commission v fees

dunstonh

I refer you to may the 5 year figures only using sector average returns. That period encompases the stockmarket crash and still returned in excess of 10% p.a. average.

So, if you are averaging 10% returns during a rough period and only getting sector average returns (so no picking top funds here) then drawing out less than that isnt going to erode the capital.

With 4% withdrawals from capital, the bond will lose 200k over the 10 years

lose? You mean will have had withdrawn. Losing it is when Gordon Brown goes and takes 40% for doing nothing. That's £200k lost.

If you take any unit trust return and lower it by 1% p.a. average then that would be a fair difference in the charges between offshore bond and UT. Off course, then you have to factor in the tax savings with the Offshore bond which reduces the impact of those extra charges and hundreds of thousands of pounds more.

Ed, whatever investment strategy you use, the bond can use as well. Modern tax wrappers all have access to exactly the same investment funds if required. So, if you want to pick your invesco perpetual income, JPM natural resources, artemis high income or whatever spread thereafter, you can have those in ISAs, Unit Trust/OEIC, onshore bonds, offshore bonds, SIPPs, personal pensions etc.

In effect Ed, you are saying that the investment cannot beat 4% per annum after charges. Yet the very same funds that use a strategy that you promote return in excess of 10% on average. So, how come you say one thing in one thread and a different thing in this one?

jem16

EdInvestor wrote:

I need to know the target because obviously one wants to keep the investment mix as low risk as possible with a very elderly person.

Let me rephrase my question.

I do not wish to compare your proper investment with the bond so there is no target.

I simply want to know what a 500k investment would bring me if I had an investment mix as low as possible, took 5%pa for 10 years and my estate had to pay 40% IHT?

jamesd

dunstonh, Tiggs, if you two are willing, a thread discussing investment decisions that change near and through retirement due to factors like age allowance, benefits rules and the various other considerations would probably be useful. Or pointers to sites that cover the range of issues well.

dunstonh

and knowing that at some time this elderly person will need care, nursing and possibly expensive medical care.

May need...

It depends what other assets there are as well. There could be a property. There may be little else and local authority care could apply and with money in a bond, that isnt included in the means test. We just cant tell from the little info we have.

Something still bothers me about all this

Its actually quite a common transaction and offshore bond, given the amount concerned, makes total sense.

dunstonh, Tiggs, if you two are willing, a thread discussing investment decisions that change near and through retirement due to factors like age allowance, benefits rules and the various other considerations would probably be useful.

I will contribute to any thread like that if it was started.

Tiggs_2

dunstonh wrote:

May need...

It depends what other assets there are as well. There could be a property. There may be little else and local authority care could apply and with money in a bond, that isnt included in the means test. We just cant tell from the little info we have.

Indeed, and its highly assumptive to assume someone elderly will need to pay others to look after them and fork out for costly hospital treatment.

All we know thus far is there is 1/2 million and clearly family that care enough to be involved - thus the need for paying others to care may never arise, and if it did the bond will assist as covered by Dunstonh.

If there is a house as well, as one may expect - it could be that the property value alone will pay for many many years of care (which would far exceed the normal requirement for such help) or cater for more medical treatment than Jordan!

I work with many eldery people (average client age is about 72) and in 10 years the number i have seen needing to spend significant sums on long term care is tiny.


as for contributing to posts on these issues - i may do, i have a very narrow feild of expertise and deal with clients who are yet to retire only a few times a year at the most......BUT if it tickles my interest and i know what i'm on about...i'll post (pity everyone else doesnt do likewise!)

EdInvestor

jem16 wrote:

I simply want to know what a 500k investment would bring me if I had an investment mix as low as possible, took 5%pa for 10 years and my estate had to pay 40% IHT?

Around 750k, including the income.

dunstonh

So, why would that be any different with the investment bond seeing that you can invest in the same areas?

janemw

Apologies for 2 day absence.. I'm grateful for all replies, (espcially qualified of course), as they are raising questions that I wouldn't have known to ask otherwise. I'll try to clarify.

There is a probablity of long term care required within 6-12 months as investor has some dementia and increasing physical frailty. Immediate family(myself and 1 other) are not in a position to be full time carers.
In addition there is a property is worth about £200k, and there is a pension income of approx £17 pa.
Was not aware that money in a bond was not means tested. Is there a time limit on this or once the money is in the bond is it then invisible? Also, still don't know what "age allowance" means.
Yes, we are trying to save 40% IHT, but I understand that this is not immediate as investor still has to live 7 years for this to apply.

dunstonh

Was not aware that money in a bond was not means tested. Is there a time limit on this or once the money is in the bond is it then invisible?

It has to be in place before at least 6 months (ideally 12) before a means test takes place and/or care has being applied for. Otherwise it is seen to be trying to shirk responsibility and it can be clawed back into the means test. If its done before the event as a genuine investment, then it wont be included. Financial advisers are not allowed to document that as a reason for using a bond as it creates documentary evidence that you were planning to use the bond to avoid fees.

Also, still don't know what "age allowance" means.

Over the age of 65 the personal allowance (the amount you can earn with no tax) is increased from £5035pa to £7280. At age 75, this is further increased to £7420. If there are earnings over £20,100, then this extra allowance is reduced/removed. Every £2 over £20,100 sees £1 of allowance removed.

By having this money on deposit or income unit trusts, that would see the age allowance removed which increasea the tax liability by £524.70 per annum. It also brings higher rate band closer.

Also, by having the money on depost, it would see a move to just below higher rate tax. Indeed, if the property does get sold, then she would move into higher rate tax. So issues of capital gains tax really do come into play.

So, its not just IHT that would be saved. It is income tax and capital gains tax as well.

In all, it just points more towards investment bond.

prudryden

janemw wrote:

Apologies for 2 day absence.. I'm grateful for all replies, (espcially qualified of course), as they are raising questions that I wouldn't have known to ask otherwise. I'll try to clarify.

There is a probablity of long term care required within 6-12 months as investor has some dementia and increasing physical frailty. Immediate family(myself and 1 other) are not in a position to be full time carers.
In addition there is a property is worth about £200k, and there is a pension income of approx £17 pa.
Was not aware that money in a bond was not means tested. Is there a time limit on this or once the money is in the bond is it then invisible? Also, still don't know what "age allowance" means.
Yes, we are trying to save 40% IHT, but I understand that this is not immediate as investor still has to live 7 years for this to apply.

Hey TIGGS - my concerns have just been answered. This is not for the benefit of the elderly person. This sounds like typical elderly abuse and some IFA live off this and build big houses.