Simon Gill offers sensitive financial advice

AS independent financial advisers we often get involved in areas that are very sensitive and may have been a source of worry for people over a number of years.

It is particularly pleasing when such a matter can be resolved for a client and this source of worry removed.

Jack and Jill approached us recently because they were parents of a child with learning difficulties and were concerned to ensure proper care and provision for their child after their death.

Whilst they are alive they are able to meet his needs but he would be unable to cope on his own especially in dealing with money.

They were also concerned to ensure a financial burden was not placed on their other children, or any ill feeling was created within the family over financial matters.

In a case such as this, we are really looking at allocating funds specifically for the child so there can be no doubt who benefits from them.

I suggested to Jack and Jill that the best way of doing this is through a Trust arrangement.

At first they had reservations about this as, like many people, they associated Trusts with complex legal transactions which would be costly and difficult to administer.

However they were reassured when I explained that Trusts of this type need not be expensive and that most independent financial advisers can supply standard Trust wordings free of charge.

What is most important is that the financial and tax aspects of the type of Trust used are handled correctly.

For example Discretionary Trusts that comply with S89(1) of IHTA 1984 qualify for favourable inheritance tax treatment as Trusts for the disabled, also a gift to an appropriate charity is a further possible solution and has the advantage that a gift to a registered charity will be an exempt gift for inheritance tax purposes.

Another problem with not taking financial advice in conjunction with setting up a Trust arrangement is that the capital held within the Trust may be unnecessarily taxed or that future benefit entitlements may be adversely affected.

For example if money is held in a normal interest paying account within the Trust, not only is it likely to be taxed but, interest earned will be taken into account if benefits are means tested.

In Jack and Jill's case, we were able to establish a trust arrangement now, into which they placed capital, the interest from which they were already using for their son's benefit. However they were able to avoid paying tax on the interest thus improving what their son had available now and in the future. They were also able to arrange to add to this when the first one of them died, saving a 40 per cent inheritance tax bill and so again greatly improving their son's future when they are no longer able to care for him.

Every person's situation is different and in areas such as these, advice is essential.

However, it is often the case that what has been a source of worry for years can actually be sorted out without too much difficulty to the benefit of all parties concerned.

Simon Gill is a director of Gill & Partners

Published: 30/01/02