Scottish Life International (SLI) has revamped its loan trust and added a discounted gift trust to i...
Scottish Life International (SLI) has revamped its loan trust and added a discounted gift trust to its range.
The loan trust is an inheritance tax planning product for individuals who do not want to make significant outright gifts.
It has a discretionary trust foundation (as opposed to an "interest in possession" trust foundation) which offers a slightly greater degree of flexibility in trust administration, greater protection for the trustees against claims from disgruntled beneficiaries and a more "anonymous" trust with no identified beneficiaries.
Alan Blackburne, head of UK sales at SLI, said: "Following the changes to the inheritance tax treatment of trusts, the market is moving away from interest in possession trusts."
In practice, the loan trust works by an individual (the settlor) establishing a trust from which they are excluded from all benefit. They provide their selected trustees with funds by way of a loan.
This is interest-free and repayable on demand. The trustees then invest the loan proceeds in a Scottish Life International bond. Growth on the bond is held by the trustees for the beneficiaries and is not in the settlor's inheritance tax estate.
The settlor can get repayment of their loan, wholly or in part, as desired. Repayments are funded by part-surrenders of the bond. When or if the loan is fully repaid, the settlor's ability to access the trust fund ends. The trustees then hold the fund solely for the beneficiaries.
SLI has also added a discounted gift trust to its range of draft trusts for use in inheritance tax planning strategies. This combines a sophisticated draft trust with a life assurance bond issued by SLI.
The Discounted Gift Plan is designed for individuals who wish to make inheritance tax-effective gifts of capital, but need a substitute for the income previously generated from that capital. In return for the investment, the investor receives a pre-planned stream of payments for life.
The plan is structured so that inheritance tax 'gift with reservation' provisions do not apply. Blackburne added: "Although transfers to the trust trigger an inheritance tax chargeable lifetime transfer, the value of the transfer is not the amount invested but a discounted amount reflecting the value of the future stream of payments from the trustees to the investor."
When is a refund allowed?
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