WAY Flexible Inheritor Plan. Flexible wealth preservation for you and your loved ones. For plans with an appointed investment adviser

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1 WAY Flexible Inheritor Plan Flexible wealth preservation for you and your loved ones For UK Investors only 1 For plans with an appointed investment adviser

2 WAY Flexible Inheritor Plan Flexible wealth preservation for you and your loved ones Contents Page Inheritance Tax and the gifting dilemma 4 What is a trust? 5 The importance of flexibility 5 What is the WAY Flexible Inheritor Plan? 6 Access to the WAY Flexible Inheritor Plan investment portfolio 7 Main aspects of the Flexible Inheritor Trust 8 Examples of the Flexible Inheritor Plan in operation 10 Tax implications during the lifetime of the Trust 11 Key information about the Flexible Inheritor Plan 12 Important information The purpose of this brochure is to help you understand the Flexible Inheritor Plan and how it works. It must be read in conjunction with the literature relating to the investments to be held within the Trust, as provided by your financial adviser, and then kept safe for future reference. If you require further explanation of any point, please contact your adviser for more information. The Flexible Inheritor Plan is a trust-based investment. WAY Investment Services (WAY) only accepts applications for the Plan introduced by professional advisers who are regulated by the FCA (Financial Conduct Authority). WAY cannot give financial advice. Investors must therefore rely on the recommendations of their professional adviser(s) on whether such an arrangement is appropriate for their individual circumstances. Throughout this brochure, it is assumed that the investor is domiciled and resident in the UK and the Trust is regarded as UK resident for tax purposes. The contents are based on WAY s understanding of current law and HM Revenue & Customs (HMRC) practice, which can change at any time. 3

3 Inheritance Tax and the gifting dilemma You work hard, pay taxes, save for your future, buy your own house and want to give your children and grandchildren a good start in life, only to find that your assets are taxable again on death. Inheritance Tax (IHT) can have a serious impact on your estate and can substantially reduce the amount of your wealth passing to beneficiaries. Fortunately, by planning ahead, there are tried and trusted ways whereby you can reduce the IHT payable on your death but without jeopardising your current and future financial security. A very effective way of reducing your taxable estate for IHT is to make significant gifts during your lifetime. For example, a gift of 100,000 to your son or daughter would mean a fall in your potential IHT bill of 40,000 if you subsequently survive seven years. However, most people cannot afford to make a sizeable gift because they may want some access to the capital in the future or require an income from it. Sadly if you continue to enjoy any benefit from or access to it, the gift will normally be regarded as a gift with reservation and be ineffective for IHT mitigation. In any event, you may not feel comfortable about making a large outright gift as this involves losing control of the capital and how it is used. What happens if the recipient becomes bankrupt or gets divorced? What if the intended beneficiary is a young child or, possibly, a spendthrift? Perhaps you would prefer to make a single one-off gift for the benefit of all your children, grandchildren and great-grandchildren so that your wealth can cascade down to future generations of your family. Where flexibility and control are important factors, the WAY Flexible Inheritor Plan can provide an effective solution. 4

4 What is a trust? Using trusts for wealth preservation Trust-based IHT mitigation plans are designed to reduce the value of your taxable estate for IHT whilst facilitating future access to capital but without infringing on the gifts with reservation rules. In addition, trusts can preserve your capital for future use by your children and the next generations in an IHT efficient manner. A trust is a legal arrangement where you (the settlor) transfer the ownership of assets to a group of people (the trustees) that you appoint to hold and administer for the benefit of your chosen beneficiaries. The assets now held in the trust are referred to as the trust fund. The legal document setting out the terms of the trust is called the trust deed. A trust can therefore allow you to make a gift without physically handing over the capital to your intended beneficiaries. A trust can also ensure that the capital remains within your family. Furthermore, since a trust can last for up to 125 years, it can continue after your death. Of even greater benefit, certain trusts, like the WAY Flexible Inheritor Trust, can also permit you some access to capital without infringing the gift with reservation rules. The trustees must manage the trust fund in the best interests of the beneficiaries and in accordance with the trust deed. Being a trustee is therefore an important responsibility. Most gifts into trust are chargeable lifetime transfers for IHT and, as a result, are potentially liable to an immediate IHT charge. However, no IHT will be due if the value of the gift and any other similar gifts you have made in the last seven years, are within the nil rate band. Then if you survive the gift by seven years, it will fall out of your estate for IHT. The importance of flexibility Flexibility is another highly important ingredient in providing you with peace of mind. As we all know, life can change without warning so being tied up in a rigid planning strategy is not recommended. We all have concerns about what may happen in later life. Apart from ensuring that your financial security is not compromised in any way, your IHT planning should be sufficiently flexible to cater for any future changes in your personal circumstances (perhaps an occasional need to boost retirement income or assistance in paying for long term care). You may also want the ability to use the capital concerned for providing financial support to your children and grandchildren whilst you are alive. 5

5 What is the WAY Flexible Inheritor Plan? The Plan involves you purchasing unit trusts and OEICs in your own name and then transferring (ie gifting) these to a WAY Flexible Inheritor Trust for your chosen beneficiaries. There are two types of Plan: 1. Under our traditional arrangement, you may invest only in WAY-branded Portfolio Funds. These non-income yielding investments have been specifically designed to be held within the Plan to simplify trust administration. 2. Alternatively, our managed portfolio version allows you to invest in a portfolio of unit trusts and OEICs chosen from a wide selection of fund managers by your financial adviser to meet the needs of the Trust. Unit trusts and OEICs are pooled investment funds, often known as collective investments. Details can be obtained from your financial adviser. Both Plans are set up and administered using our Plato Investment Administration Service. This is an online investment account, which allows investments such as unit trusts and OEICs to be bought or sold electronically and managed conveniently in one place. Investment performance can also be easily monitored and analysed. Online viewing access can therefore allow the trustees to perform their duties in an efficient manner. When you make the gift to establish the Trust, this will be treated as a chargeable lifetime transfer for IHT. There will be no immediate charge to IHT so long as the maximum you invest in the Plan is within your available nil rate band. Your financial adviser will be able to tell you how much you can safely gift into the Trust. Once the Trust is set up, you cannot add to your initial investment. If you survive the next seven years, the value of the gift will no longer form part of your estate for IHT purposes. Under the Trust, you elect to receive a program of reversions of capital on future anniversaries if you are alive when each falls due. However, the trustees can appoint capital to beneficiaries at any time and can also postpone a forthcoming reversion to a later date, so you will not automatically receive such payments. The existence of these discretionary powers provides the flexibility of the Plan and allows the trustees to adapt it for your benefit and that of your family to cope with uncertain future circumstances. The value of the funds will vary from day to day. Past performance is not necessarily a guide to future investment returns. 6

6 Access to the WAY Flexible Inheritor Plan investment portfolio Inside Donor S Estate Interest-in-PossesSion Trust (holding managed portfolio - outside donor s estate) 1ST ANNIVERSARY REVERSION TO SETTLOR Trustees decide each year (normally having consulted the settlor) what proportion, if any, of that year s scheduled reversion reverts to the settlor and the future anniversary to which any balance is deferred. Once the Settlor has survived 7 years from the date of establishing the trust then the original gift falls out of his/her estate for IHT purposes. The trust can continue after the death of the Settlor if this is in the interests of the beneficiaries, for instance to skip one or more generations. 2ND ANNIVERSARY REVERSION 3RD ANNIVERSARY REVERSION 4TH ANNIVERSARY REVERSION 5TH ANNIVERSARY REVERSION 6TH ANNIVERSARY REVERSION 7TH ANNIVERSARY REVERSION 8TH ANNIVERSARY REVERSION 9TH ANNIVERSARY REVERSION 10TH ANNIVERSARY REVERSION Trustees decide whether to make appointments (or loans) to beneficiaries at any time - generally as in specie transfers of investment shares - and often as a response to a letter of wishes from the family. Trustees decide what proportion, if any, of each scheduled reversion should have its reversion dates deferred and to when. managed portfolio The Plan offers many benefits, including: The gift will fall outside your estate for IHT after surviving 7 years. Investment growth occurs outside your estate. You may benefit from reversions subject to the trustees discretionary powers to defeat or defer any reversions to reflect the needs of all beneficiaries. If a reversion is not required it can be postponed by the trustees to a future date. The trustees can pay out or lend trust capital to any beneficiary at any time. The trustees can take advantage of their annual capital gains tax (CGT) exemption. Scope to claim CGT holdover relief when distributing trust capital to beneficiaries. 7

7 Main aspects of the Flexible Inheritor Plan The Flexible Inheritor Plan uses a special flexible reversionary interest in possession trust. Its flexible structure allows you to carry out effective IHT planning whilst enabling you to have some access to your capital and at the same time ensuring that trust assets can stay within your immediate family and easily pass down the generations. Appointment of trustees Neither you nor your spouse can act as a trustee. Further information on who should be appointed as a trustee and their main role can be found in the Key Information section of this brochure. Annual reversions Although, under the Trust, you retain the right to receive annual reversion payments if you survive to their relevant due dates, the trustees have an overriding power to defeat or defer any part of a reversion otherwise due. When setting up the Trust, you will complete a schedule within the deed showing the size of each reversion and the trust anniversary when it becomes payable. Each reversion is made up of a proportion of the investments you gift to the Trust. If you receive a reversion, this will be in the form of units and shares, which you can then sell. The proceeds will also include any capital growth to date. Other than having potential access to annual reversions, you have no further entitlement from the Trust. Trust income Any income produced by the trust investments is payable to beneficiaries that you must name in the trust deed. Their legal right to the trust income is called an interest in possession. The trustees cannot subsequently change these particular beneficiaries (or their successors) or vary their share of the trust income. Trust capital Under the terms of the Trust, the trustees hold the capital for a wide class of beneficiaries (known as the Appointed Class) and have full control over who will benefit, by how much and when. They can therefore appoint or lend capital to any beneficiary at any time. The Appointed Class will automatically include the income beneficiaries named by you, their children, their grandchildren and so on, together with their respective spouses/civil partners. A true family trust. You also have the opportunity to include other potential capital beneficiaries when setting up the Trust and further potential beneficiaries can be added later by the trustees (to reflect new relationships and/or surviving partners). Your spouse or civil partner cannot be a beneficiary whilst you are alive but can be added to the Appointed Class on your death by the trustees at their discretion. Letter of wishes Since the trustees will have several key decisions to make, it is suggested that you inform them, by way of a letter of wishes, on how you would like the trust fund to be used. The contents are not legally binding on the trustees but will often be very useful to them when considering the exercise of their discretionary powers. You can then update the letter if your circumstances or those of your family change in the future. 8

8 Examples of the Flexible Inheritor Plan in operation Let s assume that you want to make a gift of 100,000 to the Plan and structure your annual reversions so that 10% of the original investment gifted will revert back to you on each anniversary of the Trust for the first ten years. (You can in practice, establish a bespoke structure to suit your individual circumstances.) A reversion will only be made to you if you are alive on the due date and the trustees decide not to exercise their powers in favour of the beneficiaries. If your trustees decide that a forthcoming reversion payment is not required, they can simply defer it in total or in part to another anniversary date. Before each reversion date, we will forward related paperwork to the trustees, who must decide whether they wish to postpone the reversion in full or in part to a later anniversary date. You should always inform the trustees of your own circumstances in advance of each reversion so they can take these into account. The trustees cannot bring forward the date of any future reversion. Example 1 If, as the first anniversary approaches, the trustees make a decision to defer the reversion now due, they can allocate this to any future trust anniversary and in any proportion they wish. They could therefore roll over the entire reversion to the next year so that, in our example, the reversion due on the second anniversary would become 20%. Example 2 Alternatively, they could re-schedule it to the next free anniversary date so that the revised payment date of the first year reversion would now be the eleventh anniversary. If, instead, the trustees had decided to defer, say, 50% of the reversion and thereby let you receive the balance, the revised year 2 reversion in example 1 would be 15% and that due in year 11 in example 2 would be 5%. And so on. If you survive seven years after setting up the Trust, the original gift (and any subsequent growth) will be outside your taxable estate for IHT purposes and your IHT bill will be reduced by 40,000. Additionally, you will still have potential access to capital via the outstanding reversions. If you die within seven years of creating the Trust, the value of your original gift will reduce the nil rate band available for calculating the IHT due on the residue of your estate. Again any investment growth will be outside your estate. The trustees can also exercise their discretion at any time to pay out capital or make loans to any of your beneficiaries. Reasons for doing so could include helping with the costs of university education, making a contribution towards the deposit when buying a first house or to cover unexpected and urgent property repairs. What happens to the Plan on your death? On your death, the reversions will stop. However, the investments can continue to be held in the Trust, which can carry on acting as a highly IHT efficient vehicle for your children and grandchildren. If appropriate, the trustees can now add your surviving spouse/civil partner as a potential beneficiary of the Trust and can make capital payments or loans to him/her. Loans to any surviving partner can further reduce the IHT finally payable on your joint estates. 10

9 Tax implications during the lifetime of the Trust Three different taxes could potentially become payable during the lifetime of the Trust income tax, capital gains tax and IHT. These are now considered in outline. Your financial adviser will explain the taxes in greater detail to you. Income tax Income received by the trustees will be assessed on you for income tax. This should not be an issue if the trust fund consists solely of the nil income producing WAY-branded portfolios as under the traditional Plan. Capital gains tax (CGT) If the trustees sell investments or transfer capital out of the Trust (to you by way of a reversion payment or to a beneficiary), they will face a charge to CGT on any gains (ie profits) that exceed their annual exemption. However, CGT holdover relief can usually be claimed when transferring assets to a beneficiary to enable capital to be distributed in a very tax efficient manner. Postponing a reversion does not give rise to any tax implications. IHT The trust fund is potentially liable to a periodic IHT charge at a reduced rate on every ten year anniversary of the Trust and whenever capital is paid out to beneficiaries. In most instances, IHT will not be payable. Summary of the Flexible Inheritor Plan A flexible IHT solution that can adapt to the changing needs of you and your family Making an effective gift for IHT that will be outside your estate after surviving seven years Retaining potential access to annual capital payments, including capital growth The trustees have flexibility and control over distribution of capital to the beneficiaries CGT efficient investments for the trustees and the beneficiaries 11

10 Key information about the WAY Flexible Inheritor Plan Please read this section carefully and keep this brochure in a safe place for future reference. If you are unclear about any aspect, please refer to your financial adviser in the first instance. What is the Flexible Inheritor Plan? The Plan is an arrangement that enables you to make a gift into trust for your beneficiaries and reduce the IHT due on your death but still have the ability to receive annual capital payments in the future without infringing the gift with reservation rules. What are the main aims of the Plan? To remove the original sum invested from your estate for IHT after surviving seven years. To provide potential for capital growth over the medium to long term. Any growth will be outside your estate for IHT purposes straightaway. To allow you access to a series of annual capital payments unless your trustees decide to defeat or postpone them. To permit your trustees to pay out or lend trust capital to your beneficiaries at any time. What are my commitments? You are UK resident and UK domiciled for tax purposes. If you are unsure, please speak to your financial adviser before proceeding. To invest a minimum lump sum of 50,000. You may not add to your investment once the trust has been set up. To enter into a formal agreement to register and hold all investments in the name of the nominee company (Plato). Plato holds the investments on your behalf when you first acquire them and then for the trustees when they are transferred into the Trust. There are segregated accounts established for each trust within the nominee company. This convenient arrangement allows investments to be traded and managed electronically. To choose investments from a special range of WAY-branded funds (the traditional Plan) or from a wide selection of unit trusts and OEICs available or acceptable on the Plato service (the managed portfolio Plan). Your adviser will provide you with all relevant investment information and recommend which funds are most appropriate for the Trust. To purchase the chosen holdings in your sole name and buy income units or shares only. To transfer these investments into the WAY Flexible Inheritor Trust once your cancellation rights have expired. 12

11 What are the risks? When choosing to invest into the Flexible Inheritor Plan, you should be aware of some of the risks: Annual capital reversions The Trustees will generally allow future reversions to be passed to you, subject to your wishes and the needs of the other beneficiaries. However absolute discretion over reversions is held by your Trustees who are obliged to act independently. The value of a reversion is not fixed as the value of the underlying investments will rise and fall daily. Investment performance The value of the Plan cannot be guaranteed as this will depend on the choice of investments, how well they perform and other influencing factors such as charges, currency movements and future changes in tax legislation. You and your beneficiaries could get back less than the amount you originally invested. Past investment performance is not necessarily a guide to future investment returns. In addition, the future spending power of money received from the Plan will be reduced by inflation if investment returns do not keep pace. Taxation The tax position of the Plan cannot be guaranteed as tax legislation and the practice of HM Revenue & Customs (HMRC) may be subject to change. Furthermore your own tax status or that of your trustees could also alter in the future. In these situations, you must rely on the advice of your professional advisers. Although the investment funds available for use with the traditional Plan are designed not to produce a distributable income, this cannot be guaranteed. If a fund was to distribute income, the trustees may first offset any trust administration expenses before paying the remainder to the beneficiaries entitled under the Trust. Since you can potentially benefit from reversions, the Trust is regarded as settlor-interested for tax purposes. This means that all trust income will be assessed on you for income tax. Death If your death occurs within seven years of setting up the Trust, the original value of your gift will form part of your estate for IHT calculation purposes. Since the Trust will not be settled until after the 14 day cancellation period has ended (see Can I change my mind ), if you die before this happens, the investments purchased for gifting to the Trust will still be an asset of your estate and pass according to your will or under the laws of intestacy. Can I change my mind? You have the right to change your mind and cancel the investments you have purchased within 14 days of receiving the individual Cancellation Notices. Full information is contained within the Notices. We will deem the Cancellation Notices to have been received two working days after they are dated and despatched. The 14 (calendar) day Cancellation Notice Period will then be calculated from that date. Providing that you have not exercised your cancellation rights within that time period, we will date and settle the trust as at the next business day following the end of the Cancellation Notice Period. Any initial adviser charge that you instructed Plato to pay direct to your financial adviser will not be refunded. You will need to discuss the availability of a refund with your adviser. The WAY Flexible Inheritor Plan - Key information 13

12 What are the charges? Charges can be categorised as Fund charges, Plan charges, Administration charges, Adviser charges and, where relevant, Professional Trustee charges. Fund charges consist primarily of a possible initial charge, when you buy the investments, and an internal annual management charge. Relevant information will be provided to you by your financial adviser. Traditional Plan - the charges levied by the WAY-branded Portfolio Funds are also inclusive of charges made by WAY as Plan provider. Managed portfolio Plan - WAY will make an initial charge for setting up the Plan, based on the sum invested, and a monthly Plan charge, based on fund value at the time for providing Plan administrative support. These will be charged automatically to the trustees cash account. WAY Plan charges are reviewed on a regular basis and three months notice will be given to the settlor and trustees of any changes. Details of all of these charges are shown in the relevant terms of business/fee schedules. You will agree with your adviser on how to pay for the initial Adviser charge. If you wish, this can be deducted from the amount paid by you to WAY and paid direct to the adviser firm before the balance is then invested in the chosen funds. Thereafter, ongoing adviser charges can also be facilitated on behalf of the trustees by deductions from the trustees cash account.. If you decide to appoint a professional trustee other than WAY s own default trustee service (eg your solicitor, accountant or trust company), you must agree the basis of their charges, which will be payable from the trust fund, prior to their appointment. What is the structure of the Plan? The Plan consists of you purchasing your chosen investments and then gifting these into the WAY Flexible Inheritor Trust. For a traditional Plan, you will invest in WAY-branded Portfolio Funds whereas under a managed portfolio Plan, you can invest in any of the unit trusts and OEICs available or acceptable on the Plato service. As creator of the Trust, you are referred to as the settlor. The WAY-branded Portfolio Funds are specially designed to be held within the Trust. Their investment focus is on capital growth, which can maximise CGT efficiency for the trustees and beneficiaries alike. They are also managed with the intention of not paying out an income, the absence of which can greatly simplify trust administration. If your preference is for a managed portfolio, capital growth is still likely to be a main investment objective, again for CGT reasons but also to minimise any income tax issues for yourself, bearing in mind all trust income is taxable on you even though you will not receive it. Having to deal with trust income also increases your trustees administration duties (see Who shall I appoint as trustees? and What are the main duties of the trustees? ). Once you have transferred the investments to the Trust, your appointed trustees take over the legal ownership from you. Thereafter, we can only act on the instructions of the trustees regarding the investments and administration of the Plan. Under the terms of the Trust: You retain the right to receive annual capital reversions if you are alive on the various due dates unless the trustees decide to exercise their discretionary powers in favour of the beneficiaries. The trustees have power to postpone a forthcoming reversion to a later date and can pay out or lend trust capital to a wide range of beneficiaries at any time. In the meantime, income received by the trustees is payable to the beneficiaries named by you. 14

13 How do I set up the Plan? You must be aged 18 or over and be of full mental capacity to apply for a Plan. You should also be in good health. You may only set up a Plan in your own name. If you are married or in a civil partnership, your spouse or civil partner can also take out a Plan. If the Plan meets your needs, the next stage is for you to complete a Plan application pack which includes the trust deed. This will require involvement of your trustees and your financial adviser as well. Your financial adviser will normally act as investment adviser to the trustees. If you have any questions concerning the suitability of the Plan, you must speak to your adviser before proceeding any further. When progressing through the pack, you must strictly follow the Completion Notes as certain documents must be left undated or partially incomplete for WAY to insert the necessary information at a later date. The application process includes the set up of separate accounts with Plato for you and your trustees so that the Plan can be administered efficiently. The pack also contains the necessary instructions to facilitate the payment of initial and future adviser charges. It is essential that the money to be invested in the Plan comes from assets personally belonging to you. You can make payment by cheque or electronic transfer. Your remittance will be paid into your Plato account. The completed Plan documentation is sent to WAY for processing. If any of the documents is incomplete or incorrect, we will advise your financial adviser that your application cannot be progressed further until the relevant information is received. WAY will not accept any responsibility for any loss incurred by you or the financial adviser resulting from such delay. Once your cheque has cleared, the investments will be bought on your behalf on the Plato nominee service. WAY will calculate a cash amount to reserve sufficient to cover the estimated total of first year s anticipated charges that are to be deducted from the trust account. This amount will be transferred into trust via a cash unit trust. The amount reserved will depend on the amount invested and the level of charges applying. On expiry of your cancellation rights, the investments will be transferred to the Trust. The trustees will then sell the cash unit trust and deposit the proceeds in their cash account. You, your trustees and their investment adviser will have online access to view the trust investments and the cash account on the Plato service. As Plan provider and administrator, WAY, too, will have viewing access but will also carry out online transactions on behalf of Plato to set up the Trust. Thereafter, any investment transactions and cash account movements will be conducted by Plato on instructions from the trustees. Who shall I appoint as trustees? The default trustees for the WAY Flexible Inheritor Plan are WTTAS (WAY Tax and Trustee Advisory Services Limited), which firm is staffed by senior tax and trustee professionals who act in a conscientious and impartial manner for you and your family. Trustees must be adults, have the legal capacity to act and should be resident in the UK. They should be responsible individuals. In normal circumstances, members of your family or close friends will often be suitable people, as may be your solicitor or accountant. If you wish to appoint somebody who lives outside the UK as a trustee, please obtain the advice of your financial adviser. You and your spouse or registered civil partner cannot act as trustees. If you wish to appoint a trust company or other professional trustee, you should bear in mind that any fees they charge will be payable out of the trust fund. You must appoint a minimum of two individual trustees or a trust company. If a trustee is also a beneficiary, one of the trustees must be independent and cannot benefit from the Trust. In the case of a managed portfolio plan, where the role of a trustee is more onerous, it is strongly recommended that you appoint WAY Tax and Trustee Advisory Services Ltd, to perform the necessary duties and provide you with peace of mind. Your financial adviser will be able to offer you more guidance in this respect. The WAY Flexible Inheritor Plan - Key information 15

14 How do I complete the trust deed? The trust deed sets out the terms of the gift made to your chosen beneficiaries, the powers of the trustees when managing the trust fund and details of the annual reversions retained by you. The default trustees for the WAY Flexible Inheritor Plan are WTTAS (WAY Tax and Trustee Advisory Service Limited), which firm is staffed by senior tax and trustee professionals who act in a conscientious and impartial manner for you and your family. If you wish to select alternative trustees, please note that you must appoint at least two individuals or a professional corporate trustee. Please refer to previous section. There are two types of trust beneficiaries named interest in possession beneficiaries and a wide class of potential capital beneficiaries. In the deed, they are referred to as the Beneficiaries and the Appointed Class respectively: The interest in possession beneficiaries are entitled to receive any income produced by the trust investments, after deduction of trust expenses. You must name these particular beneficiaries and also state their share of any trust income. The trustees cannot change the entitlement of an income beneficiary, whose right to income on death passes to their descendants or to the other surviving income beneficiaries. Members of the Appointed Class can only benefit from the trust capital at the discretion of the trustees, who will decide who, how much and when. The deed contains a list of the beneficiaries who are automatically included as a capital beneficiary, such as your named income beneficiaries and their families. You can extend this list when completing the trust form if you wish. In Part Two of the First Schedule of the deed, you must specify the size and due date of the annual reversions which will be passed to you unless they are deferred or defeated by your trustees. The pattern of reversions can be designed to match your expected future needs. In the deed, a reversion is referred to as a Relevant Share and its due date as the Relevant Date. Each reversion is expressed as a percentage of the units bought by you in the various funds and subsequently gifted to the Trust. The due date of a reversion must coincide with an anniversary of the Trust and the percentages must add up to 100%. You have no other access to trust capital. WAY will date the trust form and also insert relevant details concerning the gifted investments. When the Trust has been set up, a certified copy of the deed will be returned to your financial adviser for onward transmission to you. The original trust deed will be kept by the first named trustee. How are reversions administered? To be eligible for a reversion, you must be alive on the due date. Before a reversion is due, the trustees must inform WAY whether they wish to defer the reversion in part or whole to a future anniversary date. In this connection, about four to six weeks beforehand, WAY will send the appropriate paperwork to the trustees, which they must complete and return before the reversion becomes due. A copy of the accompanying letter and a current portfolio valuation will also be sent to you and your financial adviser. If the trustees take no action before the due date, a reversion will be deemed to have occurred and you will become entitled to the investments held in the reversion. However, you cannot sell these until the trustees have signed and returned the necessary forms to transfer the units and shares into your name. If you do not spend the proceeds or, instead, decide to keep the investments, they will form part of your estate for IHT and reduce the IHT effectiveness of the Plan. A reversion will also include a share of any capital cash account balance held by the trustees on the due date. 16

15 What are the main duties of the trustees? As legal owners of the trust assets, the trustees are responsible for administering the trust fund in the best interests of the beneficiaries and in accordance with the trust deed. They must be seen to exercise their duties seriously, impartially and must all agree when making decisions. They must keep clear and accurate records relating to the Trust and are also responsible for dealing with the tax affairs of the Trust. From time to time, they must consider whether to exercise their discretionary powers to appoint (or lend) capital to the beneficiaries. Before making a capital distribution or raising capital in the trust, they should ensure they understand any tax implications. When a reversion is due, the trustees must decide whether to use their discretion to postpone it to a later date. They cannot bring forward the date of a reversion. The Trustee Act requires that trustees must regularly review the trust investments (at least once a year with their financial adviser). The trustees must also obtain professional advice where this is appropriate. As well as the above, trustees of a managed portfolio plan will perform additional duties such as: Operating a cash account under the Plato service to deal with all income and capital transactions relating to the Trust. The trustees must also be able to readily identify how the overall cash balance is split between income and capital. This may entail maintaining separate bookkeeping records. Dealing with trust management expenses and ensuring that the cash account is always adequate to settle these. The trustees have power to charge expenses to income and/or capital. If further cash is required to prevent the cash account going overdrawn, the trustees must seek the advice of their investment adviser on which holdings should be sold to raise the necessary funds. Determining and paying out trust income to the named beneficiaries according to their individual shares. Preparing annual trust accounts. Completing annual tax returns and paying tax when due. What are the main tax implications? The Plan can be affected by three taxes inheritance tax (IHT), capital gains tax (CGT) and income tax. Their potential impact is now briefly summarised. You should speak to your financial adviser for further information. A charge to IHT may occur: when you set up the Trust this should not be an issue as typically your gift into the Plan will not exceed your available nil rate band; on every ten year anniversary of the Trust whilst it is in operation (the periodic charge); whenever capital is distributed to beneficiaries (the exit charge). If the trustees realise profits (by selling investments or transferring them out of the Trust), they will be liable to CGT on any gains exceeding their annual exemption. Where investments are transferred to beneficiaries, holdover relief can be claimed to defer the tax and then often greatly reducing or even eliminating it when they are eventually disposed of by the beneficiaries. Income tax implications will arise when, as in the case of the managed portfolio plan, the trust investments create an income for the trustees. Since the Trust is treated as settlor-interested for tax purposes, all income will be assessed on you whilst you are alive even though you will not receive it. The WAY Flexible Inheritor Plan - Key information 17

16 What happens to the Plan when I die? Your personal representatives or trustees must inform WAY as soon as possible. Any transactions occurring between your date of death and WAY being so informed cannot be reversed. The reversions will stop but the Trust does not automatically come to an end since it is capable of lasting for up to 125 years and can therefore continue beyond your death. The trustees can now decide whether to distribute the trust fund or retain the assets within the Trust. You will normally have indicated your wishes in a letter to the trustees. If appropriate, they can add your widow(er) or surviving civil partner to the list of beneficiaries who can potentially benefit from the trust capital. If you die within seven years of setting up the Trust, the original value of your gift will reduce the nil rate band available to offset against your estate for IHT. If you survive for seven years, the gift will be outside your estate for IHT purposes. Important Note This brochure provides you with an overview of the Flexible Inheritor Plan and its role as an IHT mitigation arrangement. If you require further clarification on any point or wish to raise any questions, please speak to your financial adviser. Please note Information contained in this brochure is based on WAY s understanding of taxation, legislation and HM Revenue & Customs practice as at April 2016, which may change in the future. Every care has been taken to ensure the material is correct WAY does not offer investment and tax advice and can accept no liability for any actions based on the contents of this publication. The investor should obtain professional legal, tax and other appropriate advice on his/her own individual circumstances before entering into a Plan. Past performance is not necessarily a guide to future performance. The price of units and the income from them can go down as well as up as a result of changes in the value of underlying investments. Changes in rates of foreign exchange may have an adverse effect on the value of and on the income derived from an investment. International investment includes risks related to political and economic uncertainties of foreign countries, as well as currency risk. An investor may not get back the amount originally invested. 18

17 About WAY Investment Services WAY Investment Services ( WAY ) is part of the WAY Group of companies which was founded in 1996 as an independently owned investment company offering innovative and tax-efficient solutions for UK investors. WAY launched its first wealth preservation and inheritance tax mitigation plan in 2004, and the flexibility of the plan s design made it immediately popular with estate planners. Today WAY continues to focus on providing the clients of professional advisers with solutions that allow investors to pass on wealth to later generations whilst mitigating potential IHT liabilities. Importantly, access to the original investment is also possible. About the Plato Investment Administration Service Plato is a nominee service which means that the units or shares in the selected investment funds are registered by Plato on behalf of the trustees. The nominee consolidates all holdings into a single account so that the account holder does not have to open their own account with each investment fund company individually. Plato also provides an online service that allows valuations of the Inheritor Plan assets to be viewed daily by the settlor, the trustees and/or their financial adviser. Although Plato nominees register the units/shares as the legal owner, the control over the holdings remains in the hands of the trustees (or the settlor/beneficiaries once assets have been distributed), and the beneficial ownership remains with the beneficiary(ies) subject to the terms of the trust and the trustees discretion. Plato is a trading name of Platform One Limited, a company registerd in England No , whose registered address is Cedar House, 3 Cedar Park, Cobham Road, Wimborne BH21 7SB. WAY Group has a minority shareholding in Platform One Limited.

18 WAY Investment Services Limited Cedar House, 3 Cedar Park, Cobham Road, Wimborne, Dorset BH21 7SB. T: E: advisersupport@waygroup.co.uk W: Registered in England No WAY Investment Services Limited is an appointed representative of WAY Fund Managers Limited, which is authorised and regulated by the Financial Conduct Authority. FIPclientbrochure/ /April