Your guide to the WAY Inheritor Plans
The Plans come in several different forms which may be used individually or in combination to achieve more than one goal.
All of these Plans have common aims – to help clients reduce potential inheritance tax liabilities by using current reliefs and exemptions. Client circumstances can and do change, therefore individual planning should be done by an experienced professional adviser, and recommendations will differ from one client to another. The Inheritor Plans will often be part of a wider strategy to cover different aspects of the inheritance tax planning spectrum.
Below is a description of each plan and who it may be suitable for:
The Award Winning WAY Flexible Inheritor Plan
This Plan may be suitable for investors who wish to make a significant gift to reduce their inheritance tax liability. They also want some access to the capital at a later date if their circumstances subsequently change, and want the ability to help their beneficiaries financially should the need arise. The investment is gifted into a flexible reversionary interest in possession trust for the benefit of the chosen beneficiaries.
- The original gift falls outside the estate if the investor survives 7 years.
- Any future growth is immediately outside the estate.
- The investor retains potential access to a proportion of the trust fund each year (via flexible reversions).
- The trustees can defer a reversion in whole/part to a future date if the payment is not required.
- The trustees can also distribute capital or make loans to the beneficiaries at any time.
The WAY Gifts from Income Inheritor Plan
This Plan may be appropriate for investors who wish to make gifts out of surplus income each year and take advantage of the ‘normal expenditure out of income’ inheritance tax exemption but also want a solution that can adjust to changing personal/family circumstances. The investments bought by the gifts are placed in a flexible reversionary interest in possession trust for the benefit of the chosen beneficiaries.
- The gifts will result in an immediate reduction in the investor’s estate for inheritance tax.
- There is no monetary limit to the gifts made provided they meet all criteria for the exemption to apply.
- Any investment growth is also outside the estate.
- The investor has potential access to 50% of the trust fund on both the 5th and 10th anniversaries.
- The trustees can postpone these reversions in part/full to a future date if not needed at the time.
- The trustees can appoint or lend capital to beneficiaries whenever they wish.
The WAY Inheritor Loan Plan
This Plan may be suitable for Investors who wish to carry out inheritance tax planning but cannot afford, or are unwilling, to give up all access to the capital. However, they are prepared for future investment growth to be given away. The investor makes an interest free, repayable on demand, loan to the trustees of a flexible interest in possession trust, who will then invest the monies.
- Whilst all investment growth is held for the beneficiaries, any outstanding loan will remain part of the investor’s estate for inheritance tax.
- The investor has full control over and access to the original capital.
- Regular loan repayments can be used to provide an ‘income’ to the investor for a limited period.
- Since no gift has been made, inheritance tax benefits can only be achieved on a gradual basis because these will rely on loan repayments being taken and spent and the investment growth obtained.
- The trustees can make capital payments to the beneficiaries, subject always to their ability to repay the loan on demand.
The WAY Discounted Inheritor Plan
This Plan may be appropriate for investors who can only afford to make a significant gift if they can continue to receive an income from it. In return, they must accept that the ‘income’ basis is fixed at outset and they cannot have any other access to their capital. Medical underwriting is also required so that the level of any discount on the original gift can be determined. The investment is gifted into a fixed reversionary interest in possession trust for the chosen beneficiaries.
- The investor retains a right to receive annual payments on a fixed basis, if alive, when due.
- If the investor survives 7 years, the gift is removed from their estate. If death occurs within 7 years, the inheritance tax value of the gift will usually be lower than the amount invested.
- Future investment growth is outside of the estate from the outset.
- The investor must spend the payments and not accumulate them back in the estate.
- The trustees cannot distribute capital/make loans to beneficiaries during the investor’s lifetime.
The WAY Duo Inheritor Plan
This Plan effectively combines the Flexible and Discounted Plans. It may be attractive to investors who wish to make a significant gift, require the certainty of an ‘income’ for the short term only but would like potential access to further capital should their circumstances change in the future.
The investor makes a gift to a specially designed interest in possession trust under which fixed and flexible reversions are carved out in favour of the investor.
- Fixed monthly reversions are payable for the first 8 years to provide a limited ‘income’ for the settlor. These will be valued, subject to underwriting, to produce a probable discount in the inheritance tax value of the gift should the investor die within 7 years.
- The investor also has potential access to annual capital payments by way of flexible reversions, which the trustees can defer partially/totally to a future date.
- The gift will be outside the investor’s estate after the settlor has survived 7 years.
- All investment growth will be outside the estate immediately.
- The trustees can distribute capital or make loans to the beneficiaries at any time.
The WAY Estate Transfer Plan
This Plan may appeal to investors who wish to make a potentially exempt transfer, require an annual ‘income’ but want control over whether to draw this in full each year. Investors must be prepared to undergo medical underwriting so that the level of any discount on the original gift can be determined. They must also accept the restrictions of a bare trust. The investor’s capital is invested in a series of offshore single premium endowment policies, which cannot be surrendered. These are written subject to a bare trust, where the death benefits are held for named beneficiaries and the maturity benefits are held for the investor absolutely.
- The policies are designed to mature year by year on a basis decided by the investor.
- When policies are approaching maturity, the investor can decide whether to take the proceeds or extend the maturity dates.
- The IHT value of the initial gift may be discounted. Extending the maturity date is a potentially exempt transfer and may also benefit from a discount as well.
- The gift(s) will fall outside the estate for inheritance tax on surviving 7 years.
For full details of the individual plans, please refer to the product brochures in the Document Library.
If you wish to talk to someone about the WAY Inheritor Plans please complete your details on our Contact Page or telephone 01202 890895.