Your guide to our Bare Loan Trust

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1 For customers Bare Loan Trust Your guide to our Bare Loan Trust In our Place your trust with us an introduction guide we gave you an overview of why you d want a trust and introduced bare trusts. Bare trusts In this guide we look at our Bare Loan Trust.

2 What s our Bare Loan Trust for? Our Bare Loan Trust is for people who: want to save inheritance tax (IHT) over time; need flexible access to the money they re putting in the trust; and know who the final beneficiaries of the trust will be and understand they can t add or remove beneficiaries or alter the share they re entitled to. Our Bare Loan Trust may not be suitable for everyone. Our table below shows what it can and can t offer you. Feature IHT savings 4 Access to the money loaned to trustees 4 Access to growth on money invested 6 Add, remove or change beneficiaries 6 Alter beneficiaries entitlement 6 All references to taxation are based on our understanding of current taxation law and practice in the United Kingdom and Ireland, which may change. The value of any tax relief depends on your individual circumstances/ the individual circumstances of the investor. Trusts establish legal rights and entitlements and might have material financial and tax implications for the settlor, trustees and beneficiaries. Aegon Ireland isn t authorised to provide legal advice, so you should take your own legal advice before setting up a trust to make sure that it meets your requirements. Our trusts have been drafted for use by UK-domiciled individuals. Your guide to our Bare Loan Trust Page 2

3 How our Bare Loan Trust works You set up the trust and make a cash loan to your chosen trustees. You say who you want the beneficiary (beneficiaries) to be. Trustees invest the cash loan in our Wealth Management Portfolio*. Remember, with our trusts you ll automatically be a trustee, but you can also ask other people to be a trustee. The trustee(s) will manage the bond on behalf of the beneficiaries. You can also ask the trustees to pay back the loan to you, in full or in part, at any time. You could treat this as a regular income and we call these loan repayments. *The European portability option isn t available on the Wealth Management Portfolio where the investment is made by trustees. The value of an investment can fall as well as rise and isn t guaranteed. You could get back less than you originally invested. Your guide to our Bare Loan Trust Page 3

4 What s the IHT treatment of a Bare Loan Trust? For you For the trustees or the beneficiaries The Bare Loan Trust aims to reduce the amount of IHT that would have to be paid on your estate after your death. The outstanding loan is part of your IHT estate this reduces as you take loan repayments and spend them. If you don t spend the loan repayments, they ll be included in your estate and there won t be any IHT saving. You won t pay any IHT on any investment growth on the Wealth Management Portfolio. The trustees of our Bare Loan Trust don t have an IHT liability. The value of the trust fund (the value of the Wealth Management Portfolio less the outstanding loan), is treated as owned by the beneficiaries for IHT purposes. Your guide to our Bare Loan Trust Page 4

5 Bare Loan Trust in practice Thinking about how it all works in practice can be quite complex. Read our case study to help understand how it works and its benefits. Please remember this is just an example and doesn t take into account your personal circumstances. The example is for illustrative purposes only. Bare Loan Trust Carol has 240,000 that she d like to use to help reduce her potential IHT liability. She d like to have access to the money so she can top up her pension income and take ad hoc amounts if she needs to. Carol s financial adviser recommends our Bare Loan Trust for use with our Wealth Management Portfolio. Carol completes the necessary trust documents and sets up the trust. Carol appoints her sister Amanda as a trustee, Carol is also a trustee. She d like the beneficiaries to be her three daughters. She understands that with this type of trust the beneficiaries can t be changed. Carol decides to take regular loan repayments of 5% of the original amount she lent to the trustees. This will give her a monthly amount of 1,000. Carol lends the trustees (Carol and Amanda) 240,000 and they invest the money into our Wealth Management Portfolio. Your guide to our Bare Loan Trust Page 5

6 Ten years later Carol passes away the Wealth Management Portfolio s value is 196,000**. Original loan 240,000 Less loan repayments received (10 years at 12,000 per year) 120,000 Amount included in Carol s IHT estate 120,000 The amount included in Carol s IHT estate is the amount of the original loan less the loan repayments received. So the Bare Loan Trust did what Carol wanted it to do. It removed 120,000 from her IHT estate through her taking regular loan repayments and spending them, saving IHT of 48,000 ( 120,000 x 40%). Her estate made IHT savings of 30,400 ( 76,000 x 40%) as the growth on the Wealth Management Portfolio wasn t part of her estate. The growth is calculated by looking at the value of the Wealth Management Portfolio at death, the withdrawals taken (loan repayments) and the original investment. ( 196,000 (value at death) plus 120,000 (loan repayments)) less 240,000 (original investment) = 76,000) In addition to her total IHT saving of 78,400, she topped up her yearly income by 12,000 each year on a tax-deferred basis, as the loan repayments were within the Wealth Management Portfolio s yearly 5% tax-deferred allowance for income tax purposes. **Based on Financial Conduct Authority maximum mid-growth rate. Your guide to our Bare Loan Trust Page 6

7 How to set up our Bare Loan Trust You ll need: Bare Loan Trust deed: This is the first step in the process. You re the person setting up the trust (the settlor) and you ll automatically be a trustee. As we mentioned earlier, you might want to include other trustees as well. You must make sure anybody you ask is an adult and is able to represent themselves. You can t ask someone who can t make decisions for themselves to be a trustee. You have to clearly identify the beneficiaries of this trust as well as their shares if they don t each have equal shares. Beneficiary entitlements can t be changed in future, so this is an important step when completing the trust. Loan agreement: You and the trustees complete this document to record the amount you re lending to them and to set out that the loan is repayable on demand. Loan repayment letter: You can use this document to request loan repayments from the trustees. Remember, the loan repayments are made by the trustees taking withdrawals from the Wealth Management Portfolio they re buying. This document forms an agreement between you and the trustees, we don t need to see it. Wealth Management Portfolio application form: This is the form the trustees complete to invest the money you ve lent them. The trustees apply as owners and have to decide whose life the Wealth Management Portfolio will cover (known as the life or lives assured). The Wealth Management Portfolio will end when this person dies (or when the last person covered dies if there s more than one person). As this is a loan trust, the trustees could pick you as sole life assured. They might do this if they re likely to repay the loan and distribute the rest of the trust fund to the beneficiaries immediately after your death. Alternatively, they may want the Wealth Management Portfolio to continue after your death, giving the trustees the flexibility to stay invested once any outstanding loan from you has been repaid. In that case they d pick the beneficiaries as the lives assured. Picking the beneficiaries as lives assured also has an income tax advantage in that the Wealth Management Portfolio will continue after your death, giving the trustees maximum flexibility about when it s cashed in, and who pays tax on it. Your guide to our Bare Loan Trust Page 7

8 Adviser charges It s important you understand how any payments to your adviser (for his or her services) should be made. We can t facilitate an adviser charge to your adviser for advice given to you by your adviser for setting up the trust. You should arrange to pay for this advice separately. You and the other trustees can ask us to facilitate payments of adviser charges in respect of advice you receive from your adviser in your capacity as trustees. Adviser charge payments are treated as withdrawals for tax purposes, so if the trustees ask us to facilitate adviser charges this will affect the amount of the tax-deferred 5% withdrawal allowance that s available. You should bear this in mind when deciding how much the loan repayments you ask for should be. For example: You set up the Bare Loan Trust and loan the trustees 100,000. The trustees ask us to pay their adviser an initial adviser charge of 2,000 before the Wealth Management Portfolio is set up. This means 98,000 will actually be invested in the Wealth Management Portfolio, so the 5% tax-deferred withdrawal allowance will be 4,900 per year ( 98,000 x 5%). The trustees also ask us to pay a yearly ongoing adviser charge of 0.5% of the initial premium (98,000 x 0.5% = 490) to their adviser for his ongoing advice to them. This means the balance of the yearly tax-deferred allowance is 4,410 ( 4, ). If you ask for yearly loan repayments of more than this amount, this will lead to taxable chargeable gains. This can be a complex area, you should speak to your financial adviser if you want any more information. Your guide to our Bare Loan Trust Page 8

9 Any questions We re not allowed to give you any advice about your IHT position or whether our products or trusts may be suitable for you. Your inancial adviser will be able to help you with this and you may also want to get advice from your tax or legal adviser before putting any trust planning in place. Aegon is a brand name of Aegon Ireland plc. Aegon Ireland plc, registered office: 2nd Floor, IFSC House, Custom House Quay, Dublin 1, D01 R2P9, Ireland. Registered in Ireland (No ). Authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. An Aegon company Aegon Ireland Plc DUB /17