Giving
W
ith the March 2010 Budget freezing the inheritance tax threshold for the next four years, now is a good time
to plan for the future. Colin Barrett, financial planner with Fensham Howes, says grandparents should first assess their own position – and then have an honest conversation with their family about what they can afford to offer. “Grandparents need to identify how much
they can afford to give within the context of their own financial planning,” he says, “and how confident they are in their ability to continue with the gifts. It is no good if grandparents plan to pay school fees but then find they can’t continue after two or three years. If grandparents are not sure, maybe they should consider gifting funds which can be used to build up a fund for university fees as there is potentially more flexibility here than with school fees.” If grandparents
“If grandparents
decide they would rather put money aside for the future than contribute to school fees now, there are various options. “Once grandparents have established the amount they can give, they should discuss with their family the best way they can use these funds,” says Colin Barrett. Issues to remember are not only what the tax advantages of a scheme ✒
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are not sure, maybe they should consider building up a fund for university fees”
grandparents
Grandparents love to spoil their grandchildren but, as Dan Townend explains, there is another way in which willing grandparents can contribute. Plus, a grandmother offers a few non-financial tips on how grandchildren can say thank you
Trust funds for helping your grandchildren
BARE TRUSTS
Bare trusts are flexible. There is no limit to the amount that can be put in them and there is no minimum age for establishing the trust. The assets in a bare trust will be taxed according to the child’s tax status – ie including the child’s annual personal allowance and capital gains tax exemption, with any tax due payable at the child’s marginal rate of tax. Bare trusts are relatively
easy and cheap to create and administer. In its most basic form, a bank account designated to a child creates an implied bare trust. Crucially, a bare
trust is irrevocable. If grandparents put money into a bare trust for a grandchild
they cannot change their minds and at 18, the child becomes entitled to all the assets. If the gift is made seven years before the
death of the grandparent, it does not fall into the grandparent’s estate in terms of inheritance tax.
DISCRETIONARY TRUSTS
A discretionary trust is an arrangement where the trustees (usually grandparents and/or parents) have complete ‘discretion’ over the distribution of trust assets. It means income and capital can be awarded to the grandchild as the trustees see fit and there is no automatic right to receive the assets. Discretionary trusts
offer greater flexibility and control over distributing wealth but do require professional financial and legal advice regarding tax and maintenance rules. The tax bill for a trust can be kept to a minimum through careful investment and timing of contributions. Depending on the type and structure of investment, significant
savings are possible in terms of inheritance tax. In the opinion of Colin
Barrett, “If grandparents are prepared to make this level of commitment then the resulting flexibility and ongoing control is likely to be much more satisfactory than other options.”
CHILD TRUST FUNDS
(CTFs)
Available for children born after September 2002, grandparents can fund CTFs up to the annual limit of £1,200. The gifts are tax efficient: once placed in the CTF the fund will grow tax free. The proceeds will also be tax free when they are taken. However, the amount that can be invested in CTFs is limited and the range of investments quite basic. The CTF provider will
write to the child at 16 and inform them the CTF and its funds belong to them. At 18, he or she will be legally entitled to the whole fund.
SUMMER 2010 FIRST ELEVEN 49
PHOTOS: SHUTTERSTOCK, ZURIJETA
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