Trusts and High Net Worth Wealth Preservation

SECTION B: ADVISORY REPORT Memorandum regarding Beatrice Vance EXHIBIT 1: BEATRICE VANCE'S WEALTH Beatrice Vance, aged 68, is a highly successful retired architect. She recently sold her practice and currently holds £3,000,000 in a standard cash savings account. She is a UK resident and domiciled individual. She is an additional rate taxpayer due to her pension income. Her husband passed away five years ago, leaving his entire estate to her. Beatrice has not made any lifetime gifts to date. EXHIBIT 2: OBJECTIVES FOR GRANDCHILDREN Beatrice wishes to use the £3,000,000 to provide for her three minor grandchildren (aged 5, 8, and 10). She wants the funds to be invested in a portfolio of equities and commercial property to generate income and capital growth. However, she absolutely does not want the grandchildren to have direct access to the capital until they are at least 25 years old. She is considering two options: Option A: Settling £1,500,000 into a Discretionary Trust for the benefit of the grandchildren. Option B: Incorporating a Family Investment Company (FIC), subscribing for £1,500,000 of shares, and structuring the share capital to benefit the grandchildren while she retains control. REQUIREMENTS: Prepare a memorandum for Beatrice Vance which: (a) Advises on the immediate Inheritance Tax (IHT) implications of settling £1,500,000 into a Discretionary Trust (Option A), including the calculation of any immediate IHT payable. You should also briefly outline the future IHT charges (principal and exit charges) that the trust will face. (12 marks) (b) Compares the tax efficiency of Option A (Discretionary Trust) with Option B (Family Investment Company) specifically regarding: (i) The ongoing taxation of dividend and property income generated by the investments. (ii) The tax implications of extracting funds to pay for the grandchildren's university fees in the future. (13 marks)