For some time now some investment funds have provided an (insured) guaranteed value on the death of the investor or another nominated individual.
This guaranteed value would, typically, be linked to the amount originally invested or, if greater, the value of the investment at the most recent “revaluation” date.
The principle had/has appeal, in particular, to trustees looking to preserve the capital value of an investment on the death of a person entitled to income under the trust.
The sort of trust for which this reassurance might be appealing would be an interest in possession/life interest trust under which one or more beneficiaries are entitled to income for life with the capital being held for other beneficiaries.
It would not be unusual for the trust to incorporate a power (usually vested in the trustees) to appoint and/or advance capital to beneficiaries.
Many modern trusts would incorporate a power to lend trust funds to beneficiaries with or without interest.
Perhaps the most obvious example of this type of trust would be one established in the will of a deceased leaving the right to income from the trust property to their surviving widow or widower for their lifetime with the trust’s capital being held for children/grandchildren.
For inheritance tax purposes this type of trust would be called an “immediate post-death interest” trust. On the death of the testator, despite the funds being transferred into a trust, the transfer would be treated as if it was outright to the spouse and so there would be no IHT due on the amount passing into the trust regardless of the amount of the transfer.
The relevant property regime would not be applied and the first transfer would be on the death of the surviving spouse with the life interest (right to income).
That the value of the investment was guaranteed to be not less than the amount originally invested (provided the costs associated with the provision of the guarantee were thought to be reasonable) may be seen as a worthwhile benefit.
So, apply that principle to all of one’s assets held on a platform and relate the guarantee to the death of the investor and you might have a proposition that appeals to the increasing number of investors who invest “on platform” these days.
It seems that a couple of platforms have implemented this type of cover and, you never know, more may follow.
There is no doubt that a fully integrated solution is the ideal. In this model the insured amount would be linked to the difference between the amount of the specified “guarantee” (ie the amount of the initial investment or the latest revaluation amount) and the actual value of the investments on platform.
Ideally this value, based on appropriate “value feeds” from the platform, would be re-calibrated on a daily basis. The cost of any “gap protection” cover could be deducted from the cash account.
And, of course, one would want the cover to be held in trust to ensure speedy IHT-free payout.
Presumably the beneficiary(ies) under the policy trust would be the person(s) who will be entitled to the deceased’s investments on platform.
And the scope for protection linked to the wealth management process does not end there.
“Aspirational”, protection-driven “wealth creation” for families to ensure that a target figure is available on the investor’s death with the insured part (at least) being free of IHT is also a possibility.
For example, the investor is targeting an investment fund of £1m and is investing on platform.
To achieve this “insurance” could be put in place (with the sum assured being arrived at through measuring the “gap” between the “target amount” and the actual value of the investments – possibly on a daily basis).
The main challenge to these “supplementary solutions” becoming “habitual” to wealth planners is ensuring that they become “hard-wired” into the wealth management discussion.
Easier said than done.
Tony Wickenden is joint managing director of Technical Connection
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