Protecting Assets with Trusts: Key Considerations for Clients

Superman 23 What properties to benefit the client should Asset Protection Trusts have (PPPT)? by Countrywide Tax and Trust Corporation Ltd

Introducing Spencer Tattam BA (Hons) DipPFS TEP Richard Dundee LL.B(Hons) PgDip

Agenda 1. Asset Protection Trusts, (or, as CTTC Ltd call them Probate Preservation Plus Trusts) are in regular use and a valid part of planning BUT what additional properties should they have to protect the client. o Ensure CLT Limits are not breached on settlement. o Periodic and Exit charges are not payable on growth of property. o If surviving spouse is alive and on first death the value in the trust is above the NRB no IHT Tax payable. o Will the Trust enable RNRB to be claimed? o Revocable or irrevocable?

Probate Preservation Plus Trust ( PPPT ) It is not the purpose of this webinar to discuss what the product is or where the client would use this type of Trust. The purpose of this webinar is to discuss the potential problems that advisors and clients may face when they use a Trust that has not been prepared by Countrywide Tax and Trust Corporation Limited.

Probate Preservation Plus Trust. (PPPT). INCLUDES For a Couple . For a Single client. 2 Probate Preservation Plus Trusts. (1 per person). All clients. 1 Probate Preservation Plus Trust. Conveyance of the Property to Trustees (or Declaration of Trust if mortgaged). Can include a Money Back Guarantee

Probate Preservation Plus Trust. (PPPT). DOESN T INCLUDE Additional potential costs. Separate Payment? Conveyance disbursement fees. Clients Wills Any other required Trusts Lasting Powers of Attorney Any other appropriate legal services work All at usual existing Processing Costs

Possible Problems PERCEIVED ISSUES? 1. Periodic Charges ( Anniversary Charges ) What happens if the property increases in value? 2. CLT charges ( Chargeable Lifetime Transfers ) Can we be certain the client made no previous gifts? Did the client assign any Assets to Trust? Do you know of the implications? 3. IHT on first death?

Chargeable Lifetime Transfers (CLT) When do they apply? A transfer of an asset into a relevant property trust in excess of the NRB. Upon a cumulative transfer of more than the NRB into Trust in any seven year period. Why is this relevant? IMMEDIATE TAX CHARGE. 20% OF THE EXCESS. Surely you will know if this applies?

Can we trust our clients to tell us? We like to believe that our clients tell us the truth, but What if what they tell you isn t quite right? Arguably no liability. What if they forget or are mistaken? Should you have enquired further? Previous transfers into Trust, assignments of Life Policies?

Can we trust our clients to get it right, every time? We like to believe that our clients tell us the truth, but Are YOU willing to run the risk as the Advisor?

Scenario One. 2006. Trustees 300,000 Settlor DiscretionaryTrust Legal and Beneficial ownership of the property passes to the Trustees

Scenario One. However in 2004. Trustees 200,000 Settlor DiscretionaryTrust Client settled 200,000 into a Gift Trust for her Children. So the client has settled 200,000 to a Relevant Property Trust.

Scenario One. However in 2004. Trustees It was a gift to my children. I believed it was a PET. I didn t think it would affect anything. I thought it was outside of my estate instantly. 200,000 Settlor DiscretionaryTrust But that was with another advisor so it s not important.

So2006. The reality. Trustees Total transfers into Trust in last 7 years. 500,000! Chargeable Lifetime Transfer. 35,000 to pay! 300,000 Settlor ( 500,000 - 325,000 = 175,000) x 20%). DiscretionaryTrust

What if the client had simply forgotten? What if the client was unaware? Who is liable for the tax? You? Is there a method of putting as much in as possible whilst ensuring that a CLT charge is never applicable? YES

So in 2006, what should be done to manage the CLT? Trustees 125,000 175,000 Settlor 300,000 Declaration DiscretionaryTrust So needs to limit the subsequent settlement to ensure no immediate drafted settled to Trust and part is retained A further Declaration of Trust is confirming part of the property is Client confirms the previous 200,000 transfer she made in 2004. tax charge. by the Settlor. Outcome? No immediate tax charge!

Why would you want an Asset Protection Trust to be revocable? Allowing the client to be able to get the asset back ? Would third parties be able to force the client to retrieve the asset? Countrywide Tax and Trust Corporation Limited will never intentionally leave the clients planning susceptible to attack. Why would the advisor? WHO IS THE CLIENT GOING TO BLAME?

Periodic Charges ( Anniversary Charges ) When do they apply? Relevant Property Regime. Value of Trust Assets in excess of NRB (Nil Rate Band). Complicated formula to figure value out. Generally perceived to be 6% of the value in excess of the NRB. Why is this relevant? If the assets in Trust increase, tax charge applies every 10 years.

Scenario Two. 2006. Trustees 300,000 Settlor DiscretionaryTrust Legal and Beneficial ownership of the property passes to the Trustees

Scenario Two. 10 years later in 2016. Trustees Property value increased by 80,000. Periodic Charge now due on 10th anniversary. ( 380,000 - 325,000 = 55,000) x 6%) = 300,000 380,000 Settlor 3,300 to pay. DiscretionaryTrust

Potential ways of stopping this? Limit the amount of assets that enter the Trust? Reduces the potential protection that the Trust offers. Take assets out of the Trust before the anniversary? Places the assets back in the Settlors estate (Probate fees). Is there a method of putting as much in as possible whilst ensuring that Periodics are never an issue? YES

Countrywide's Solution. Whilst the Property value increases, the CWT&T PPPT ensures it holds no more than the NRB. Trustees 10th anniversary arrives in 2016. ( 325,000 - 325,000 = 0) x 6%) = 325,000 380,000 Settlor 0 to pay! CWT&T PPPT

Countrywide's Solution. The growth of the property, in excess of the NRB will be maintained in the estate of the Settlor. Trustees To be directed on her death by her Will. Ideally to further Trust(s). 55,000 excess growth . Will 300,000 325,000 Settlor CWT&T PPPT Property value increased to 380,000. Family Trust(s)

As more 10th anniversaries pass. 2026 anniversary. Property is now 490,000. Trustees Growth still in Settlors Estate still to be directed on her death by her Will. Ideally to further Trust(s). 55,000 excess growth . excess growth Will 165,000 325,000 Settlor CWT&T PPPT KEY POINT Still only up to the NRB within the Trust. The value within the PPPT will never exceed the NRB! Family Trust(s)

So is the excess growth now at risk from the Settlors care fees? Consider part share Valuation of Property Valuing joint interests in LAND is specifically excluded by The Care Act 2014 and the supporting guidance. We should consider what a willing buyer would pay for that share in the property this could well be NIL. Authority is case law (CAO v Palfrey) rather than CRAG.

Recap! CWT&T PPPT. The Trust will never hold anymore than the NRB. Any excess will always be held for the Settlor. = NO PERIODICS!

IHT on first death? Non CWT&T Trust? 1st death occurs. The deceased s share of the Main Residence was settled was Settlor interested . Mrs remaining estate The 175,000 excess in this Trust is now taxable for IHT. property will not be party In 2006, a couple settle their 600,000 Main Residence to 2 Trusts. (The PPPT). So the deceased s share of Our Trust prevents this! The Trust into which the By 2016, the Main Residence has increased in value to 1,000,000. ( 175,000 x 40% = 70,000). to their Will. It s already in Trust . ( 300,000 in each Trust). the property value is still in their estate for their IHT calculation. Will Mrs 300,000 500,000 This residue can not pass to the surviving Spouse via the Will. NO SPOUSAL EXEMPTION. FT Mr IIP 300,000 500,000

A challenge! Can the Trust you currently use provide your client with the following: 1. NO periodics. 2. NO CLT charges. 3. NO surprise IHT on 1st death. 4. LESS chance of challenge due to being irrevocable . 5. Money back guarantee?

Thank you for your time. Any Questions?

Next Webinar. Supermen Webinar No. 24. Wednesday 7th & Thursday 8th December 2016. Book on now! Agenda. November 23rd Autumn Statement update. The proposed increase in Probate Fees and their effect on Estate Planning recommendations. CTTC Ltd s Probate Service CTTC Ltd s Trustee Service.

NEW TRAINING OPPORTUNITIES Estate Planning Foundation Course . The Countrywide Estate Planning Course is a two part course which provides comprehensive training on Wills, Trust, Asset Protection Strategies, Lasting Powers of Attorney, Conveyancing and Trusts of Land to reduce CGT, etc. Our challenging two part program has been developed to provide you with continuous training. Enhancing your knowledge as your business grows. This essential foundation training will help you get started, whatever your previous experience. Whether you re an existing Will Writer, or new to the business, the Countrywide Estate Planning Course is right for you. Part 1. 2 day course 22nd and 23rd November 2016. Part 2. 1 day course 6th December 2016 Limited spaces available.

NEW TRAINING OPPORTUNITIES The Definitive Guide to Trusts and the Taxation of Trusts . This course is a perfect refresher for existing Estate Planners or for those advisors looking to increase their understanding Trusts. This one day course looks in detail at the different types of Trust and the most appropriate Trust tailored to your client s needs Please note places are limited and we recommend you book early to secure your place. Tuesday 6th December 2016 Limited spaces available.

Advanced Tax & Estate Planning Strategies Course Wednesday 7th December 2016. This course only runs every 6 months. It s specifically tailored to advisors with corporate or high net worth clients. Topics covered include Tax Planning with Investments and Tax Planning with Pensions. For all Courses please contact the New Entrants Team to book your places:- 01926 514 390 ext 9170. newentrants@countrywidegroup.co.uk