Q. My mother passed away recently and one of the investments we discovered she had taken out was called a “loan trust”? Can you explain what this is?
A. A trust is a legal mechanism for looking after assets or money for one or more beneficiaries. These are often used as a way to give money or assets away in order to reduce one’s estate for inheritance tax purposes while retaining some control over the trust fund, and when it is distributed to the beneficiaries. A loan trust is slightly different in that the person who sets up the trust makes a loan to the trust, repayable on demand. Sometimes there is an initial gift to set the trust up in the first place, but not always. The outstanding loan remains in the estate of the individual until it is either repaid, often by way of regular installments, which have the effect of giving a regular income, or sometimes as a lump sum, often on death. However the amount lent to the trust is usually invested, with any growth in the value of the trust fund is outside the estate of the person who made the original loan. Your mother would have appointed trustees to look after the fund, and they will need to repay the loan to her estate. It is likely (but not certain) that the beneficiaries of the trust are the same as those of your mother’s will, but the estate and the trust are two different legal entities. The underlying investment is often an investment bond, which is technically a life assurance policy. If this was based on your mother’s life, the bond would come to an end, but if there is another life assured in addition, the bond would continue. If this is the case, the tax treatment of the bond will depend if it is surrendered in the tax year of the settlor’s death, or a subsequent year, so it may be best to consider whether action is required before the 5th April or not.
Q. I have not taken advantage of my ISA allowance for this year. I believe I have got until the end of the month to do so. Is this correct?
A. The tax year runs from 6 April to 5 April the following year. ISA applications have to be with the provider on 5 April at the latest. Some providers set up local collection points to make this easier. It is also feasible to invest online and to transfer funds at the same time.
I would suggest that you consider where you want to invest and to take action sooner rather than later, rather than making a rushed and ill considered investment. Talk to a suitably qualified independent financial adviser who should assess your appetite for risk and make appropriate recommendations prior to the end of the tax year.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
