As an IFA asked to advise a client making an offshore investment, I am recommending an offshore inves...
Having taken the time and effort to select the best vehicle for a client's investment, an intermediary will naturally want to ensure the investment remains tax-efficient during and their lifetime. They will also want to ensure other people benefit.
Transferring the investment to a trust with a professional trustee helps to ensure the right money is paid to the right people at the right time. A trust sounds complicated and expensive, but it need not necessarily be either.
A frequent problem for clients is choosing whom to appoint as trustee. This needs careful thought as the role of trustee is one that may be burdensome and carries with it great responsibilities. Historically, this problem did not arise as advice on trusts emanated from the legal profession and they were well placed to promote the benefits of a professional trustee. Times have changed and the use and taxation of trusts are now an integral part of the professionalism of financial advisers.
Indeed, the use of trusts has increased dramatically over the last 50 years, as more people have become aware of their advantages. But many advisers are wary of undertaking the role of professional trustee, given the responsibilities and the possibility of a conflict of interest arising. Therefore, many of those acting as trustees today are not doing so in a professional capacity.
The professional trustee provides a convenient way for a client to combine their investment with a professional trust service. There are distinct advantages to having a professional act as trustee. It avoids any problems in selecting personal trustees.
All trust paperwork is professionally dealt with, respecting a client's wishes. Objective trustee decisions, keeping to the aims of the trust without personal complications, lead to a client who is confident their ideals will be realised and that the trust provisions and trust laws are not being breached.
If a client is prepared to pay the price then the services of a professional trustee are fairly easy to come by, both onshore and offshore. But it is the price that puts many clients off. To meet this demand, several large financial services organisations have launched professional trust companies.
The logic is to offer clients a professional trustee service as an extra service benefit, which can be provided at a more competitive cost. Where these professional trustees can also increase the client's confidence is by using the same brand as the financial services organisation, therefore giving the client the reassurance that the quality of service associated with the brand will be upheld.
These trust companies are generally based offshore to increase the taxation benefits associated with holding investments subject to a trust. There are, however, other important benefits, not least that of avoiding probate. As a client intends to invest outside the UK, if the investment is not subject to a trust, then on their death it is likely a local grant of probate will be required before any further investment or encashment transactions are allowed.
It would usually be possible to find a local lawyer who, for a fee, would arrange the grant of probate on the client's will (if one existed) when they die. Using a trust avoids these problems.
However, when considering professional trustees, it is important to carefully consider the relative merits of the many and varied jurisdictions where competitively-priced professional trustees are based.
It is important to ensure that trust assets are held in a jurisdiction noted for its stability, both political and legal, as well as its regulatory environment. The basis of trust law, whether statutory or based on a long history of case law (as in the UK), is often also a deciding factor.
Colin Jelley is life and international technical manager at the Skandia Group
First mentioned in Cridland Report
Second acquisition of 2019
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.
Four key areas to focus on
And 94% for critical illness