Protecting your assets - News and MoneyPlus Blog · Whether you’re protecting your pension...

Protecting your assetsSimple steps to providing for your family and friends

Before you make any financial planning decisions, you need to know what the risks and commitments are. Read the relevant key features document. It will help you decide if the product is right for you. If you’re still not sure what to do, speak to your financial adviser.Laws and tax rules may change in the future. The information here is based on our experts’ understanding in January 2012. Your personal circumstances also have an impact on tax treatment.

Contents02 Inheritancetax04 Doyouknowhowmuchyou’reworth?06 Reducingtheeffectofinheritancetax09 Protectingyourassetswithatrust Choosingatrust:10 -Truststhatusebonds12 -AtrustforyourSIPPdeathbenefits14 Theimportanceofmakingawill16 Familywealthtransferataglance

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Protectingyourassets 01

Estate planning, asset protection, cross-generational planning. There are lots of different ways to talk about ‘family wealth transfer’. And usually it sounds complicated. But in a nutshell, it’s just making sure that your money, property and possessions end up in the hands of the people you love.It’s about planning your finances and protecting your assets, both now and in the future. And of course no-one really wants to think about dying. But wouldn’t it be reassuring if you knew that what you’ve worked for would be enjoyed by your family or friends?

Simple steps to protecting your assetsFigure out how much you’re worthYou need to know how much everything you own is worth before you start. Once you know that, you can figure out if your estate will be liable to inheritance tax (IHT).

Taking steps to reduce your inheritance taxThere are gifts and transfers that don’t attract an inheritance tax charge when you make them (and that can reduce the value of what you’ll be taxed on when you die). So you should make the most of these first if you can.

Using a trust for family wealth transfer benefitsWhether you’re protecting your pension benefits, or setting up a trust to hold an investment bond, our trusts are an important step in protecting your assets. And they can provide flexibility, control and tax-efficiency. Details of our range of trusts start on page 9.

The importance of making a willMake sure your possessions are given to the people you choose, and make things easier for your family and friends at a difficult time. A will is an essential part of your plans. Turn to page 14 for more information.

SomeimportantdefinitionsAn ‘estate’ isn’t just for people with country houses and acres of land. Everyone leaves behind an estate when they die, it’s just the total of all your possessions and property minus debts. And your estate can be liable for a tax bill after you die.

When we talk about your ‘assets’, these can be anything you own that could be worth something. For example some of your assets are your house, your car, and the cash in your bank account.

What does ‘family wealth transfer’ mean for me?

And when we talk about ‘protecting your assets’, we're not referring to the value of your assets. The value of assets can go down as well as up. Instead, we're referring to making sure that only the people you want to get your assets will get them.

02Protectingyourassets

How it works Inheritance tax used to be a tax on the very wealthy. But things change, and it's now becoming a concern for people on average incomes, who may end up leaving a tax bill when they die.

Inheritance tax is usually paid on your estate when you die, if it’s over a certain value. It’s sometimes payable on gifts made during your lifetime too.

* unless an IHT exemption is available

£325,000 is the current threshold for inheritance tax. Usually the threshold rises each year but it has been frozen at £325,000 for tax years up to and including 2014–15.

Each person can have an estate of up to £325,000 before they will be charged inheritance tax (this £325,000 threshold is often called the ‘nil rate band’). If you don’t use all of it when you die, what’s left can be carried forward for your spouse or civil partner to use when they die. So if you’re the surviving spouse or civil partner, you could have a £650,000 threshold instead.

=Your estate is worth

less than£325,000

No IHT

=Your estate is worth

more than£325,000

40% IHT charge*

When we refer to your estate here, it includes any gifts made in the seven years before death.

Does everyone in the UK have to pay IHT?This depends on your domicile. You are normally domiciled in the UK if you have your permanent home in the UK. It is not the same as nationality or residence.

And sometimes you will be treated as domiciled in the UK even if you don’t have your permanent home in the UK at the moment.

If you are domiciled or treated as domiciled in the UK, inheritance tax can be payable on certain lifetime gifts or on death, wherever your assets are in the world.

Where you are domiciled is an important issue, as it has an impact on how inheritance tax will be applied. If you think this issue could affect you, speak to your adviser for more information and advice.

Inheritance tax


Yourestateisthetotalofallyourpossessionsandpropertyminusyourdebts.

Andifyourestateisworthmorethan£325,000,youcouldbechargedinheritancetax-unlessyouactnow.


Most people don’t know the answer to that question. And even if you make an educated guess, there will probably be things that you forget about.

If the total value of your assets is over £325,000, 40% of anything over that may have to be paid in inheritance tax.

Things to consider

Do you know how much you’re worth?

Assets you might own An example Andrew Clark’s assets

Your assets

Your home (your share of it) £450,000

Any other property eg holiday home

Your household contents including jewellery £25,000

Cars, boats, caravans £10,000

Cash (including bank accounts) £1,000

Investments (including stocks and shares) £27,000

Life assurance (which is paid to your estate) £45,000

Anything you’ve inherited (from a relative or friend)

Any gifts you’ve made in the last seven years (including into a trust)

Total £558,000

And expenses your estate could have to pay

Expenses your estate could have to pay An example Andrew Clark’s assets

Your potential expenses

Your share of any outstanding mortgage £50,000

Funeral expenses £5,000

Other loans outstanding

Any debts (overdraft, credit cards, utility bills etc) £500

Total £55,500


Then figure out 40% of this value and that gives you the total inheritance tax billRemember, anything passing to your surviving spouse or civil partner is exempt (if they are UK domiciled), but you need to consider what happens when they die.

Here's how our example would work out

Ifyoudon’t(andyou’vedefinitelyconsideredallofyourassets),thenyoudon’tneedtoworryaboutlosingsomeofyourestatetopayaninheritancetaxbill.Buthaveyoumadesurethatyourassetsareprotectednowandinthefuture,andthattheywillgotowhoyouwantwhenyoudie?

Atrustcouldstillbebeneficialandawillisabsolutelyessential.Makesureyoureadpages9and14.

Don’thavemorethan£325,000inassets?

- =

- =

Total assets Total expenses Value of your estate

Value of your estate £325,000 Value that would attract an IHT charge

- =

- =

=

Total assets £558,000

Total expenses £55,500 Value of the estate £502,500

Value of the estate £502,500 £325,000 Value that would attract an IHT

charge £177,500

40% of this is the IHT bill £71,000

Here’s how the tax bill is calculatedWhere we refer to your estate here, it includes any gifts made in the seven years before death.


Taking the first stepsReducing the inheritance tax that would be paid by your estate doesn’t have to be complex. There are some simple and effective ways to do this. And you can start now.

Exempt transfersThe taxman will let you make a number of transfers or gifts that don’t attract an inheritance tax charge (and can reduce the value of assets that you’ll be taxed on).

Reducing the effect of inheritance tax

Non-domiciled spouse or civil partner? The £55,000 limit is a lifetime allowance. If you think this may affect you, speak to your financial adviser for more information.

Type of transfer Exempt value

Transfers between spouses or civil partners If you’re both UK domiciled, these are exempt from IHT. If you have a non-domiciled spouse or civil partner.

Unlimited £55,000 lifetime limit

Annual exemptions Everyone can make exempt transfers every year using this exemption, and can carry forward any unused amount for one year only.

£3,000 a year (or £6,000 if you didn’t use it the year before)

Small gift exemption You can give small gifts to as many people as you like in one tax year. You can give one small gift to each person. You can’t give more than £250 and claim that the first £250 is a small gift, and you can’t combine it with an annual exemption as one gift.

Up to £250 a year per person

Gifts on marriage You won’t be charged IHT on certain gifts that you make when a family member or friend gets married.

£5,000 from each parent £2,500 from each grandparent £2,500 by the bride and groom to each other £1,000 to anyone else

Gifts to charities Unlimited

Gifts for national benefit For example you can give money to some national institutions like museums, universities or the National Trust.

Unlimited

Normal expenditure out of income If you can prove that you have income you don’t need to maintain your current standard of living, you can make a regular gift of it as part of your normal expenditure.

Varies, depending on your surplus income

“IknowI’mlucky–Idon’thavetoworryaboutgettingby.SowhenChristmascomesaround,Iliketogivemydaughterextrahelpwiththecostofpresentsformygrandchildren.Idon’tmissit,andIknowitmeansalottoher.”

Ifyoucanproveyoudon’tneedtheincome,the‘normalexpenditureoutofincome’exemptioncanreallymakeadifferencetoyourIHTposition.


Transfers that may attract a chargeThere are some transfers or gifts that may attract an inheritance tax charge. The charge can arise when a gift is made, and later if you die in the seven years after you make the gift.

Potentially Exempt Transfers (PET)You can make other gifts that will be exempt from inheritance tax if you live for seven years after making them – so there’s no up-front inheritance tax.

If you die within seven years of making the gift, it will be included in any calculations of inheritance tax. If the value of the gift is already over the inheritance tax threshold, or the value of the gift when added to the value of your assets is over the threshold, there may be a charge.

Chargeable TransfersThese are any transfers that aren’t Potentially Exempt Transfers or exempt transfers (see the list of exemptions above).

These can attract an inheritance tax charge when made, and later if you die in the seven years from when you made the transfer.

If your Potentially Exempt Transfer later becomes taxable on your death, taper relief can help reduce the tax payable. Here’s how it works:

Themyth:Youcan’tgiveanymoneyawaywhileyou’realive,asitwillstillbeliablefortaxafteryourdeath.

Thereality:Youcanactuallygiveawayquitealotwhileyou’realive,anditmightbeagoodideatogiveawayasmuchasyoucaneachyear.

Time between making the gift and date of death

Percentage reduction of tax due

0 – 3 years None3 – 4 years 20%4 – 5 years 40%5 – 6 years 60%6 – 7 years 80%


Areyouthinkingaboutprotectingyourassetsnowandinthefuture?Atrustcouldhelp.


If you’re looking to protect your assets both now and in the future, this is where a trust can help.

Three key questions to ask yourself when considering a trust:

1. Do you need access to your money or an income from it after it is in the trust?Or are you certain that you won’t need to access the money in the future.

2. Who will you appoint as the trustees? Do you want to include yourself as a trustee? (This can give you some control over the decisions that are made.)

3. Who are your beneficiaries? Do you know who they are now, or might they need to change in the future? There are different types of trusts depending on whether you’ve made your mind up about this. At one end of the scale is the Absolute Trust, for people whose beneficiaries are set in stone, and at the other end is the Discretionary Trust, where you can leave it open and give the trustees the final say on who benefits from the trust, how much and when.

Types of trust ¬ We have a range of bonds available, which can be held in different types of trust:

– If you want to retain access to your original capital, take a look at our Loan Plan on page 10

– If you need regular withdrawals for the rest of your lifetime (or until the fund reduces to zero), but still want to do some tax planning, read more about our Discounted Gift Plan on page 10

– If you’d like to retain some control as a trustee over who gets what, but don’t need the money or any access to it, our Gift Plan could be useful, see page 11

¬ If you have a SIPP, and would like to protect the death benefits that are paid out when you die (and potentially reduce inheritance tax for your beneficiaries), our Bypass Trust could be useful. See pages 12 and 13 for more details

Consider protecting your assets with a trust


Trusts that hold a bondStandard Life offers a range of different trusts that can be used to hold a bond. These trusts offer different things so that you can choose the one that suits your needs best – this will mainly come down to whether you would like to retain access to money in the future.

The Loan Plan The Discounted Gift Plan The Gift Plan ¬ You make a loan to the plan (instead of a gift of your money) so you still have access to your money when you need it

¬ The plan gives you the flexibility to stop and start loan repayments

¬ Only the amount of the outstanding loan is included in your estate on death

¬ You can recall, gift or cancel the outstanding loan at any time

¬ You can retain some control by acting as a trustee

¬ Any investment growth is outside your estate

Max and Liz Fortune are in their mid-sixties with two daughters and a son. They’d just like to make a start with inheritance tax planning, and need their plans to take into account their concerns about their children.

Since the couple don’t like their daughter’s partner and their son is currently going through a divorce, they want to be cautious about giving away any of their capital so that it doesn’t end up in the wrong hands.

Their solution ¬ They have loaned the trustees £75,000 ¬ Max and Liz have decided to have some control over the trust, so have chosen to become trustees, with one of their daughters as the third trustee

¬ The Loan Plan is set up using a Standard Life Investment Bond

The outcome ¬ Max and Liz are still entitled to the loan repayment

¬ The value of any growth is outside of their estate and belongs to the trust

¬ The trustees can control payments to the beneficiaries at a later date

¬ You can gift your assets and keep your right to regular withdrawals from the trust – for life or until the fund reduces to zero

¬ Based on your age, sex, health and the rate of withdrawals, a discount may be given

¬ The plan takes the gift out of your estate after seven years

¬ If you die within seven years, the amount within your estate for IHT purposes may be less than the original gift



Stuart Wilson is 65, recently retired and proud grandfather to Rebecca and Andrew. His estate is valued at £950,000, and although Stuart is aware of his current inheritance tax risk, he feels that he isn’t able to completely give up his capital, in case his pension won’t maintain his current standard of living.

His solutionStuart gifts £300,000 into a Discounted Gift Plan, and takes withdrawal payments of £15,000 each year. As his health is normal for his age, this gift is discounted by £150,958 to reflect the value of the withdrawal payments. For tax purposes, this would reduce the value of his gift to £149,042.

The outcomeNo IHT is payable when the gift is made.

If Stuart dies within seven years of starting the plan, his estate will be valued at £799,042 (that’s the original remaining £650,000 plus the discounted gift of £149,042). Allowing for the current inheritance tax threshold of £325,000, the Discounted Gift Plan would deliver a saving of over £60,000, meaning more funds are left for his beneficiaries.

After seven years, Stuart will not be liable for further inheritance tax on the funds he gifted to the discounted gift plan.

¬ You give away your money with no future access




Robert and Sarah Henry are in their early sixties and have one daughter who is currently going through a very messy divorce. They're aware that inheritance tax will be an issue and want to make sure that their daughter and teenage grandchildren are protected in the future and that their former son-in-law won't benefit from the gift.

They have not made any gifts before and have just decided to downsize to a smaller home, freeing up a lot of cash that they can use to plan their future.

Their solution ¬ They decide to gift £150,000 to a Gift Plan. They appoint themselves and their daughter as trustees

¬ The trustees invest in a Standard Life Investment Bond using the £150,000

The outcome ¬ No IHT is payable when the gift is made ¬ The investment growth is permanently outside of the couple's estate for inheritance tax purposes

¬ The original gift of £150,000 will not be included in their estate provided they survive seven years after making the gift

¬ Since no value is added to their daughter's estate, the money in the trust will have no impact on any financial settlement in her divorce proceedings

Choosing a trust

i


The Loan Plan The Discounted Gift Plan The Gift Plan ¬ You make a loan to the plan (instead of a gift of your money) so you still have access to your money when you need it

¬ The plan gives you the flexibility to stop and start loan repayments

¬ Only the amount of the outstanding loan is included in your estate on death

¬ You can recall, gift or cancel the outstanding loan at any time



Max and Liz Fortune are in their mid-sixties with two daughters and a son. They’d just like to make a start with inheritance tax planning, and need their plans to take into account their concerns about their children.

Since the couple don’t like their daughter’s partner and their son is currently going through a divorce, they want to be cautious about giving away any of their capital so that it doesn’t end up in the wrong hands.

Their solution ¬ They have loaned the trustees £75,000 ¬ Max and Liz have decided to have some control over the trust, so have chosen to become trustees, with one of their daughters as the third trustee

¬ The Loan Plan is set up using a Standard Life Investment Bond

The outcome ¬ Max and Liz are still entitled to the loan repayment

¬ The value of any growth is outside of their estate and belongs to the trust

¬ The trustees can control payments to the beneficiaries at a later date

¬ You can gift your assets and keep your right to regular withdrawals from the trust – for life or until the fund reduces to zero

¬ Based on your age, sex, health and the rate of withdrawals, a discount may be given


¬ If you die within seven years, the amount within your estate for IHT purposes may be less than the original gift



Stuart Wilson is 65, recently retired and proud grandfather to Rebecca and Andrew. His estate is valued at £950,000, and although Stuart is aware of his current inheritance tax risk, he feels that he isn’t able to completely give up his capital, in case his pension won’t maintain his current standard of living.

His solutionStuart gifts £300,000 into a Discounted Gift Plan, and takes withdrawal payments of £15,000 each year. As his health is normal for his age, this gift is discounted by £150,958 to reflect the value of the withdrawal payments. For tax purposes, this would reduce the value of his gift to £149,042.

The outcomeNo IHT is payable when the gift is made.

If Stuart dies within seven years of starting the plan, his estate will be valued at £799,042 (that’s the original remaining £650,000 plus the discounted gift of £149,042). Allowing for the current inheritance tax threshold of £325,000, the Discounted Gift Plan would deliver a saving of over £60,000, meaning more funds are left for his beneficiaries.

After seven years, Stuart will not be liable for further inheritance tax on the funds he gifted to the discounted gift plan.

¬ You give away your money with no future access




Robert and Sarah Henry are in their early sixties and have one daughter who is currently going through a very messy divorce. They're aware that inheritance tax will be an issue and want to make sure that their daughter and teenage grandchildren are protected in the future and that their former son-in-law won't benefit from the gift.

They have not made any gifts before and have just decided to downsize to a smaller home, freeing up a lot of cash that they can use to plan their future.

Their solution ¬ They decide to gift £150,000 to a Gift Plan. They appoint themselves and their daughter as trustees

¬ The trustees invest in a Standard Life Investment Bond using the £150,000

The outcome ¬ No IHT is payable when the gift is made ¬ The investment growth is permanently outside of the couple's estate for inheritance tax purposes

¬ The original gift of £150,000 will not be included in their estate provided they survive seven years after making the gift

¬ Since no value is added to their daughter's estate, the money in the trust will have no impact on any financial settlement in her divorce proceedings

Eachtypeoftrusthasdifferenttaximplications.Soyoushouldalwaystakeprofessionaladviceifyou’reconsideringatrust.Theamountsinthesecasestudiesareexamplesonlyandshouldnotbetreatedasfinancialadvice.

-

=

Total estate £775,000

Inheritance tax threshold£325,000

Taxable estate £450,000

IHT payable (at 40%) £180,000


Protect the benefits of your SIPPWe’ve designed a simple way to pay the lump sum death benefits from your SIPP into a trust instead of directly to an individual. The Bypass Trust offers flexibility, asset protection and potential inheritance tax benefits.

Did you know that by nominating your spouse or civil partner to receive your pension scheme death benefits, you could increase their inheritance tax bill?

¬ On your death, the pension scheme trustees will distribute any lump sum death benefits, normally to your spouse or civil partner

¬ This lump sum will increase the value of their estate, and may take them over the IHT threshold, meaning that their estate would be liable for a larger inheritance tax bill

What difference would the Bypass Trust make?How things work without the trustHere’s an example. If you die and your lump sum death benefits are paid to your spouse or civil partner, they may also die before spending it all. Let’s assume your surviving spouse/civil partner has an estate worth £775,000, including £150,000 of unspent lump sum death benefits paid from your SIPP.

To work out the tax due, the executors deduct the available inheritance tax threshold – £325,000 – from the value of the total estate. What’s left is then taxed at 40%.

So £180,000 of your spouse or civil partner’s estate (which included some of your lump sum death benefits) would be going to the taxman. Wouldn’t you prefer that this money was given to your beneficiaries?

The Bypass Trust

£595,000passed to the beneficiaries

Taxman takes

£180,000

£715,000passed to

beneficiaries

Taxman takes

£60,000

-

-

=

The loan (debt on the estate) £300,000

Total estate (includes £150,000 of unspent loan) £775,000

Inheritance tax threshold£325,000

Taxable estate£150,000

IHT payable (at 40%) £60,000


Now take a look at how things change with the Bypass TrustUsing the same example, instead of paying the lump sum death benefits from your SIPP to your spouse or civil partner, let’s say they were paid to the Bypass Trust, and your trustees loaned £300,000 to your spouse or civil partner.

Your surviving spouse or civil partner has assets on their death worth £775,000. The total includes £150,000 of the original loan which has not been spent. But there’s a debt of £300,000 (outstanding loan amount) which needs to be repaid to the Bypass trustees. Remember, the executors will deduct the current threshold of £325,000 from the value of the total estate. What’s left is still taxed at 40%.

Using the Bypass Trust would have meant that an extra £120,000 was available to your beneficiaries rather than paid to the taxman.

With the Bypass Trust

Without the Bypass Trust


It’s the key to protecting your possessions, and passing them on to the people you choose. And it makes things easier for your family and friends at a difficult time. So why do so many people put off writing a will?

Reasons for making a will¬ Tochoosehowyoudistributeyourpersonalpossessions

¬ Toprovideforyourchildrenandchoosetheirguardians

¬ Tomakeyourfuneralarrangementsclear

¬ Toleavemoneytoyourfavouritecharity

¬ Tochoosetherightpeopletodistributeyourassetsandlookafteryourestate

Get advice and keep up-to-dateProfessional advice is always recommended when it comes to legal matters. If you want to be sure that your assets are protected for your family and friends, taking legal advice is a good idea.

And you need to keep your will up-to-date. Major life events like getting married, divorced or having children all have a major impact on where you’d want your money to go, so it’s essential that your will keeps up.

What happens if I don’t have a will?The law will decide what happens to your estate. So it won’t necessarily be distributed to the people you want to have it. Your surviving spouse or civil partner won’t automatically inherit the whole estate.

So if you want to protect your assets, and make sure they go to people you love, a will is essential.

Do your family and friends know where to find your will?Once you’ve made your will, you need to keep it in a safe place. And you need to tell your close family or friends where it is. If you’ve asked a solicitor to make your will, they’ll usually keep the original and send you a copy too.

TheTreasurygained£53millionfrompeoplewhodiedwithoutawilllastyear.Theyearbefore,itwas£76million.Areyouhappytogivethemyourmoneytoo?Source:BBCNews19October2011

The importance of making a will


Themyth:Youdon’tneedawillifyou’releavingeverythingtoyourspouseorcivilpartner.

Thereality:Awillisessential,whateverageyouare,becauseifyoudiewithoutone,yourassetsaredividedaccordingtothelaw,notyourwishes.


Figure out how much you’re worthIt’s important to add up how much your assets are worth, and make sure you’ve considered them all. Once you know that, you can see if your estate will be liable to inheritance tax, which will help your adviser to offer the right solutions for you.

Taking steps to reduce your inheritance taxYou can make gifts and transfers that don’t attract an inheritance tax charge. So you should make the most of these if you can.

Using a trust to protect your assets and help with your tax planningWhether you’re protecting your pension benefits, or setting up a trust to hold your bond, our trusts can provide protection, flexibility, control and tax-efficiency.

The importance of making a willMake sure your possessions are given to the people you choose, and make things easier for your family and friends at a difficult time. A will is an essential part of your plans.

Speak to your adviser Yourfinancialadviserwillbeabletogiveyoumoreinformationaboutanyoftheinformationcoveredinthisguide.

Family wealth transfer at a glance

Pensions Savings Investments Insurance

Find out moreFor more information on any of the information covered in this guide, speak to your financial adviser.

Calluson08456060002We’re open Monday to Friday, 9am to 5pm. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

Or you can find out more about what we offer on our website:

www.standardlife.co.uk

Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised and regulated by the Financial Services Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary. www.standardlife.co.uk

IHTS10 0112 ©2012 Standard Life (images reproduced under licence)

Protecting your assets - News and MoneyPlus Blog · Whether you’re protecting your pension...

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Transcript of Protecting your assets - News and MoneyPlus Blog · Whether you’re protecting your pension...