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Overview
Provides clients with access to the interest free loan they made to the trustees, with future investment growth being outside of the client’s estate for IHT– discretion to change beneficiaries.
Quick facts
- For use with the Collective Investment Bond.
- Available under the law of England and Wales and Scots Law.
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This is a trust which your client, the settlor, creates by lending money interest free to their trustees to invest rather than giving it away.
- The loan is repayable to your client on demand, giving them flexibility for the future, and can be repaid to them on an occasional basis, or by regular repayments.
- The loan remains within your client’s estate for inheritance tax (IHT), whilst any growth on the trustee’s investment is outside the estate.
- The settlor chooses their trustees. They can appoint themselves as a trustee. However, it is recommended that there is at least one other trustee in addition to themselves.
- Beneficiaries not covered by the classes can be added to the trust by the settlor.
Deeper dive
Lending money to a trust opens opportunities for both flexibility and inheritance tax planning.
Watch this spotlight session to see how this trust could benefit your clients.
Suitability
This trust can be suitable for inheritance tax (IHT) planning as it allows the settlor to achieve growth on their capital outside of their estate. However, the loan made by the settlor remains within their taxable estate.
Loan repayments can be requested from the trustees as lump sums or as a regular payments. This could allow the settlor to retain full access to their capital whilst achieving IHT efficiency on the growth. The settlor also has the ability to waive their rights to the loan at a later date – this is treated as a gift.
The trust is not suitable for clients who wish to make an immediate gift of capital which will leave their estate.
The discretionary version of the trust provides for wide classes of beneficiaries. For example; both current and future children / grandchildren are included automatically. If the classes of beneficiaries do not include individuals who the client would want to benefit, they can be added to the trust deed at outset.