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Trust in financial planning

Making sure that you have your affairs properly planned is a crucial part of financial planning; and trusts can be a useful mechanism in leaving a legacy for your family and future generations.

This is the first in a series of articles on trusts – what is a trust, what are the various types of trusts, who are the parties involved and what are some of the advantages and disadvantages of establishing a trust?

Let’s start from absolute basics and discuss what a trust is.

You have to go back into the mists of time, to the medieval period to find the origins of the law of equity. However, trusts evolved as a way of separating the ownership of property between legal and beneficial ownership. In other words, the legal ownership was retained by one person (a trustee) and the benefit of that property was enjoyed by another person (the beneficiary). A simple example would be that a property is legally owned by a trustee, who allows the beneficiary to live in the property or receive the rent without ever having legal ownership of the property itself. It’s a separation of the ownership between legal and beneficial.

There are three parties (sometimes four) involved in a trust. The first is the settlor who establishes the trust, appoints the trustees (which may include him/herself) transfers an asset to the trustees and nominates the beneficiaries. The fourth possible party is a protector, who is sometimes seen with offshore trusts. However, let’s not complicate it at this stage.

In order for a trust to be valid, there needs to be three certainties. These were established in law by a famous case that occurred as far back as 1840 known as Knight -v- Knight; and that law still stands to this day.

The three certainties are the basic ingredients that must exist in order for a trust to be valid. These are, certainty of intention, certainty of object and certainty of subject. In very basic terms, the settlor must have intended to create a trust; you must be able to identify the assets of the trust (the subject) and the beneficiaries (the objects) must be named or identified or at least defined so they can be ascertained. If any one of these tests are failed, then the trust is unlikely to be valid.

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Sadly, coronavirus has made people think about death!

The Coronavirus pandemic has, sadly, increased the demand for people wanting to put their financial lives in order. Solicitors have seen an upsurge in demand for writing wills, for example.

I must admit that I feel uncomfortable writing this article, but we are being asked for advice on what clients should do in the knowledge that they might die sooner than they anticipated. So, I’ve decided to set out some of the issues that we would highlight as financial planners to a client who is close to death – often referred to as ‘deathbed’ planning.

Here’s a very simple list of things that should be thought about in those difficult circumstances:

  1. If you haven’t written a will, write one now; and if you have a will, make sure that it is reviewed by a suitably qualified solicitor.
  2. Review letters of wishes in relation to any discretionary trusts that you may have settled. These should be lodged with the trustees but not made available to the beneficiaries of the trust.
  3. Consider the exempt gifts, such as the Annual Allowance (£3,000 2020/21) and the small gift allowance (£250 2020/21).
  4. If you have a life expectancy of at least 2 years, you might want to consider investments that qualify for Business Property Relief or in agricultural land that attracts Agricultural Property Relief.
  5. Including a legacy in your will of at least 10% of the value of your net estate to a registered charity, reduces the inheritance tax (IHT) rate from 40% to 36%.
  6. Investing in woodlands may open up Woodlands Relief on the value of any trees or underwood growing on the land.
  7. Life assurance and pensions should be checked to make sure that trust deeds and nominations are in place to ensure that any benefits fall outside the estate.
  8. Check the joint ownership of assets, in case the equitable interest needs to be severed to ensure the disposition passes under the will to maximise IHT savings.
  9. Where the estate exceeds £2m, it may be worth making gifts to capture the ‘additional threshold’ available on a main residence. Even if the gift is a Potentially Exempt Transfer (PET) there may still be an advantage.
  10. Transfer assets owned by a spouse to take advantage of the Capital Gains Tax (CGT) uplift upon death. Make sure the will is reviewed though to ensure they are transferred back to the surviving spouse to ensure they receive the asset back at the uplifted probate value.
  11. Consider investing in buildings, land, works of art and heritage chattels that qualify for the ‘Conditional Exemption Tax Incentive Scheme.’ These are exempt from CGT and IHT as long as the owner agrees to look after them, allow public access and keep them in the UK.

Anyway, I hope the helps anyone who may be concerned about the current situation and would like to know what practical steps are available. Stay safe and stay healthy; and I’ll see you on the other side!

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The Lifetime ISA

savings-streetAs announced in the 2016 Budget, the new Lifetime ISA will offer either saving towards retirement or a first mortgage for people aged between 18 and 40. The Government proposed that an individual can save up to £4,000 each year and receive a government bonus of 25% on saving which equates to a bonus of up to £1,000 a year.

Much like an ordinary Individual Savings Account (ISAs), the money can be invested as cash – or in stocks and shares. Cash LISAs are expected to pay out the same as ISAs.

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Burwarton Show 2016

The stand (edit)
With another busy month at Matrix Capital behind us, we look back to one day that stands out in particular.

On Thursday 4th August 2016 the Matrix team took a day out of the office to host a stand at the 125th Anniversary of the Burwarton County Show.

Burwarton Show is one of the largest one-day shows in the Country. Every year thousands of people flock to the small village of Cleobury North, only a stone’s throw from Matrix Capital, to take part in hundreds of classes and see the attractions. 2016 was certainly no exception!

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Brexit: The Breakdown

The Vote

On Friday 24th June 2016, Britain awoke to the news that they were to leave the European Union after a 51.9% vote to leave trumped a 48.9% remain vote. Although at a first look Britain appeared to be divided down the middle, the leave/remain vote was more determined on the geographical location and the age of the voter.

A YouGov poll that was released on the 24th showed what percentage of voters in various age ranges voted remain. The results proved that the younger the generation, the higher the percentage of Remain voters.

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Business or Property owner? Here’s what you need to know.

Business owners pay more taxproperty-market-1223813-1279x852

The Treasury expects to collect £2.6 billion in extra tax because business owners have accelerated dividend payments to avoid a looming tax hike, says the Financial Times (‘FT’).

The tax rate on dividends in excess of £5,000 a year rose to 7.5% on April 6th, and many company owners chose to take higher dividends before this date to reduce their tax bills.


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Saving and Investing: What’s changed?

Five things you need t know about Savings and Investment….


Can LISA’s offer a savings boost?writing-a-check-

The Lifetime Individual Savings Account or ‘LISA’ announced in the Budget and starting in April 2017 will offer savers a potential subsidy. For every £4 you save, the government will add £1 to savings added to the scheme between the ages of 18 and 50.

You can’t establish a LISA after reaching the age of 40, and the maximum you can save while getting the subsidy is £4,000 a year.

In theory, that means that between 18 and 50 you could save a total of £170,000 towards a first-time house purchase (up to a value of £450,000), or if you keep the scheme going until age 60 you can encash all or some if it and retain the subsidy.

Encash earlier for other purposes and you lose the subsidy. But no, it’s no better than a pension scheme if you are having contributions to the scheme paid by your employer, which will often add £1 for every £1 you save.


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3 Financial Updates for Business Owners

1) Deadlines for pension protection

Many people with larger pension pots should act before next April if they want to avoid tax charges. Those whose pension pots exceed the new £1.25 million ‘lifetime allowance’ will face a tax charge of 55%.

They can secure a higher allowance of up to £1.5 million if before next April they apply for ‘Individual protection’.

Fixed protection is another option.

Which of these forms of protection is most suitable depends on personal circumstances. It is essential therefore to obtain advice.

2) Small businesses to get subsidised access to expert advice

A new £30million Government-backed scheme will be launched this month, supporting small businesses in getting expert advice. Firms will be able to apply for Growth Vouchers on a Government website that launches on January 27th.

The five key areas of advice will be sales and marketing, management and leadership, hiring your first employee, access to finance and making the most of digital technology.

The Government hopes that 15,000 businesses will receive growth Vouchers for access to advice over the next 15 months. Could you be one of them?

3) Free banking under threat

Most businesses could feel the impact if free banking ends due to the introduction of a ‘ring fence’ between retail and investment banking – a think tank closely linking with the Chancellor of the Exchequer has recently stated.

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Higher Rate Taxpayers and Pension Contributions

The majority of our blogs are simply aimed at educating and empowering those who have less of an understanding around what can seem complex financial subjects and situations.

This Thursday afternoon we have a short but sharp note written by Chartered Financial Planner Gary Matthews. The misunderstanding around Pension Contributions, especially for higher rate tax payers can have costly effects…

Failing to reclaim the additional tax relief Higher Rate Taxpayers are entitled to is resulting in a large number of Higher Rate Taxpayers only receiving the 20% tax relief given at source.

A recent survey found that 26% of employees paying higher rate tax do not claim the higher rate income tax relief on their pension contributions.

A further 15%, which translates to over 100,000 higher rate taxpayers, are unsure if they are reclaiming the higher rate tax relief which they are entitled to.

It is an ever growing concern that the understanding around issues such as this is the root cause of difficulty, which is why we focus our efforts on simplifying what can be complex situations for the vast majority, providing clarity and direction to our clients.

If tax relief has not yet been reclaimed (or missed) there is a 4-year time limit from the end of the relevant tax year for a reclaim to be made. Therefore overpaid tax from 2009/10 can be reclaimed up to the 5th April next year.

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Electronically signed LPAs

Thought-provoking comment.

A  recent consultation on LPA’s suggested authorising LPA’s to be submitted and registered using electronic signatures only, without the need for a physical (‘wet’) signature by donor or witnesses.

This would therefore ease the pressures on the Office of the Public Guardian (OPG) which has to process them and make it easier for members of the public and their advisors to set up an LPA.

The authorities are encouraging everyone to have powers of attorney in place and the number of applications has dramatically increased over the last few years. Practitioners however are not fully convinced about the security that fully electronic registration provides. The government’s proposal also reduces the role of witnesses and does not give details of the digital signature system to be used.

The Society of Trust and Estate Practitioners (STEP) additionally noted that the paper form allows the donor time to think through the process enabling those who have fluctuating capacity and who are perhaps being pressured to be ‘flushed out’ by advisors and certificate providers. It pointed out that the establishment of an LPA is possibly the most important legal document a person can make.

Ultimately, this has the potential result of complete life or property loss if mishandled. Other documents of similar power such as a will or property transfer deed currently require a ‘wet’ signature.

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