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National wealth service

Trusts and the debate as to whether IFAs should get involved in this area or not has become a hot industry potato over the last few weeks, and about time too. I am sure that technical managers and IFAs conversant with trusts across the country share my delight that our specialist subject is now commanding some serious media attention.

This media spotlight on trusts is particularly timely, given the imminent end of the tax year and the resulting rush of activity as IFAs seek to make the necessary provision for their clients.

But from a wider perspective, trusts and tax planning are increasingly relevant topics for IFAs as the UK personal investment industry continues to grow.

It has to be remembered that there has been no significant reform of the inheritance tax system, leaving greater numbers than ever before caught in the IHT net. This is exactly the sort of specialist area that will take on greater importance post polarisation.

For too long, “trusts” suffered the same fate as other technical areas of the industry such as “actuarial” and “underwriting”. They were viewed as dry and, dare I suggest, tedious areas that caused many IFAs to recoil at their perceived complexity and detail.

In recent months, however, actuarial decision-making has edged towards centre stage as a result of the Equitable Life situation while new players in the protection arena have pioneered “smart underwriting” techniques.

Increasingly, life companies are making their trust ranges more user-friendly for clients and IFAs alike – with market-ing and technical support to match.

Like many areas of personal finance, the key to understanding trusts is to look beyond the structure of the trust itself and focus on the benefits that a trust can provide.

Trusts can offer the solution to a vast number of tax planning issues that may emerge during a client&#39s lifetime.

Inheritance tax planning is one of the most common areas where trusts have a role to play. Given that the current nil-rate band for IHT is £242,000, including the value of a client&#39s property, it is not difficult to see how so many clients may have acquired an IHT liability in the last few years.

IHT planning using trusts, therefore, is a reality for more clients than ever before, making trusts an area where IFAs can provide greater added value.

IFAs should be aware that trusts can be used in a number of ways.

For example, some trusts may offer access to capital at the same time as it is gifted away. They can speed up the administration of an individual&#39s estate and can be used to avoid the need for probate on their death or to make a gift to someone.

By gifting into a trust, control of the assets rests with the trustees, ensuring that they are not misused or wasted by the beneficiaries.

A further use could be to make sure that a gift reaches the person who it is intended to benefit at a selected time.

With this last option in mind, it is important to note that the use of trusts is not restricted to onshore or offshore bonds – although this is a popular combination.

Trusts also work well when used in conjunction with a term insurance policy to enable heirs to cover the cost of inheritance tax liability after an individual dies.

This feature, known as gift inter vivos, may be relevant to IFAs moving into the expanding area of protection and is available as part of a protection menu product.

Trusts can be used to help families preserve wealth for future generations, as well as to help mitigate the problem of inheritance tax.

Although the FPC examination only touches on trusts at a basic level, advisers who complete the AFPC must have attained a thorough knowledge of trusts.

Although the future classification of advisers seems set to depend on their remunerative status rather than their qualifications, expertise in trusts may well prove a key area for IFA firms to consider when deciding their future direction in the new depolarised world.

For those intending to remain classed as independent financial advisers, providing holistic advice for a predetermined fee, being well versed in trust and tax planning will be vital.

Some IFAs may choose to outsource this, buying in the expertise of a local taxation specialist if they lack the resources to cover this area.

Let us not forget the corporate market, where trusts can play an important part in protection products as well as the pensions side. Trust expertise can be equally powerful in building client relations.

Life offices have tried to make trusts more user-friendly for a number of years now, with more innovative and practical solutions emerging all the time.

For IFAs who do want to hone their skills in the trust arena, there is no shortage of support.

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