanding and knowledge of the full range of modern trust solutions now available.”
Trust strategy
As Griffin suggested, trusts can be an efficient way to reduce a client’s exposure to inheritance tax (IHT) in the UK.
Francesca Gandolfi, technical manager at Canada Life, believes advisers could take advangtage of excluded property trusts, as she explained in an article about the most popular international queries from advisers for IA.
“If you are a UK domiciled individual you are liable to IHT on your worldwide assets. However, if you are non-UK domiciled, UK IHT only applies to your assets that are in the UK,” Gandolfi said.
“You may want to consider transferring overseas assets to an excluded property trust (EPT) before becoming deemed UK domiciled (deemed domicile is assumed when you have been UK resident for 15 out of the previous 20 tax years).
“An EPT allows an individual (or couple) to hold non-UK sited investments under trust.
“The settlor(s) must not be UK-domiciled or deemed domicile for IHT purposes when they create the trust. Under current legislation this allows the trust fund to be excluded from the taxable estate of the settlor(s) for IHT purposes on death.
“This exclusion applies even if the settlor(s) become UK domiciled or deemed domiciled for IHT purposes after the creation of the trust,” she added.
The 180 financial advisers taking part in the OMI survey were from the UK, Europe, Middle East and Asia.
