Standard Life’s Gift Plan celebrates second birthday

Standard Life Assurance Limited’s Gift Plan is celebrating its second birthday.

This is a product which allows an individual or a couple to gift assets away, using either a flexible or absolute trust. In addition, the trustees can invest the funds in either an onshore or offshore investment bond.

The flexible trust allows the trustees to change the beneficiaries at a later date, which can accommodate any future changes that may affect family circumstances. The absolute trust fixes the beneficiaries at the outset and the beneficiaries can demand the assets at age 18 (16 in Scotland). Some individuals will want the certainty of knowing who is to benefit and when. Others are happy for those decisions to be made in the future. With both trusts, the person making the gift reduces his estate for inheritance tax (IHT) purposes if he lives for 7 years afterwards. Any growth in the investment is outside the donor’s estate immediately for IHT purposes.

Commenting on the use of the Gift Plan, Julie Hutchison, Estate Planning Specialist at Standard Life Assurance Limited, said “The motivating factors behind using a trust are varied. There are many reasons why people don’t want to gift assets directly to other family members and a trust is therefore appropriate. HMRC Research Report 25 gives interesting examples of the non-tax reasons people have for using trusts. For example, people like to control the timing of the payments to beneficiaries; older family members are worried about younger relatives going “off the rails” and sometimes there are real issues with preventing the funding of addictions, be they drug-related or otherwise. Parents also worry about vulnerable children being taken advantage of; the stability of children’s relationships and money disappearing out of the “family line” in a divorce. A trust can be the ideal vehicle for estate planning for all sorts of reasons.”

The Gift Plan also offers an unusual “umbrella” facility whereby it can accept existing bonds issued by other providers. This simplifies the administration for advisers and their clients since it avoids the multiple use of trust documents, which might not always be necessary or appropriate.

A further potential benefit is the way a Gift Plan can be used to receive IHT exempt gifts which qualify as “normal expenditure from income.” This valuable IHT exemption applies where gifts are made from income, where there is a pattern of gifting and where the level of gifts made does not undermine the individual’s standard of living. Typical examples could be gifts from excess salary or excess pension income. Gifts from capital cannot qualify (eg. from the capital element of an annuity).

Julie continued “People should not forget that they can dripfeed income gifts to a trust as well as make one-off capital gifts. Over time, smaller gifts build-up and can establish a pot for children or grandchildren in the future. It is always a good idea to record income gifts and I would highlight HMRC’s own form D3A for this purpose.”