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The not so somple truth on planning

As a head of inheritance tax planning, I assume Peter Legg to be someone deeply immersed in the subject of IHT planning by the use of trusts so I will try to be circumspect in my comments on his letter in Money Marketing last week headlined, Trusts are the perfect solution.

It seems to me somewhat questionable to advise on the use of trusts with the rider that they can be broken at any time, as if this is some sort of easy get-out clause if the settlor/s at some later date find themselves uncomfortable with not being able to access the assets in the trust.

First, for a trust to be broken, the signed agreement of all parties to it (including all the beneficiaries) is required. If just one of those parties dissents, then the trust cannot be broken so it is as well to make this very clear before any decision is made to proceed.

Second, trust law and tax law are each complicated areas in their own right and marrying the two for the purposes of IHT planning is anything but straight-forward. Also, not only are there many different types of trust but many different variations on all these different types of trust, depending on which provider you consult. It is often less than easy to get through to the right person to help you through the intricacies of the particular one you have decided to use.

Estate planning, I agree, should not be about buying insurance products, as evidenced by the number of people who have been sold joint-life second-death whole-of-life policies that may well not have been needed and which the salesman has then failed to ensure are wrapped in the relevant trust. Without the proper trust wrapper, all that will happen on second death is that the proceeds of the policy fall straight into the estate, thereby exacerbating the very issue the policy was claimed to address.

However, the facts remain that life insurance investment bonds have much to commend them as investments for trusts and many life companies offer tried and tested trust documentation as a free of charge supplement for this very purpose, thereby saving clients the 500 (plus VAT of course) in fees to which Mr Legg refers.

IHT planning is not a simple area and, with respect to Mr Legg, should not be presented as such.

On another matter, while the FSA seems to be making noises to the effect that its latest review of advice given to people to contract out of Serps/S2P will not be based on new parameters applied retrospectively, it surely has a moral (if not legal) obligation and duty of care to publish for all (not least those who fund its very existence) to see exactly what it means by “the rules and standards…in place at the time of the sale”. We need and are entitled to know exactly:

  • When those rules and standards were published.
  • By what means they were published (as opposed to having been buried in an obscure corner of some vast and complicated manual or website),
  • By what body.
  • What records are available of those rules and standards, as published on the relevant date/s.

I, for one, have no recollection of any published rules and standards with regards to advising clients on the subject of contracting out or in (our network would surely have brought them to our attention at the time). As with so many issues on which the industry has hitherto been hauled over the coals, the modus operandi at the time of the sale has tended generally to have been nothing more than the best known standards of the day (for the simple reason that nothing explicit or specific was available or, equally pertinently, known to be available from the regulator of the day), albeit that those standards may retrospectively have been found lacking.

The regulator has stated that this latest review will not be based on retrospectively applied standards of today so, if the above requirements cannot be met, then there is nothing on which any sort of review might now legitimately be based. Is there? Or so you might think in a civilised society in which fairness and justice are supposed to prevail.

Worryingly, as ever, there must surely be a very real concern in the minds of many people that, in the light of its track record to date in such matters, the FSA will concoct something different to suit its own malicious ends. May we please have, without delay or prevarification, a clear and unambiguous statement from Canary Wharf to clarify this issue?

Julian StevensWDS IFAs, Bristol


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