Investment Bond Trust & Income Question

love2learn

Hi,

I have a couple of questions on opening an investment bond with life assurance attached, and taking income whilst the bond is held in trust. I used to work for an insurance company and I remember they offered investment bonds with life assurance attached. Customers would often open these bonds, invest in managed funds and put the bonds in trust for their loved ones. I understand that income can be taken up to 5% of the original amount invested for up to 20 years before tax starts to become payable on the income/capital gain.

It's a long time since I worked there, so my questions are...
(1) If I take out the above type of bond, can I put it in trust with my child as beneficiary whilst I take an income for myself?
(2) Am I right (or wrong) in thinking that if the bond is worth more than the IHT threshold on my death, that the beneficiary would not need to pay IHT on the proceeds of the sale of holdings within the bond as long as I have lived for more than 7 years after creating the trust?

SeniorSam

Hello,

you are getting a few things mixed up, particularly the last one on gifting. For a gift to be out of your estate after 7 years, it need to have no benefit to yourself.

A Life Assurance Investment bond in Trust would allow you to take 5% each year without income tax being paid. Or alternatively, multiples of the 5% if you did not take it annually.

Placing the investment into Trust would allow all growth to avoid your estate, but all asets in Trust would be accessible to your beneficiaried BEFORE Probate, which may help in meeting Inheritance Tax if applicable.

There are a couple of possibiliies. A Gift & Loan scheme, where part of the investment is a gift and not accessible to you and the otrher part a loan.

The scheme I personally favour, just in case I needed to retain access to and have in place at present, is a Loan Trust scheme, where you make a Loan to a Trust and the Trustees, often you and your family, invest into a Life Investmet Bond. WE have done this jointly in Trust for IHT planning.

You can take 5% each year if you wish, or leave that to accumulate and only take out what is needed later on. All growth is outside your estate. All of the Loan and growth is accessible before Probate and at any time you can request return of the loan and the Loan part will remain part of your estate value.

Selecting the right funds will also be important. The onese we have selected are cautious, but have increased the value by around 48% since 2009

Not knowing your circumstances or what you are really after, I could not suggest which would be best for you, but a good IFA who specialises in IHT planning should be able to help you.

Sam