Your guide to the Flexible Future Benefit Trust

Trusts

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Whatever your future aspirations it is important to plan to achieve your financial goals.

You may be retired and looking to supplement your retirement income from existing capital so that your plans and aspirations can become a reality.

Or, perhaps you are yet to retire and are impacted by the annual or lifetime allowance pension cap and are looking for an alternative tax efficient investment option. A solution that also allows you the opportunity to pass your investments to your family members potentially free from Inheritance Tax (IHT).

Our Flexible Future Benefit Trust has been designed to help meet these life and financial goals.

Designed with you in mind

Friends Provident International Flexible Future Benefit Trust

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A flexible investment solution

The Flexible Future Benefit Trust (FFBT) is a financial planning solution that combines a single premium investment bond with a discretionary trust.

A trust is an arrangement which provides you, with a way of gifting assets to be held in trust. The trustees, that you appoint, will hold the investment on behalf of your intended beneficiaries.

As the value of the assets held within a discretionary trust sit outside of your taxable estate, the Flexible Future Benefit Trust can reduce the IHT due on your death. The unique feature of this particular trust is that you are able to specify from the start that you still wish to have access to a portion of your investment on future dates.

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The Flexible Future Benefit Trust has been designed to help you plan your future income requirements by giving you the ability to receive a series of future payments (entitlements). You choose what portion of the investment you will get back and when. The payments can start when it suits you. Your financial adviser will discuss your specific income needs and options with you in more detail, along with any additional IHT considerations.

Your bond will be issued as a number of identical bond segments, up to a maximum of 100. The bond is then made subject to a trust, which earmarks the segments to a series of “policy funds”. You give each policy fund a date on which you will become entitled to the value of the segments linked to it.

The case study below provides an example of how this works:

On 1 August 2015, Mr Smith takes out a bond made up of 100 segments, to which he would like to become entitled in equal instalments over a ten year period, starting in five years time when he retires. He groups the segments into ten policy funds as follows:

Policy fundSegments within the policy fund

Entitlement dates

A 10 1 August 2020

B 10 1 August 2021

C 10 1 August 2022

D 10 1 August 2023

E 10 1 August 2024

F 10 1 August 2025

G 10 1 August 2026

H 10 1 August 2027

I 10 1 August 2028

J 10 1 August 2029

Total policyfunds (10)

Totalsegments (100)

If Mr Smith is alive on the entitlement date, he becomes entitled to the segments held within the relevant policy fund. At this point he has the option to encash them and enjoy the proceeds. Or he could transfer ownership of the segments to another individual, by way of policy assignment. Assigning segments to a lower tax paying spouse or perhaps a child/grandchild at university for them to encash could be advantageous from a tax planning perspective.

Mr Smith’s death

On his death, the value of any outstanding policy funds that Mr Smith has not become entitled to do not form part of his taxable estate, and will be free from IHT provided the trust has been running for at least seven years. A special relief, know as “taper relief”, may reduce the liability if the trust has been running for at least three years. Your adviser will explain this to you.

The benefit of these policy funds being held outside of your taxable estate is that the segments held within them can pass to your beneficiaries without the deduction of IHT (currently 40% for amounts over the £325,000 IHT nil rate band).

The use of a discretionary trust also means that:

• the trustees (which automatically includes yourself unless you elect not to be) retain some control over who ultimately benefits from the trust and when

• probate is not required before your assets can be distributed to the beneficiaries, saving your executors time and expense during the administration period of the estate.

Helping you plan for your future

Friends Provident International Flexible Future Benefit Trust

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Giving you control

If you decide that you don’t need the payment when an entitlement date is approaching, you can simply inform the trustees and the entitlement date can be deferred.

This can be useful if you decide that you have sufficient income and don’t need any more at that time, but would prefer to keep the segments in the discretionary trust, protected from IHT. You can reconsider your requirements as each entitlement date approaches, with the help of your adviser.

You should note that the trustees require an instruction from you prior to each entitlement, which should then be relayed to us. If we do not receive any notice of your intentions the default position is for the segments to revert to you. The segments will fall out of the discretionary trust at this point giving you immediate access to them. These policies will then form part of your estate for IHT purposes until they are encashed and the proceeds spent.

A truly flexible trust, you can arrange a schedule of entitlement dates to work around your other retirement income plans such as a pension, ISAs or other retirement savings. You can also take into account any increases or decreases in other income, such as the sale of a business or property, or periods where you choose not to drawdown on your pension.

The ability to defer an entitlement also allows you to account for changes in your circumstances, or unexpected income such as an inheritance.

Another benefit is the ability to make further contributions to the trust in future. This is a valuable feature if you have a further capital sum or excess income to invest, or if you are unable to make future pension contributions due to the annual or lifetime allowances. A special IHT exemption, known as “normal expenditure out of income exemption” may give you the opportunity to make regular additional investments, free from IHT. This makes the trust suitable if you are building savings from excess income that you wish to shelter from IHT.

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Below is an outline of the situations in which IHT is payable. Your financial adviser can discuss how these features apply to your own circumstances.

Inheritance Tax

When you set up a discretionary trustLifetime IHT, charged at 20%, can apply when you create a discretionary trust. This will only apply if the capital you place in trust, together with capital transferred to any other settlements you have made in past seven years, exceeds the nil rate band (currently £325,000). Your financial adviser, will be able to advise how much capital you can put in to your trust without triggering lifetime IHT. If the contributions to the trust come from excess income, lifetime IHT may not be chargeable at any contribution level.

If you die within seven years of setting up the trustIn this situation any capital you transferred to the trust would be included in your taxable estate. If the normal expenditure out of income exemption can be claimed, no IHT will be payable on death, even if you die within seven years of creating the trust.

On each ten year anniversaryA periodic charge is taken every ten years where the value of the investment held for your beneficiaries exceeds the nil rate band available to your trustees. A financial adviser can help the trustees calculate the amount, but broadly speaking the charge is 6% of the amount in excess of the nil rate band.

When money is paid to beneficiaries from the trust When money is paid to your beneficiaries, the trustees will need to pay an exit charge. This will only be due if a periodic charge (explained above) was payable on the ten year anniversary prior to the payment. If a charge is due, the trustees will pay a 6% charge, that will be proportionally reduced depending on the time elapsed since the previous ten year anniversary.

Friends Provident International Flexible Future Benefit Trust

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The Flexible Future Benefit Trust may benefit you if you:

• Are prepared to give up immediate access to your bond, in return for a right to receive future access to bond segments at your chosen entitlement dates in the future;

• Want the flexibility to defer the entitlement dates to your selected segments to a future date without any IHT consequences;

• Understand that entitlement to parts of your bond at future entitlement dates cannot be brought forward;

• Would like to retain flexibility and control over the distribution of the trust fund to the beneficiaries of the trust;

• Wish to ensure that, upon death, the part of the trust fund to which you have not become entitled will be outside of your estate for IHT purposes.

To find out more on how our Future Flexible Benefit Trust could help you, please speak to your financial adviser.

Please remember that investment involves risk. Asset values may go up or down depending upon underlying investment performance, and you could get back less than you’ve paid in.

Benefits to you

Friends Provident International Limited: Registered and Head Office: Royal Court, Castletown, Isle of Man, British Isles, IM9 1RA. Telephone: +44 (0)1624 821212 | Fax: +44 (0)1624 824405 | Website: www.fpinternational.com. Isle of Man incorporated company number 11494C. Authorised and regulated by the Isle of Man Financial Services Authority. Provider of life assurance and investment products. Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. Singapore branch: 4 Shenton Way, #11-04/06 SGX Centre 2, Singapore 068807. Telephone: +65 6320 1088 | Fax: +65 6327 4020 | Website: www.fpinternational.sg. Registered in Singapore No. T06FC6835J. Licensed by the Monetary Authority of Singapore to conduct life insurance business in Singapore. Member of the Life Insurance Association of Singapore. Member of the Singapore Financial Dispute Resolution Scheme. Hong Kong branch: 803, 8/F., One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Hong Kong. Telephone: +852 2524 2027 | Fax: +852 2868 4983 | Website: www.fpinternational.com.hk. Authorised by the Insurance Authority of Hong Kong to conduct long-term insurance business in Hong Kong. Dubai branch: PO Box 215113, Emaar Square, Building 6, Floor 5, Dubai, United Arab Emirates. Telephone: +9714 436 2800 | Fax: +9714 438 0144 | Website: www.fpinternational.ae. Registered in the United Arab Emirates with the UAE Insurance Authority as an insurance company. Registration date, 18 April 2007 (Registration No. 76). Registered with the Ministry of Economy as a foreign company to conduct life assurance and funds accumulation operations (Registration No. 2013). Friends Provident International is a registered trademark and trading name of Friends Provident International Limited.

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Important notesThe information given in this document is based on Friends Provident International Limited’s understanding of UK and Isle of Man tax law and HM Revenue & Customs practice as at June 2015, which may change in future. Individuals are advised to seek professional independent advice and no liability can be accepted for the personal tax consequences of this Trust or for the effect of future tax and legislative changes.

Any references to ‘we’, ‘us’ or ‘our’ refer to Friends Provident International. Friends Provident International is a business name for Friends Provident International Limited.

This document is for information only. It does not constitute investment advice or an offer to provide any product or service by Friends Provident International.

We do not condone tax evasion and our products and services may not be used for evading your tax liabilities.

Copyright © 2018 Friends Provident International Limited. All rights reserved.

About Friends Provident InternationalWe are a leading financial services provider, with a reputation for trust, commitment and integrity, offering financial solutions to customers throughout their lives.

Friends Provident International has over 35 years of international experience in offshore savings and investments.