25 September 2018

Financial Planning with Trusts

I have written about Trusts a number of times over the years (click on "Trusts" in the Labels index - on the right of the main blog page to see). Mostly I have started with the reason you might want a trust. Here's another way of looking at it, though - a list of different types of trust and where they might be useful.

Expertise is needed, though, not only to help select the appropriate trust, but also to advise on how the money put into trust should be invested. Note that Inheritance Tax-efficient trusts generally require 7 years to be outside your estate.

Absolute trust
A simple (but inflexible) solution where you do not require access to the capital held in trust and know who you want to leave the money to.

Discretionary trust
Keep control and have flexibility over how wealth is distributed. Effective for Inheritance Tax in most cases.

"Best start in life" trust
A discretionary trust that enables you to pass on wealth in an IHT-efficient way, and can provide for tax-efficient payments for the benefit of children.

Reversionary ("lifestyle") trust 
Has an option to take back a fixed proportion of the value each year. What remains is outside your estate after 7 years.

Excess income trust
Build a nest egg for beneficiaries, free of IHT.

Discounted gift trust
Receive regular fixed payments for life with the balance passed to beneficiaries.

Loan trust
Since it's a loan you still have access to the capital. But any investment growth is outside your estate for IHT purposes.

6 September 2018

Should I ... Sell Everything if I'm Nervous?

Nervous babyFrom time to time a client will tell me they are nervous about the future. The trigger might be something political or financial like the Euro Crisis, Brexit, or Trump, or it may simply result from reading the Daily Mail(!).

History tells us that it is not generally worth making changes to long term investments - including pensions - in response to short term events. But if you are getting close to needing access to an investment, perhaps retirement is looming, then it may be a good thing to take action anyway.

So if you are really concerned about protecting your assets what can you do?

Depending on what investments you hold it may be possible to reduce the expected volatility (risk) of your portfolio by switching into more stable funds (more fixed interest ("bonds"), perhaps?).

Or your investment product may offer a fund which is "smoothed" and which has the effect of dampening down the worst ups and downs in the short term.

Some products allow you to add a guarantee to an investment (usually only at the beginning, though). That often takes the form of insurance to prevent the value falling below - say - 90% of its highest ever value. But like any insurance, it costs you - typically in the form of higher annual product charges.

Ultimately you could sell everything to cash, perhaps keeping it within the investment wrapper, although deciding when to get back into the market is always the challenge. More often than not this strategy results in your being worse off than if you had simply left things where they were.

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