The company says the Way gifts from income inheritor plan will be suitable for high earning professionals, top sports people and celebrities who want to put a substantial part of their earnings outside their estate for IHT purposes. The target market also includes people with big investment portfolios who cannot distribute their gains because of the impact of CGT.
Instead of handing 40 per cent to the government upon their death, the person taking out the plan, known as the donor, can make gifts into trust from their income. The donor selects their chosen beneficiaries but appoints trustees with wide powers over how the assets are to be dealt with. The donor specifies interest in possession beneficiaries – the main beneficiaries and the proportions in which they are to benefit.
Under the trust deed, the donor can have half their assets back just before the fifth anniversary and the other half just before the 10th anniversary, so the donor still retains access to their money. The wide powers of the trustees enable them to reduce, postpone or prevent this taking place.
The plan is linked to Way’s range of five risk-graded multi-manager funds, managed for Way by IMS. The plan also has a maximum life of 80 years, so the trustees do not have to pay out benefits at any particular time. Money can be paid out to beneficiaries as a lump sum or spread over time, even after the death of the donor, and may depend on the donor’s ‘letter of wishes’. The trust wording also allows assets to be appointed on a discretionary basis to a second class of beneficiaries.
Inheritance tax is not usually payable after the trust has been set up but there are charges on the tenth anniversary of a trust and when the assets leave the trust, but there are no charges when the assets revert back to the donor. Where assets stay within this plan for more than 10 years there may be a 10-yearly charge of up to 6 per cent, although Way says it will usually be nil unless the assets exceed the nil-rate band or the donor made substantial gifts before the trust was established.
This product’s main selling point is the fact that the donor still has access to the assets even though they are sheltered from IHT. However, one limitation is the investment choice. Although these multi-manager portfolios provide access to a range of externally managed funds, IMS is in sole control of asset allocation.