March Market Update 2024

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In this month’s issue we discuss Bare Trust’s with Standard Life.

Standard Life Bare Trust

A bare trust is a trust that can hold assets such as investments on behalf of a child, grandchild or other young relative. The investments are controlled by a trustee usually a parent or grandparent on behalf of the child until they are 18. Once the trust is set up the investment and any gains belong to the child. Standard Life have designed a Bare Trust that can be used to hold a life investment or savings policy.

Why invest your gift in a life investment policy?

  • Your gift has the potential to grow in value.
  • Flexibility- you can make a lump sum gift today, and, if you wish make gifts in the future.
  • By investing in a policy, your gift can be spread across different funds, reducing the risk of having everything in one place.
  • Easy- the life company, and not the trustees, has responsibility for deducting any exit tax due on the growth of the policy.

Why use a Bare Trust for gifts?

  • In the right circumstances, it can be a tax efficient way of passing money to your family – by using a bare trust you can avail of today’s Capital Acquisitions Tax thresholds and small gift exemption.
  • If the policy grows in value, because a bare trust has been set up, any such growth is treated as belonging to the child the beneficiary.
  • If you are a trustee, you can manage the investment on behalf of your beneficiary until they are old enough to do so themselves.
  • You can select at the outset who you want to benefit from your gift.

When is a bare trust not suitable?

A bare trust should not be used:

  • If you wish to retain personal ownership of the money.
  • If you might need access to the money in the future for your own personal use.

The money invested belongs to the beneficiary as soon as its invested under trust. From then on, the money can only be used for their benefit.

Standard Life’s Bare Trust has only been designed for use with a life investment or savings policy.

  • It is not designed to hold other assets outside the Synergy policy structure.
  • It is designed for a beneficiary who is under 18 years of age. If they are over 18, it may not be suitable, unless you arrange for an appropriate agreement to be made between the trustees and the beneficiary.

Key questions you need to ask yourself

  • Am I certain I won’t need the money in the future?

Once a bare trust is set up, the person you’re giving the money to becomes the legal owner. It’s no longer yours. Be certain you won’t need access to it before setting up a bare trust.

  • Who will I appoint as the trustees?

Do you want to include yourself as a trustee? This can give you control over the decisions that are made about the investment. It’s also best practice to have a second trustee (such as the child’s parent), in case anything happens to you.

  • Who am I making a gift to?

The child is your beneficiary. Are you confident you won’t change your mind about gifting money to that particular beneficiary? If you have any doubts then using a bare trust is not the right way to go.

  • What age is the beneficiary?

Our trust form is designed for a beneficiary who is under age 18.

Think about Tax- Capital Acquisitions Tax

If you receive a gift you may have to pay gift tax on it. If you receive an inheritance you may have to pay inheritance tax. Both of these are types of Capital Acquisitions Tax (CAT).

Gifts and inheritances can be received free from CAT up to a certain amount. The tax free amount varies depending on your relationship to the person giving the gift (Group Threshold). There are three different groups. Each group has a threshold that applies to the total amounts of gifts and inheritances you’ve received since 5 December 1991, from people in that group.

Small gifts

You can receive a gift of up to €3,000 free from CAT from any one person in a calendar year. This gift will not count towards your relevant tax free threshold (Group Threshold).For example, grandparents can each give their grandchild €3,000 each year without the child incurring CAT. The child can potentially receive up to €6,000 annually from both grandparents tax free (€3,000 from each). These gifts will not count towards the child’s CAT threshold. Parents, aunts, uncles and godparents can make similar gifts, without the child incurring CAT.

Income tax

The growth on a life investment or savings policy is subject to exit tax.

If you decide to use Standard Life’s Bare Trust to hold assets outside the Synergy policy structure, there may be tax consequences. For example, if the Bare Trust was used to hold an income producing asset (like deposits or shares), that asset’s income may be treated as income of the settlor (the person who created the trust), and taxed accordingly. The Bare Trust provides that the trustees shall pay or apply the income of the trust for the maintenance, education or benefit of the beneficiary.

If you have any queries about Bare Trusts , please do not hesitate to contact a member of our advisory team at Jim@hegarty.ie, Niamh@hegarty.ie, Frank@hegarty.ie & Ross@hegarty.ie or alternatively you can call the office directly on 01 4972544. We would be happy to take you through the details and assist in evaluating your options.

In other news:

The Hegartys of The Laurels

Cork Lord Mayor Kieran Maccarthy on his visit to the set of the film -‘The Hegartys of The Laurels ‘based on Jim’s book .The film will be premiered in Cork City Hall on the 13th of April .It will run in conjunction with the City’s Festival of Life Long Learning . Admission is free all are welcome

Hegarty Financial Management 40 years caring for our clients financial wellbeing.
The highest compliment you can pay us is the introduction of new clients. If you know someone who would benefit from our service, we would very much appreciate your recommendation.

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Please do not hesitate to contact us should you wish to discuss the above requirements in more detail or for further information.
We can be contacted by phone at (01) 4972544 or email info@hegarty.ie