A trust can be one of the most effective ways to organise and structure family wealth as well as meet a wide range of financial objectives. Sanlam will work with you to create an appropriate trust arrangement to help your clients mitigate inheritance tax (IHT) obligations for some pension and bond products.

Putting assets into trust usually means that they are no longer owned by your client but set aside for a beneficiary. When your client dies, the value will normally be considered to fall outside their estate for IHT purposes.

There are a variety of trusts available and the right choice will depend on the individual circumstances of each of your clients.

  • Discretionary Loan Trust

    A Discretionary Loan Trust can facilitate effective IHT planning by using a single premium onshore life insurance bond. Find out more about the benefits:

    • The gradual reduction of the value of your client’s taxable estate and reduction of the IHT liability arising on their estate when they die. The value of any outstanding loan will remain part of your client’s estate after death.

    • Your client has tax-efficient access to the loan through ad hoc loan repayments.

    • All capital growth on the investment accrues outside of the estate of the settlor and is passed to the beneficiaries of the trust.

    • Your client can keep control over who will finally benefit from the trust fund.

    • Your client makes a loan to the trustees who invest in the policy (a new policy is therefore set up in every case).

    • Your client’s spouse or civil partner could benefit under the trust as a discretionary beneficiary, but it is recommended that the spouse or civil partner does not receive any benefit during the lifetime of the settlor.

    Who might consider this trust?

    • Clients who are over 50 (joint settlor cases are not allowed).

    • Clients with an estate that exceeds the nil rate band.

    • Clients who have capital to invest or realisable investments available for reinvestment. Capital gains tax (CGT) liabilities may apply in some cases, such as an in-specie transfer of assets.

    • Clients who require access to capital to periodically supplement their income.

    • Clients who understand the original capital invested (or part of it) may need to be called on at any time.

    • Clients who have identified the beneficiaries, but wish to retain control over who receives these benefits in the future.

  • Discretionary Gift Trust

    The purpose of a Discretionary Gift Trust is to facilitate lifetime IHT planning for an individual, either by making a gift of an existing policy or by applying for a new policy to be held under the trust.
    Why choose this trust?

    • As the policy is held subject to the terms of the trust, it is not an asset of your client’s estate. However, there may be IHT consequences if the settlor dies within seven years of establishing the trust or makes a further chargeable lifetime transfer within that period.

    • The amount of any IHT liability will depend on the value of the chargeable lifetime transfer to the trust as well as the value of any previous and/or subsequent chargeable transfers.

    • Your client can retain considerable legal control over who benefits from the trust fund during their lifetime.

    Who might consider this trust?

    • Clients who wish to mitigate their IHT liability and do not require access to the investment.

    • Clients who are not prepared to commit to a gift to a named beneficiary, and wish to keep control over who will ultimately benefit from the trust property.

    • A single settlor or joint settlors who wish to make a lifetime gift (such as spouses or civil partners).

    • It is not advisable for individuals in a married couple (or registered civil partners) to set up separate Discretionary Gift Trust arrangements because it could defeat the tax-planning purpose of the trust.

    • It is recommended that the policy is effected on the lives of two or more people on a last survivor basis to avoid automatic encashment on death under a ‘sole life assured’ or ‘first death’ policy.

  • Discretionary Discounted Gift Trust

    The Discretionary Discounted Gift Trust facilitates lifetime IHT planning by allowing your client to make a gift to the trust, which will be held for the benefit of the named beneficiaries.

    Why choose this trust?

    • To immediately reduce the value of your client’s taxable estate for IHT purposes, by the amount of the discount.

    • To enable your client to receive fixed payments from the trust for life.

    Who might consider this trust?

    • Clients who are over 60 and wish to mitigate a potential IHT liability.

    • Clients who wish to retain an entitlement to payments from the trust, but are happy that this is restricted to a series of fixed capital withdrawals.

    • Clients who are happy to give up access to the rest of the investment.

    • Clients who are in reasonably good health (a medical report will be requested to determine the level of discount). Full underwriting will be carried out for each case as ‘evidence’ of the level of discount should this be queried by HMRC.

    • Single or joint settlors (including spouses and civil partners) who wish to make a gift for IHT purposes.

  • Discounted Gift (Bare) Trust

    The Sanlam Discounted Gift (Bare) Trust is an arrangement designed for individuals who wish to reduce their potential IHT liability while securing a regular stream of specified cash payments into the future.

    Why choose this trust?
    The trust will enable your clients to:

    • Make a tax-efficient gift of assets into trust for the absolute benefit of named beneficiaries.

    • Have peace of mind that these people (or their children) will ultimately benefit from the gift.

    • Immediately reduce the value of his or her estate for IHT purposes.

    • Through a discount, reduce the value of the gift that may become subject to IHT if they do not survive for seven years from the date of making the gift.

    • Ensure that any growth on the original gift will immediately be free from IHT.

    • Enjoy a tax-efficient income supplement.

    • Avoid probate delays on death, as the trust assets can continue to be managed by the trustees or can be distributed by the trustees without going through probate.

    Who might consider this trust?

    The arrangement may be suitable for your clients with a potential IHT liability on death, who would like to reduce the value of their estate but still need access to a regular source of income.

  • Absolute Gift Trust

    The Sanlam Absolute Gift Trust aims to facilitate effective lifetime IHT planning. By using the Sanlam Absolute Gift Trust with cash intended for an investment in a new bond or with an existing bond, your client can make an outright gift for IHT purposes.

    Where your client creates a Sanlam Absolute Gift Trust in respect of a new bond, the premium to the bond will usually be a potentially exempt transfer (PET) for IHT purposes to the extent that it exceeds their available IHT annual exemption (£3,000).
    Who might consider this trust?

    • New investors contemplating an investment in a new Sanlam Onshore Bond.

    • Those already holding an investment in a bond.

  • Bypass Trust

    The aim of the Sanlam Bypass Trust is to provide a flexible structure to receive death benefits from a pension plan so that payment can be made to a wide range of beneficiaries including a widow(er) and dependants without forming part of the beneficiary’s estate.
    Who might consider this trust?

    • Where death benefits are paid to a Bypass Trust, it will be at the discretion of the trustees of the Bypass Trust to decide who benefits in the future and when. This gives your clients control to choose the trustees who will be looking after this money after their death.

    • Flexibility over who can benefit from the trust.

    • Where there are issues with making death benefit payments to minor children or those who are incapable of managing their own financial affairs, normally a trust would need to be established for this payment to be made. This may create delays on making the payment to the beneficiary. A Bypass Trust established during you client’s lifetime may avoid this problem.

    • The payment of these monies will not be in the beneficiary’s estate for IHT purposes.

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