investment bonds

[KENGOODIES]

My wifes mother, having lost her husband 2 years ago has sold her house and moved into an annexe attached to our property. She has realised a sum in the region of £100,000 which she wishes to invest securely with a regular annual income. she also wishes to put the money in trust with my wife as beneficiory on her death. We have looked at investment bonds but they all seem to carry a level of risk. Question - can she invest the money in a simple bank or building society account and set up the trust separately via a solicitor.

[bob.fraser@towrylaw.]

From what you are saying, your mother-in-law wants to gift money away (into trust for the benefit her daughter)yet to continue to derive an income from it.
If she does this, either through an investment bond, or through a bank account, which is then settled into a trust, she will have created a gift with reservation of benefit. This means that the gifted asset will still be considered to belong to her for inheritance tax purposes.
My first question must be to ask why she is thinking about putting the money into a trust. Does she have total assets in her name of more than £285,000? If not, then inheritance tax (which seems to be her concern) is simply not an issue.
If she does have more than £285,000 then she needs proper financial advice.
If she genuinely does not need access to the capital and is happy to gift it to her daughter, but does need to get an income from it, then an appropriate solution would be a discounted gift trust. This neatly allows a gift into trust with the ability to draw an income, but without triggering a gift with reservation of benefit.
These plans are almost exclusively established through the medium of an investment bond.
As you say, there is an element of risk but she could always select a money/cash fund.

I would suggest that she contacts a fee based, qualified independent financial advisor for further help.

Please do contact me if you wish my help

Bob Fraser
Chartered Financial Planner
07769880476