Saving to share wealth

Why consider a Bare Trust?

It's not unusual for clients to want to make financial gifts to loved ones. When a gift is for a young child, however, they may want to keep control over it until the child is older. 

A Bare Trust on a life investment policy is a useful way to save or hold investments with the intention of passing them on to a beneficiary, like a child or grandchild. The client sets up the trust and maintains full control over it until the beneficiary is 18.

How it works

It’s important that your client – the trustee – talks to the intended beneficiary about the Trust. That way they both understand how it works and what they’d like to do with it. 

Essentially, once the Trust is established, the original investment and any gains made become the property of the child. The Trust is still controlled by the trustees until the child turns 18. Trustees should tell the child they hold these assets on their behalf. 

If the child requests control of the assets when they reach 18, the trustees must hand them over.
If the trustees want to keep managing the trust after the child turns 18 they can, provided both trustees and beneficiary have agreed to that. 

Benefits of a Bare Trust

As well as being a useful way to manage investments for the benefit of a child or grandchild, a Bare Trust can be a tax efficient way to share wealth with family. 

It locks in the Capital Acquisitions Tax (CAT) threshold that applies at the time the Trust is established. In other words, a Trust established today will be subject to today’s CAT threshold. That way, if the threshold drops in the future, the money in the Trust is protected. 

The same applies to Small Gift Exemptions. At the moment, for tax purposes, a small gift is classified as any amount up to €3,000. That means any monetary gift of that amount or less doesn’t count towards the CAT threshold. So a Trust established today will retain that amount, even if the small gift allowance changes in the future. 
 

Managing tax on savings for someone else

Anyone who receives monetary gifts or inheritances worth more than a certain amount may have to pay Capital Acquisitions Tax, which has been set at 33% since December 2012. That amount, called a threshold, varies depending on the relationship between the giver and the receiver. 

There are three groups covering different relationships, each of which has a different CAT threshold. It’s important to note that the threshold applies to the total amount of gifts and inheritances received since 6 December 1991. 

The groups and thresholds are:

id

CAT thresholds from 9 October 2019
CAT is currently 33%*

Small gifts exemption

For tax calculation purposes, a small gift is classified as any amount up to €3,000. Your client can make a small gift to as many people as they like in any calendar year, without impacting on their CAT threshold. That makes it a useful tool for clients who want a tax-efficient way to share their wealth with their family. 

Contact your business manager to find out more.

Why invest in a life investment policy?

• Your client's gift has the potential to grow
• Easily diversified
• Potential for higher returns than deposits
• Benefit of gross roll up
• Easy - the life company is responsible for deducting any tax from the policy, not the trustees
• The net payment is the policyholder's final tax liability on their investment gain