Marketing director Andy Lee told PIMS delegates that the plan, known as a contingent debt scheme, can be set up in around six to eight weeks. In the case of an 85-year-old client with a taxable estate of around 2m, the client would set up an offshore trust and deposit a sum of around 10,000. The trustees then set up a mortgage for 2m using the settlor as a personal guarantor for the loan.
When the trustees receive the loan, they appoint the money to the trust’s beneficiaries – the client’s children – as a capital appointment. This means that the money is placed in a separate account but the 10,000 deposit in the trust is used to service the mortgage.
When the client dies, the guarantee comes to an end and the lender calls in the loan to the trustees.
The trustees have already paid away the 2m to the children so the guarantee is called in from the settlor.
This is classed as a debt for IHT purposes, so the client will not be taxed on the transfer of the assets.
Lee said: “You often find this would suit someone who has been knocked back on a discounted gift trust because they are too old or too ill.”