The product is structured as a number of single premium life assurance policies, each with a known term that can be from one year to the point when the youngest life assured is 101. Up to six lives can be assured under the plan.
There are two types of trust that are set up under this product. The legal title to the policies is assigned to the trustees of the initial – or bare – trust and they gift the rights to the benefits of the policies to the trustees of a discretionary trust, known as the settlement. The separation of the legal title and the beneficial interest under the two types of trust is needed to ensure exemption from income tax on pre-owned assets.
The investors, known as the settler, retains a reversionary interest in the settlement which means that when the policies mature while the settler is alive, it will be paid back to him or her. But the maturity date of each policy can be deferred, surrendered or distributed by the trustees of the settlement to the beneficiary. When a policy matures or surrenders or the settler dies, income tax will be charged on any amount that is paid above the premium paid. This is why the ability to defer maturity is useful as it allows for the planning of income tax to be paid at the most suitable time.
The beneficiaries are chosen at the outset. Provided the settler does not die within seven years of the initial gift, its value and any growth will be outside the estate but if death occurs within seven years, IHT will be payable.
The minimum investment for this product is £50,000 and premiums paid will be invested in Canada Life International’s fund range or investment funds from other management groups that the company regards as suitable. Withdrawals are not allowed, so any income that is needed by the settler is available only through maturing policies.
This product is more flexible than some products such as discounted trust arrangements where the reversions back to the settler are fixed at the outset and cannot be altered at a later date. However, competition may come from the Way Group’s Flexible Inheritor Plan.