Brand AF5 Analysis Flashcards
With Profit Fund - additional info reqd
- underlying asset allocation / closed fund
- Annual bonus history / current bonus rate
- Terminal bonus
- PPFM
- MVR / charges
- GAR, any guarantee cash sum
- Financial strength/solvency/ free asset ratio
- basic sum assured
Making a Will (requirements)
- testator must be of sound mind
- testator must be 18+
- must be a written document (typed or hand written)
- must be signed by 2 witnesses
- must be dated
- must be a clear intention to dispose of property
Deed of Variation - how its set up
- must be in writing / legal doc
- Signed/dated/witnessed
- Deed states what is being varied in will
- must be clear who is benefiting from variation
- affected beneficiaries must be >18 and of sound mind
- treated as taking place on donors death
- DOne within 2 years of death
- Deed should not be for consideration of money pr money’s worth
- Deed should contanin exemption certificate for variations in stocks, shares or securities
RNRB - main features
- home must be inherited by direct descendants or linear descendent (grandchildren)
- RNRB for 2018/19 is £125k per person
- Unused RNRB can be transferred to surviving spouse
- If value of home is < RNRB then the RNRB is reduced to the value of the home
- Value of the RNRB is reduced if value of estate is > £2m - £1 for every £2 over this limit
Protection (Objectives) Comment on current situation if Nick dies first
- joint assets will pass to Jane automatically on survivorship without waiting for probate
- assuming house held as Joint Tenants, this will pass to Jane automatically
- Jane would receive 50% widows pension from DB scheme
- when Nick joins group pension Jane will receive £144k as a DIS benefit
Protection (weaknesses in current arrangements)
- loss of DIS when they both stop working
- If Jane has long term illness appears her salary will stop
- Jane has no IP
- Jane is higher earner
- Nick not yet decided on whether to take up offer of CIC or PMI
- Personal products for Nick will be expensive due to smoking and history of poor family health
- Sum assured on CIC offered to Nick is inadequate
- Nick will have income protection when he starts work again
- Jane has no CIC
- Jane has no PMI
- No successor appointed on Janes SIPP
- They only have LPA in place for finances, not for health and welfare
Current situation - if Jane dies first
- joint assets will pass to Nick automatically on survivorship without waiting for probate
- assuming house held as Joint Tenants, this will pass to Nick automatically
- Jane would receive 50% widows pension from DB scheme
- when Nick joins group pension Jane will receive £144k as a DIS benefit
protection (recommend & justify) financial security for each other in event of death or long term illness
- Jane take out IP cover shortfall btwn income and exp if she unable to work (pays out tax free income in the event of long term illness or disability)
- Max benefit allowed (50 - 65% of earnings) (max benefit)
- Term (to SRA at 60)
- Deferred period (match sick pay avauilable at work)
- Guaranteed premium (known cost)
- Review DIS consider taking out additional (to meet shortfall)
- Nick take up PMI and CIC (employer pays premium, will be expensive if Nick does it)
- Review CIC available (£36k is inadequate)
- Jane take out CIC (pay for house altyerations)
- Nick appointed successor on Jane SIPP (he can take income and capital from fund)
- Ensure nomination is made onNicks DIS (ensure speedy payment of benefit)
- ensure nomination is made on Nicks workplace pension once he starts work
Facts and Benefits of Nick joining employer CIC
- reduced underwriting for Nick (smoking, family health etc)
- same illnesses covered as individual policy
- cover will stop when he retires
- claims are paid if survive certain number of days after diagnosis
- payment directly to nick tax free
- premium paid by employer as BIK. Cheaper than him funding himself
- However, SA is only 1 x salary
Use NS&I bonds for Daniel gift (pro and con)
Pros
- do not use other investment linked investments
- reduces exposure to cash
- no penalties on withdrawal
- average return is below inflation
Cons
- loss of liquidity
- loss of 100% capital guarantee
- loss of chance to win tax free million
Jane’s SIPP - assets to recommend
Cash - provide immediate short term income, avoid encashment of other assets in depressed market, cover the servicing costs
FI - match annuities/gilt rates and provide an income
Property - provide income and capital growth potential
Equities - provide long term growth, diversification
New State Pension
Both N&J need minimum of 10 qualifying years to receive any state pension
- need 35 years to receive full SP
- higher amount may be avaoilable if there was entitlement to SERPS/S2P
- Foundation amount would have been calaculated at 05/04/2016
- Calc 1. entitlement under the pre 6/4/16 SP rules
Calc 2. entitlement under new SP
- where foundation amount is less than full amount of new SP in 16/17 they can increase entitlement by adding more years
- if foundation amount is higher than full amount of new SP in 16/17 then difference is protected payment and this will be paid on top of new SP
Should applu for SP benefit statement (BR19 form) determine is useful to pay any Class 3 NIC to benefit Nick.
Advantages 7 Disadvantages of Jane using FAD over annuity
Advantages
- nolimit on what she can take tax free
- the fund grows tax free
- potential for growth
- invest in funds that match her ATR
- Does not form part of her estate for IHT
- Can appoint Nick as successor and leave funds to Nick / children
- Tax free successors if she dies before 75
- Doesn’t need to lock into an annuity at low rates
Disadvantages
- will need regular reviews
- no guarantee of income
- takes on investment risk
- risk of fund being deplets
- annuity rates may fall further
Lifetime annuity for Jane (Benefits & Drawbacks)
Benefits
- income is paid tax free as her bro dies before 75
- annuity income can increase or decrease
- can include annuity protection / guarantee period of any term
- easy to understand, no reviews needed
- suits Janes ATR
Drawbacks
- Stops on her death
- reviews may be needed if flexible annuity chosen
- quite inflexible - cannot pass pension through generations
IHT reduction recommendation & justify
- make annual use of £3k allowance going forward
- make use of £250 small gift allowance
- make use of gifts out of normal expenditure (all three reduce estate immediately)
- consider making PET to children (takes value outside the estate after 7 years)
- charitable donations/political party donations (free of IHT and leaving 10% to charity reduces IHT rate from 40% to 36%
- Consider EIS and SEIS for Nick as has high ATR (100% business relief available after 2 years)
- Spousal Bypass Trust to receive DIS (benefit does not form part of estate of survivor yet they can access funds at discretion of trustees
- Consider DGT (immediate discount / out of estate after 7 years, generates income
- make pension contributions (funds pass IHT free)
