Compliance Question - Assigning segments of bond held by a trust to a non-client beneficiary
JoMal
Member
Good morning!
Just wondering how other firms approach this sort of scenario:
A trust client is looking to gift money to a beneficiary. We've looked at the options and established that assigning bond segments to the beneficiary before encashment is likely to be the most tax-efficient route.
The beneficiary would then need an account with the provider to receive the segments and encash them.
This is where I'm tying myself in knots a bit. My thinking is that we can't just facilitate the assignment without considering the beneficiary's position. We'd need to explain the options available to them and the tax implications, which to me feels like advice rather than administration.
My current thinking is:
A recommendation report for the trust covering their objective of making the gift and the recommendation to assign segments.
A separate recommendation report for the beneficiary covering receipt of the segments, their options, tax implications, and a clearly defined transactional scope of service.
Am I overcomplicating this, or is that how others would approach it?
Interested to hear where firms draw the line between facilitating the trust's objective and providing advice to the beneficiary.
Thanks a million,
Jo
Comments
I've always done two letters. The beneficiary becomes a 'client' of the firm, but only really for AML and data protection purposes, and to provide them with an explicit one-off service in relation to this event, which is being driven by the trustees' request.
We typically get the relevant KYC data directly from the beneficiary at that point.
So you are definitely on the right track and I've done it for numerous trusts like this for many years.
I do think it is entirely possible to facilitate the trustees' request, but once you start making a judgement call on the merits of one option over another, you're in a dark patch best solved by the process above.
Something else to bear in mind on this. When assigning segments, depending on the value/provider minimums (and even their own systems), some providers do not allow the beneficiary to hold onto segments and must surrender as soon as the assignment is made.
The minimums vary between each provider, so although legislation allows assignment and surrender down the line, some providers have told us:
1) The segments do not meet their minimums for a new bond so a surrender has to be made immediately.
2) Their system administration either cannot handle it, or in the case of the last one we looked at (Pru International), we will told that it takes them minimum 6 months to set up segments for the assignee, so if they need the money prior to that, they must surrender straight away or wait 6 months before anything can be done.
Just worth asking these questions, as we have been caught out by the minimum value one right near the end of the process/recommendations.
Yeah good point. Another thing to add to this is some policy providers, even if they will allow an assignee to take on ownership in their own right, won't allow a different investment approach i.e. the segments are still within the same policy, just have different beneficial owners.
Utmost, for example, operate a 'policy split' process, which effectively creates two policies that can be operated independently.