Uncovering the value of IHT mitigation

The Head of Retail propositions for Zurich said the insurer’s IHT Adviser Tool, available free to download at www.zurich.co.uk/zurichintermediary, could provide a valuable resource for advisers when considering gift allowances, nil-rate bands, and trusts and would help them demonstrate and compare different strategies to clients.

He said: “The advice process can be complex and time-consuming where estate planning is concerned. This tool helps advisers and their clients to understand the options available to help reduce or meet their potential liabilities quickly and easily.”

Zurich’s onshore Sterling Investment Bond and the offshore Zurich International Portfolio Bond, when written within a suitable trust, can both provide ideal solutions to help advisers mitigate IHT liabilities for their clients.

The benefits of investment bonds for estate planning should not be overlooked. They can provide clients with capital growth potential, an income, or both while at the same time offering them a number of valuable benefits:

• notably the annual 5 per cent tax-deferred allowance

• the opportunity to assign the bond (or clusters within it) to allow wealth to pass between generations

• the ability to effectively defer income tax to a point when personal rates may be lower.

For IHT planning, there are essentially two basic options open to most clients:

• reducing their estate either by spending it (so called SKIing – i.e. Spending the Kids Inheritance) or through making various gifts;

• or providing sufficient life cover to pay the inheritance tax bill when it becomes due via an appropriate protection plan.

The solution for most clients will involve one or both of these, depending on their needs.

Gifts into a suitable trust can allow the client to keep control of the asset, while protection plans written under a suitable trust mean the proceeds can be kept outside the client’s estate, which also means they will not be subject to probate.

Trusts for protection plans are also available on a bare or discretionary basis, in addition to gift trusts, discounted gift trusts, and loan trusts.

Furthermore, Zurich will do everything it can to make the underwriting process as straightforward and convenient as possible for the adviser and client, and pay death claims promptly. In 2012 it paid 1,435 valid death claims totaling £99.5 million.

One way of mitigating IHT is by taking out a protection plan. Zurich’s whole of life plan can be index-linked to increase in line with average weekly earnings.

The plan also includes a ‘guaranteed insurability’ option which allows for increases to the sum assured without underwriting to meet increased IHT liabilities.

Peter Hamilton added: “There is an interesting opportunity for Zurich is to build links between investment advisers and our protection products through our new investment platform. This can benefit both the client and bring additional business to the adviser.

“Many investment advisers don’t necessarily get involved in protection advice, but that’s not to say their customers don’t have protection needs. If we can use the platform in a way that helps them to meet those investment and protection needs, then we can enhance the offering we have.

“Not that many providers can offer this kind of link, so there’s definitely an opportunity to grow our protection proposition overall by making it easier to put these two elements together.

He added: “Protection is one of the most important parts of our business at Zurich. It’s all about helping people to manage the risks they face during different stages of life, both as individuals or employers.

“We want to help consumers understand the benefits of protection, from critical illness, to income protection, business protection, and advisers play a critical part in this.”

Zurich recently announced it paid out on 94% of customer claims for critical illness cover for the first half of 2012, with the value of payments amounting to £34.5m, an increase from 90% and £32.7m for the same period in 2012.

Just 5% of claims were declined because the definition of the applicant’s condition was not met – compared to 7.5% during the first six months of 2012.

Furthermore, just 0.7% of claims were declined for non-disclosure of medical information, compared to 1.5% last year.

Mr Hamilton said: “We work with the Chartered Insurance Institute and the Personal Finance Society to support their protection training initiatives, and work closely with both specialist protection advisers and newcomers to the sector to help enhance their propositions.

“Zurich4protection.co.uk delivers a range of valuable resources for advisers, offering education materials, videos and case studies on how to present yourself as a protection adviser.”

The site covers all aspects of family and mortgage protection, critical illness, business protection, relevant life and IHT planning.