Axa offers two versions of IHT trust

Axa has revamped its estate planning bond trusts, and is to offer two versions of the trust instead of one, following the Budget changes to the Inheritance Tax (IHT) treatment of trusts.

Originally an interest in possession (IIP) trust, the estate planning bond trust will now be available either as an absolute, or bare, trust principle and the other on a discretionary trust platform.

While the IHT trusts are written under English law, they can still contain Axa’s offshore estate planning bond, based in the Isle of Man, to allow investors additional flexibility.

Axa says it believes less than half of its IHT bond clients will be affected by the Budget changes.

Its discretionary trust version is said to fall into the new IHT regime which incurs a 40% tax charge, however, it is described as having more flexibility than the original trust, while the absolute trust version is more restrictive, but allows the same IHT benefits as those allowed before the Budget.

Both versions will allow individuals, or settlors, to place a lump-sum for their dependents into a discounted gift trust, which then allows them to draw an income from the fund until they die and the trust passes on to the dependents.

As part of this process Axa says it believes in upfront underwriting, where it calculates the life expectancy of the settlor, to determine the final amount of the gift, once the income rights of the settlor have been taken into account.

For Axa, this entails putting the settlor through the usual underwriting process for a whole of life policy, including health checks and documentation, as it sees it as a very important aspect of the new regime.

In addition, Axa has developed a calculator to help advisers decide how much can be invested in the discretionary trust, whcih falls under the new rules, without triggering a tax charge either immediately or at subsequent 10-year intervals.

Graeme Easton, technical director at Axa Isle of Man, says it felt it was important to address any uncertainty created by the Budget announcement, and ensure IHT planning was not being put on hold through a lack of clarity on the most tax efficient ways to invest.

As a result he says while Axa is still lobbying for changes to be made before the Finance Bill is enacted, it believes some parts are unlikely to change, and have re-written the trusts on that basis.

He adds: “Axa has always taken the view upfront underwriting is the only way to treat discounted gift trusts. It is clear in the new regime underwriting is even more important, and we believe both individuals and intermediaries will feel the revised estate planning bond proposition meets this need.”

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