Pension Trusts - Asset Preservation Trust

StandTall55

I have been speaking to a financial advisor and they have suggested that I put my pensions (x5 different work/company pensions) into an Asset Preservation Trust so that no Inheritance tax is paid when they are passed onto my daughter

It was explained that I still keep full control of the pensions, so when I retire they are paid to me as normal, but on my death they will be transferred to the trust for the trustees to manage as my daughter is still very young

would this be a good idea?

Thanks

Keep_pedalling

It is probable a very good idea for the ‘advisor’ but this sounds horribly like a tax avoidance scheme. 

Is this FA regulated?

StandTall55

They are on the FCA register

gm0

No. It most likely is not.

If you seriously believe that a simple trust wrapper will negate the current budget (and others to come) when you get there later (decades later) - then I have a bridge to sell you in central London

Family and other forms of trusts - are based on a point in time reading (more or less challenging) of case law) and have been used regularly to attempt this form of shielding.   Playing tunes on overlapping "beneficiaries" and trustees to keep it in the family.  Running costs (which suit the adviser) may not suit you.  As does a level of lock in.

The adviser may (or indeed may not) have a possible legal angle - right now.  But consider previous government behaviour on asset sheltering in trusts.  Given we have not seen the detailed legislation on the current budget in final form - it seems between premature - and wildly opportunistic - to be selling a particular form of this to you right now.   In order to provoke consolidation of pensions under adviser assets under management - naturally.  But with a trust wrapper.

As an example of prior trust exploit clampdown - Introduction of a regular "tax rake" on assets sheltered within (every 10 years).  And it has often proved non-trivial to reverse out of some structures - once the rules changed against the particular form.  So a trust that was going to be a good choice - becomes a poor one.

Your decision.  But don't let the sales person pull wool over your eyes.

poseidon1

The adviser is probably suggesting a type of 'pilot trust', which only takes effect on your death. 

In the wake of the recent budget I very much doubt its abilty to avoid IHT , will survive the proposed 2027 changes to pension scheme death benefits.

 Also bear in mind these trusts potentially come with their own  inherent tax complexities, especially if set up on a Discretionary basis.

Since this is for the perceived benefit of your young daughter, then if you do it at all, would suggest the pilot trust be structured as an 18 to 25 arrangement, so that capital will vest in her favour at age 25, minimising the extent of a trust  IHT exit charge at that point.

However, as already stated, this trust would likely  only be good for the next 2 years in avoiding IHT on your death. After 2027 there will potentially be IHT assessable on your pension pot on death after that point regardless of the terms of the trust.

See below a short technical note from Ageon written before last week's budget, about these pilot trusts.


https://www.aegon.co.uk/adviser/knowledge-centre/technical-zone/death-benefits/trusts-and-death-benefits

dunstonh

I have been speaking to a financial advisor and they have suggested that I put my pensions (x5 different work/company pensions) into an Asset Preservation Trust so that no Inheritance tax is paid when they are passed onto my daughter

It would be nuts to use a trust at this point in time given the change on pensions that is currently being consulted on.   Breaking trusts can be expensive and sales reps/FAs are notorious for getting people to use trusts as it can tie you into that company and prevent an IFA from unwinding the trust when you realise the trust was more hassle than it was worth.   

When was this advice given?  The budget was only last week.  Are they advising on pre-budget information and assuming things haven't changed or are they second guessing the consultation outcome?  (the consultation appears to word it will be assessed under IHT before distribution and the pension company will pay the IHT before it leaves them to go to its destination - i.e. it gets caught under IHT before it goes to the beneficiary or the trust)

APT in use with a pension may be useful for death before age 75 but statistically, less than 1% of people would benefit from it.  Its main objective is to avoid the lump sum being paid into the estate of the spouse and then getting hit for IHT on the second death when being passed onto the children.

Have they considered cheaper/simpler options of gifting?
i.e. draw up to the basic rate band each year.   Gift unneeded income to daughter who then pays as much of the money as she can into pensions and lifetime ISAs to get tax relief which could be similar or better to the tax paid on the draw?    Draw the 25% TFC by age 75.  Or some of the other simpler but effective options? 

StandTall55

dunstonh said:

I have been speaking to a financial advisor and they have suggested that I put my pensions (x5 different work/company pensions) into an Asset Preservation Trust so that no Inheritance tax is paid when they are passed onto my daughter

It would be nuts to use a trust at this point in time given the change on pensions that is currently being consulted on.   Breaking trusts can be expensive and sales reps/FAs are notorious for getting people to use trusts as it can tie you into that company and prevent an IFA from unwinding the trust when you realise the trust was more hassle than it was worth.   

When was this advice given?  The budget was only last week.  Are they advising on pre-budget information and assuming things haven't changed or are they second guessing the consultation outcome?  (the consultation appears to word it will be assessed under IHT before distribution and the pension company will pay the IHT before it leaves them to go to its destination - i.e. it gets caught under your estate before it goes to the beneficiary or the trust)

APT in use with a pension may be useful for death before age 75 but statistically, less than 1% of people would benefit from it.  Its main objective is to avoid the lump sum being paid into the estate of the spouse and then getting hit for IHT on the second death when being passed onto the children.

Have they considered cheaper/simpler options of gifting?
i.e. draw up to the basic rate band each year.   Gift unneeded income to daughter who then pays as much of the money as she can into pensions and lifetime ISAs to get tax relief which could be similar or better to the tax paid on the draw?    Draw the 25% TFC by age 75.  Or some of the other simpler but effective options? 

Thanks for the reply

The advice was given about 8 weeks ago and I have been tracking down old pensions to wok out what value I have accumulated over the last 25 years. I spoke with the advisor again at the end of last week and they are still suggesting that the Trust would be a good idea

My daughter is under 10 years old, I was told that I should make sure the trust is structed so it has a 25 year agreement

Also I have been told by the advisor that there would be no CGT payable or any IHT liability if setup before the 2027 deadline.

As I'm a widow it was also suggested that putting the Pensions in a trust now would protect me from any divorce settlement if I was to remarry at a later date and it all went wrong.

poseidon1

StandTall55 said:

dunstonh said:

I have been speaking to a financial advisor and they have suggested that I put my pensions (x5 different work/company pensions) into an Asset Preservation Trust so that no Inheritance tax is paid when they are passed onto my daughter

It would be nuts to use a trust at this point in time given the change on pensions that is currently being consulted on.   Breaking trusts can be expensive and sales reps/FAs are notorious for getting people to use trusts as it can tie you into that company and prevent an IFA from unwinding the trust when you realise the trust was more hassle than it was worth.   

When was this advice given?  The budget was only last week.  Are they advising on pre-budget information and assuming things haven't changed or are they second guessing the consultation outcome?  (the consultation appears to word it will be assessed under IHT before distribution and the pension company will pay the IHT before it leaves them to go to its destination - i.e. it gets caught under your estate before it goes to the beneficiary or the trust)

APT in use with a pension may be useful for death before age 75 but statistically, less than 1% of people would benefit from it.  Its main objective is to avoid the lump sum being paid into the estate of the spouse and then getting hit for IHT on the second death when being passed onto the children.

Have they considered cheaper/simpler options of gifting?
i.e. draw up to the basic rate band each year.   Gift unneeded income to daughter who then pays as much of the money as she can into pensions and lifetime ISAs to get tax relief which could be similar or better to the tax paid on the draw?    Draw the 25% TFC by age 75.  Or some of the other simpler but effective options? 

Thanks for the reply

The advice was given about 8 weeks ago and I have been tracking down old pensions to wok out what value I have accumulated over the last 25 years. I spoke with the advisor again at the end of last week and they are still suggesting that the Trust would be a good idea

My daughter is under 10 years old, I was told that I should make sure the trust is structed so it has a 25 year agreement

Also I have been told by the advisor that there would be no CGT payable or any IHT liability if setup before the 2027 deadline.

As I'm a widow it was also suggested that putting the Pensions in a trust now would protect me from any divorce settlement if I was to remarry at a later date and it all went wrong.

As indicated in my post, what is proposed here is a 'pilot trust'  taking legal affect after you die. As such it cannot possibly address the IHT landscape for pension schemes after 2027. In any event how could advice given 8 weeks ago anticipate budget changes last week?

I can see you have very genuine concerns to provide for your daughter in the event of your dying whilst she is a minor. Trusts may well be appropriate in this regard but you are talking to the wrong person. 

You need to be sat before a specialist STEP qualified  Trust and probate solicitor , who can construct estate planning for you which commences with the terms of your Will ( which may incorporate an 18 to 25 Trust), and then consider a bespoke pilot trust for your pension pots which may also embrace the same type of trust.

STEP is the Society of Trust and Estate Practitioners and represent the gold standard when it comes to estate and trust planning. You should use the STEP directory to find a practitioner near you.


The STEP solicitor will discuss with you the issue of trusteeship ( who you should  consider to act as trustee for your daughter) and  guardianship the identity of whom may be separate and distinct from her trustees.

This type of comprehensive estate planning discussion  is way beyond the competency of any financial adviser selling packaged solutions, so can i suggest you cease further dealings with this adviser and find a qualified specialist solicitor to find holistic solutions for your concerns.

StandTall55

poseidon1 said:

StandTall55 said:

dunstonh said:

I have been speaking to a financial advisor and they have suggested that I put my pensions (x5 different work/company pensions) into an Asset Preservation Trust so that no Inheritance tax is paid when they are passed onto my daughter

It would be nuts to use a trust at this point in time given the change on pensions that is currently being consulted on.   Breaking trusts can be expensive and sales reps/FAs are notorious for getting people to use trusts as it can tie you into that company and prevent an IFA from unwinding the trust when you realise the trust was more hassle than it was worth.   

When was this advice given?  The budget was only last week.  Are they advising on pre-budget information and assuming things haven't changed or are they second guessing the consultation outcome?  (the consultation appears to word it will be assessed under IHT before distribution and the pension company will pay the IHT before it leaves them to go to its destination - i.e. it gets caught under your estate before it goes to the beneficiary or the trust)

APT in use with a pension may be useful for death before age 75 but statistically, less than 1% of people would benefit from it.  Its main objective is to avoid the lump sum being paid into the estate of the spouse and then getting hit for IHT on the second death when being passed onto the children.

Have they considered cheaper/simpler options of gifting?
i.e. draw up to the basic rate band each year.   Gift unneeded income to daughter who then pays as much of the money as she can into pensions and lifetime ISAs to get tax relief which could be similar or better to the tax paid on the draw?    Draw the 25% TFC by age 75.  Or some of the other simpler but effective options? 

Thanks for the reply

The advice was given about 8 weeks ago and I have been tracking down old pensions to wok out what value I have accumulated over the last 25 years. I spoke with the advisor again at the end of last week and they are still suggesting that the Trust would be a good idea

My daughter is under 10 years old, I was told that I should make sure the trust is structed so it has a 25 year agreement

Also I have been told by the advisor that there would be no CGT payable or any IHT liability if setup before the 2027 deadline.

As I'm a widow it was also suggested that putting the Pensions in a trust now would protect me from any divorce settlement if I was to remarry at a later date and it all went wrong.

As indicated in my post, what is proposed here is a 'pilot trust'  taking legal affect after you die. As such it cannot possibly address the IHT landscape for pension schemes after 2027. In any event how could advice given 8 weeks ago anticipate budget changes last week?

I can see you have very genuine concerns to provide for your daughter in the event of your dying whilst she is a minor. Trusts may well be appropriate in this regard but you are talking to the wrong person. 

You need to be sat before a specialist STEP qualified  Trust and probate solicitor , who can construct estate planning for you which commences with the terms of your Will ( which may incorporate an 18 to 25 Trust), and then consider a bespoke pilot trust for your pension pots which may also embrace the same type of trust.

STEP is the Society of Trust and Estate Practitioners and represent the gold standard when it comes to estate and trust planning. You should use the STEP directory to find a practitioner near you.


The STEP solicitor will discuss with you the issue of trusteeship ( who you should  consider to act as trustee for your daughter) and  guardianship the identity of whom may be separate and distinct from her trustees.

This type of comprehensive estate planning discussion  is way beyond the competency of any financial adviser selling packaged solutions, so can i suggest you cease further dealings with this adviser and find a qualified specialist solicitor to find holistic solutions for your concerns.

Thank you for your help

NedS

Do you plan on drawing an income from these pensions once in a trust, and will your daughter intend to draw an income from the trust once they become the beneficiary? Many trusts require high rates of tax to be paid by the trust before any income is distrusted to the trust beneficiaries.

https://www.gov.uk/trusts-taxes

Even if you are able to avoid IHT, you may find that other taxes and fees are more than the IHT you have potentially avoided. So is your intention to pay less tax overall, or just to avoid IHT at any cost?

Bostonerimus1

What type of pensions are we talking about here? Define benefit with some beneficiary benefit of defined contribution. In any event your IFA seems to be reacting to rumours and mis-information at the worst and prematurely at best regarding IHT and pensions. They don't sound very knowledgeable or prudent. That's the charitable explanation, the other one is they are trying to lock you in and rip you off.

If you are worried about providing for your daughter if you die early then you should be talking to friends and relations about guardianship and taking out a life insurance policy until she's an adult. Also what about gifting and setting up something like a JISA etc for her.