Life Assurance Bonds

LauraR123

Does anybody know anything about Life Assurance Bonds, ie. are they good/safe etc????

EdInvestor

Do you mean investment bonds?

They are a product sold by the lifecos which are invested usually in risk assets (like shares bonds and property). They used to have various tax advanatges for higher rate taxpayers but don't anymore.

They claim to pay out 5% income "tax free".

Is that what you mean?

LauraR123

I'm not sure. I'm writing on behalf of my parents, they have been advised by a Financial Adviser to invest in Life Assurance bonds as they are low risk and are protected from Local Authorities should they have to go into a care home. ie. the local authorities can't get their hands on my parents savings if they had to go into care. Hope that makes more sense!

jem16

EdInvestor wrote: »

Do you mean investment bonds?

They are a product sold by the lifecos which are invested usually in risk assets (like shares bonds and property). They used to have various tax advanatges for higher rate taxpayers but don't anymore.

Except in cases where it still is advantageous.

jem16

LauraR123 wrote: »

I'm not sure. I'm writing on behalf of my parents, they have been advised by a Financial Adviser to invest in Life Assurance bonds as they are low risk and are protected from Local Authorities should they have to go into a care home. ie. the local authorities can't get their hands on my parents savings if they had to go into care. Hope that makes more sense!

Assuming you mean Investment Bond this can be an advantage. However the reason for the choice would need to be documented as something else otherwise it could still be seen as deprivation of assets, e.g. IHT planning.

As to the risk it depends on the investments within the bond.

EdInvestor

LauraR123 wrote: »

I'm not sure. I'm writing on behalf of my parents, they have been advised by a Financial Adviser to invest in Life Assurance bonds as they are low risk

Not necessarily at all

and are protected from Local Authorities should they have to go into a care home. ie. the local authorities can't get their hands on my parents savings if they had to go into care.

Might be so, but could easily not be.If your parents have no experience of investment, as opposed to saving, they should be very careful about getting involved with these products as they could lose money.

Especially if this is an advisor at a bank, you may well find that the charges are very high on the bond as well.

LauraR123

Thank you for your prompt replies. Do you know what the best way would be to protect their savings from the local government should my parents have to go into care??? Also they have been advised by a solicitor to "gift" their house to myself and my brother to protect it from being used towards paying for any care in the future. Is this correct?

jem16

EdInvestor wrote: »

Especially if this is an advisor at a bank, you may well find that the charges are very high on the bond as well.

I agree on the bank adviser - steer well clear.

If it's an IFA the situation may well be different depending on circumstances and amount. However you haven't mentioned these so it's difficult to say.

jem16

LauraR123 wrote: »

Thank you for your prompt replies. Do you know what the best way would be to protect their savings from the local government should my parents have to go into care???

There really isn't a way as their savings should be helping pay for their care. The Investment Bond can do the job but it depends on how it's handled.

Also they have been advised by a solicitor to "gift" their house to myself and my brother to protect it from being used towards paying for any care in the future. Is this correct?

"Gifting" would not necessarily be the correct term, especially if it's a gift with reservation. Best way is to have your parents made Tenants in Common and each could leave their half of the house to your brother and you.

LauraR123

Yes, it is an IFA recommended to them by a solicitor. I think there is an 8% charge on the bond he recommended plus £100 per year? They are just trying to secure their savings and home as they have worked all their lives and saved hard and therefore don't want to have to give up their money to pay for care should they need it.

EdInvestor

LauraR123 wrote: »

Thank you for your prompt replies. Do you know what the best way would be to protect their savings from the local government should my parents have to go into care???

First of all it's very unlikely they will both have to go into care at the same time and if one of them is still in the home, it is disregarded by the council. So there's probably very little need for concern.

What they need to do is to split their savings and investments 50/50 into each name (this will mean that if one of them needs care, the others assets won't be touched). Then they should switch ownership of their home from "joint tenants" to "tenants in common", owned 50/50. Then they make a will, each leaving his or her half to a trust for the children.This means that if one dies, and the other one goes into care, the house will be disregarded as you can't sell half a house.

Also they have been advised by a solicitor to "gift" their house to myself and my brother to protect it from being used towards paying for any care in the future. Is this correct?

This is just plain wrong.Not only would it be a "gift with reservation of benefit" and thus not counted as a gift at all (for tax purposes), but it would be seen as "deprivattion of assets" by the local council and thus not counted by them either.In addition,when you and your brother eventually came to sell it you would end up with a large capital gains tax bill as it is not your main residence.

I suggest you sack this solicitor and start again from scratch. How much money are we talking about in terms of savings/investments? What are they doing with this money now?