Guide to the best start in life trust 4 Tax efficiency If the trustees decide to provide benefits to a beneficiary who is over 18, they can assign to the beneficiary a number of the policies that make up the Collective Investment Bond from the trust. The tax assessment when these policies are subsequently cashed in is then based on the beneficiary’s tax position. However, if the intended beneficiary is a ‘minor’ (ie under 18) the trustees cannot assign bond policies to them since minors cannot legally own such policies. One way around this would be for the trustees to cash in the bond policies themselves and then to pay the minor beneficiary out of the proceeds. The problem with this approach, however, is that if you (the settlor) are alive during the tax year in which this payment takes place, the tax assessment will be on you at your highest marginal tax rate. This may not be advantageous if you are a higher or additional rate taxpayer. Even if the trustees cash in the policies after your death, the tax assessment will then be on the trustees, currently at a rate of 45%. The solution provided by the Best Start in Life Trust is for the trustees to place the appropriate number of policies from the bond into a bare trust for a minor beneficiary. Under the wording of the trust, the trustees are able to make such absolute appointments and are given this power by the settlor when establishing the original trust and appointing the trustees. The trustees would need to establish this was the right course of action but are under no obligation to do this for the beneficiary. The bare trust is created when the trustees complete a deed of appointment for the named beneficiary. This process, known as making an ‘absolute appointment’ of the policies, creates a new trust alongside the original trust. When the trustees of the bare trust cash in some or all of these policies, the tax assessment is based on the tax position of the minor beneficiary and not the trustees or settlor of the original trust. Important Note: Please note that the Best Start in Life Trust may not be suitable for parents setting up a trust fund for their minor unmarried children. This is because the parental settlor rules will apply. This means that chargeable gains above £100 are assessable on the parents. Throughout this brochure, wherever we want to explain a particular term or draw your attention to a potential risk, we have highlighted them like this on the page where the term is first used. Beneficiary – The person who benefits from the trust. Trustee – The person who has responsibilities to administer the trust assets in accordance with the trust terms. Settlor – The creator of the trust. Chargeable gains – The amount on which income tax may be payable depending on the tax position of the person liable.