Client guide. Wealth Preservation Accounts. International estate planning solutions designed for you

Transcription

1 Client guide Wealth Preservation Accounts International estate planning solutions designed for you

2 The Wealth Preservation Accounts As we get older and we are more financially secure it is only natural that we consider the future for our children and grandchildren. However, the situation is brought into sharper focus by the fact that UK inheritance tax may well reduce the amount that we are able to leave them. The Wealth Preservation Account gives you access to investment solutions from leading fund management groups, plus the opportunity to reduce your potential IHT liability Inheritance tax An individual is allowed to leave money to his or her heirs without the estate suffering inheritance tax (IHT). Everyone is entitled to leave a nil rate band of free of IHT and this amount has been frozen by the UK Government until April 01. There is an additional residence nil rate band (RNRB) available but this can only be used when leaving a home to certain beneficiaries when you die. The RNRB is available from April 01 and initially is set at 100,000, increasing each year to 1,000 in April 00. A married couple or registered civil partners can therefore leave twice these amounts between them. Legislation allows individuals and couples to make gifts during their lifetimes to reduce the value of their estate on death. Only the nil rate band of can be used to make lifetime gifts. These lifetime gifts are known as potentially exempt transfers (PETs) or chargeable lifetime transfers (CLTs) and, providing the donor survives seven after making the gift, the amount gifted will not be liable to the 0% IHT charge. Where the donor does not survive seven, the value of the gift is liable to IHT. For larger gifts that are above the nil rate band a further relief, known as taper relief, may also apply reducing the amount of IHT that will be payable. Taper relief applies from three after making a gift. You can make a gift to your children and this will reduce your IHT liability but it does mean that you lose all future access to the assets gifted. Most people, therefore, will be reluctant to make large gifts that may result in themselves, or their partner, having insufficient funds in the future. In particular, there is a concern with most people that, as they get older, they may need to retain funds to meet the cost of long term nursing home care.

3 The Canada Life Wealth Preservation Trust One solution to this problem lies in the unique Wealth Preservation Trust (WPT), which uses a double trust arrangement and allows you: to make a gift to your chosen beneficiaries, and to receive a yearly payments from the trust if required. The WPT provides you with the opportunity to reduce your potential IHT liability and maintain your peace of mind that you will not be forfeiting your financial security in exchange for saving IHT. This is of particular importance at the present time given our ability to live longer and the need to adapt to changing circumstances. When you invest in a WPT, your investment purchases a series of investment bond policies in either the Wealth Preservation Account from Canada Life International Limited or the Wealth Preservation Europe Account from Canada Life International Assurance (Ireland) DAC (the Account). These policies have maturity dates, and if they do mature the benefit is paid back to you. Flexibility is given by allowing the trustees the ability to defer these maturity dates if required. The value of your Account is dependent upon the performance of the chosen fund(s) which can go down as well as up. Past performance is not a guide to the future and currency fluctuations can also affect performance. The funds in which the Account invests are not the same as a bank or building society account because the capital value of the investment does not remain fixed. How much should you gift? When you make a gift into the WPT, it is known as a Chargeable Lifetime Transfer (CLT) for IHT purposes. Any amount gifted that is above the IHT nil rate band ( ) will cause an immediate IHT charge. This will be charged at the lifetime IHT rate of 0%. For this reason, it is suggested that the amount gifted into a WPT should be within the available nil rate band. This assumes that you have not made any other CLTs in the last seven. If you have then you will need to discuss the situation with your professional adviser. After seven the amount of the gift will be outside of your estate for IHT purposes. On a gift of this could mean a reduction in your IHT bill of 10,000. It is worth remembering that if you live for seven after making the gift you will be eligible to use the nil rate band again against the remainder of your estate. When it comes to tax planning, especially for inheritance tax, the advice would seem to be: the sooner you start the greater the chance of reducing the effects of IHT and therefore the greater the chance of passing on your wealth intact to your children and/or grandchildren.

4 How the Wealth Preservation Trust works The WPT has the added flexibility of being able to vary the payments you receive each year. You can have as many policies as you like subject to the following rules: At the outset no single policy can be worth less than You can have no more than 998 policies So, if you made an investment of 100,000, your WPT could look like the example below. You do not have to structure your plan in precisely this way; it can be set-up with maturities over a greater number of or with different maturing amounts in the future. However, given the ability of the trustees to extend all or some of the policies in any one year, the below structure could suit the needs of many people. The amount you receive each year will of course depend on the investment performance of the underlying investments. Policy anniversary Policy size x No. of maturing policies = Total value Totals 0 100,000

5 Regular opportunities to take money out The Wealth Preservation Trust has been described as a conveyor belt trust because: Yearly payments can be made to you when the trustees confirm the money is needed (taken off the belt) If the money is not needed then these payments will be rolled-over to a future date (stay on the belt). The trustees choose the new date (how long they stay on the belt). HOW THE TRUST WORKS AN EXAMPLE 100,000 invested across 10 ( for each) Payments do not have to start at year one this is just an example 1 year Before the end of the year, the trustees will decide if you should receive a payment If so, this will be paid direct to you It will be for the current investment value Value Payment made to you Or the trustees can decide to roll it over to a future date In this example, deferred to year 11 but could be any year 1 year The trustees might decide you need less than the year s full payment Each year is sub-divided into segments of each So the trustees can decide to let you have some of the maturity payments and roll over the rest How does it work in practice? 0 days before each policy matures, we will write to the trustees asking them to confirm which of the following options they require: 1. Extend all maturing policies.. Extend some of the maturing policies and allow the rest to mature fully.. Allow all policies to mature fully. Please note if no written instruction is received before the policy anniversary then the policies will automatically mature.

6 CASE STUDY Elizabeth Hardy Elizabeth is 8 healthy and active. She has two sons, grandchildren and a widow s pension that is sufficient for her income needs. Her husband used his nil rate bands. She also has a flat, investments and deposits totalling 0,000. Current position: Sufficient income Basic rate taxpayer Widow; her will leaves everything to her two sons Potential IHT of 10,000 Suggested action: into WPA Option to take payments from the trust if required Gift of would be IHT-free after IHT savings using the Wealth Preservation Trust In order to create a solution that has the potential to save you IHT and allows for flexibility in the payments you receive, expert legal advice was sought for the creation of the trust structure which supports the trust. Whilst there is a saving on your personal IHT liability, there may be a relatively small IHT charge on the discretionary trust settlement itself. This may occur when money is paid to a beneficiary or on every tenth anniversary of the commencement of the trust if the value of the trust exceeds the allocated nil rate band at the appropriate time. Your professional adviser can provide you with more details if this will apply to you. Summary of benefits The Wealth Preservation Trust offers many benefits, including: Periodic payments, which can be taken in full, in part or deferred to any future anniversary. The amount of the original investment is outside of your estate after seven, potentially saving 0% inheritance tax. By investing in the Account, the value of the gift is frozen for IHT purposes but you can still benefit from any increases in the performance of your chosen investments. Your trustees have access to a wide range of investment funds and a large number of discretionary investment managers. Questions and answers What is the Wealth Preservation Trust? A series of life assurance policies issued by Canada Life International Limited (CLI) or Canada Life International Assurance (Ireland) DAC (CLIAI), with the purpose of reducing an individual s potential IHT liability whilst maintaining access to the maturing policies at the discretion of the trustees. What is the main benefit of investing through this arrangement? There is the ability to benefit from a reduction in the value of your estate for IHT purposes, providing you survive seven from setting-up the trust. It also allows you to receive flexible payments from the trust. How much can I invest? The minimum investment is 0,000. There is no maximum investment. Can you facilitate an adviser charge payment? You are able to ask us to deduct an amount from the initial payment and pay this to your professional adviser. The remaining amount will form the premium. We can also facilitate ongoing and single/adhoc adviser charge deductions from the Account if requested by the trustees. How do I change my investment fund choice after the arrangement has started? The trustees will request (in writing) the desired fund switches or a fund adviser would instruct CLI or CLIAI to carry out any dealing. CLI and CLIAI are responsible for all dealing, settlements, stock delivery, investment income receipts, in fact, all financial transactions within the Account. The Account is valued quarterly. This valuation, together with a full statement of all transactions since the previous valuation or inception, is sent to you or your nominated fund adviser either directly or via your professional adviser. What happens if I change my mind? You have the right to change your mind and cancel the investment within 0 days of receipt of the document entitled Notice of Your Right to Cancel. If you decide to cancel, any fall in the value of your investment will be deducted from the refund of your investment. If you have asked us to make any payments to a professional adviser or fund adviser and we have made these payments then we will be unable to refund the deduction to you. Please contact the relevant adviser(s). In an emergency, is it possible to access the original investment? The trustees can surrender one or more of the policies at any time, but only for the benefit of the chosen beneficiaries. Is there an upper age limit for taking the maturities? Each policy can have a term ranging from the first policy anniversary to the anniversary following the youngest life assured s 100th birthday. What happens if I die before the final policy matures? If there is a surviving life assured, the policies will remain in force as we pay the death benefit to the trustees of the initial trust when the last life assured dies, if this is before the final policy has matured. Can the beneficiaries be altered at a later date? Yes. The trustees do not actually have to choose who the beneficiaries are, until the time comes for them to pay out. The trustees can, with your consent, change the beneficiaries at any time, but you cannot be a beneficiary.

7 Canada Life Strength and stability Important information The Canada Life Assurance Company provides insurance and wealth management products and services through domestic operations in the UK, and international operations in the Republic of Ireland, the Isle of Man, Germany and, of course, Canada, as well as branch and subsidiary operations in other countries. We understand that you want to invest in a company that is strong, safe and secure. As part of the Great-West Lifeco group we are a constituent of the Financial Times Global 00 world s largest companies. With combined assets under administration of more than billion (as at 1 December 01) we have a strong platform for continued growth as a world-class financial services provider. This document is based on our understanding of applicable legislation, law and current HM Revenue & Customs practice as at December 01. It is provided solely for general consideration. The information regarding taxation is based on our understanding of current legislation, which may be altered and depends upon your individual financial circumstances. We recommend that you take your own professional tax advice. Canada Life is a subsidiary of The Great-West Life Assurance Company. Ratings are another reflection of our financial strength; Great-West and its subsidiaries have received strong scores from the major ratings agencies. You can view our latest ratings on the About us part of our website Service charter We are committed to providing superior levels of service, and to demonstrate this we have published a service charter, incorporating our service standards and non-performance penalties we pay out. If you d like a copy of our service charter, please ask your professional adviser for a copy. Please note that past performance is not a guide for the future. The value of units can fall as well as rise and currency fluctuations may also affect performance.

8 Canada Life International Limited, registered in the Isle of Man no. 18. Registered office: Canada Life House, Isle of Man Business Park, Douglas, Isle of Man IM QJ. Telephone: + (0) Fax: + (0) Member of the Association of International Life Offices. Canada Life International Assurance (Ireland) DAC, registered in Ireland no Registered office: Irish Life Centre, Lower Abbey Street, Dublin 1, Ireland Telephone: + (0) Fax: + (0) Member of the Association of International Life Offices. Canada Life Limited, registered in England no. 91. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN BA. Telephone: Fax: Member of the Association of British Insurers. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Insurance Financial Services Authority. Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland. 80 1R This paper is made from recycled materials