Quilter 7 The Settlor’s interest in the entitlements At outset, the Settlor can specify what future entitlements they will have under the trust fund and when they will receive them. The trust allows the Settlor the flexibility to determine the size of each entitlement as well as the year of entitlement. See example in the table below. Each agreed entitlement is held within the Lifestyle Trust as a series of policies in what are known as ‘Policy Funds’. The trust gives the Settlor the flexibility to adapt to changing circumstances. As their needs change, they can adapt their entitlements accordingly by delaying them or waiving them entirely. The Settlor can also choose to set up more than one Policy Fund for any year so as to increase their options in the future. For example, they could have two Policy Funds in a year, one of which they receive and another which they defer to a future date. Entitlement options Once the Settlor has defined the Policy Funds, they have two choices prior to the date they become entitled to receive them (the ‘vesting date’): 1. Defer the vesting date. 2. Allow it to reach the vesting date. Before the vesting date the trustees have the power to ‘defeat’ the Settlor’s interest and appoint benefits to the beneficiaries, thereby reducing or removing the Settlor’s entitlement. For example appointing policies 1-5 to one of the beneficiaries. Once the Settlor becomes entitled to the relevant Policy Fund on the vesting date, the trustees will hold the policies in a bare trust for the Settlor. They then have three options: 1. Decide to do nothing; in which case the policies remain invested in the name of the trustees for the benefit of the Settlor; or 2. Surrender the individual policies that make up the Policy Fund and pay the Settlor the money; or 3. Assign the individual policies that make up the Policy Fund to the Settlor. The Settlor can then re-assign the policies to a loved one or surrender the policies themselves at a later date. Important information Tax considerations when taking entitlements The surrender of policies which make up a policy fund is considered a chargeable event in the UK. Any gain made on the policies surrendered are potentially liable to income tax depending on other income in the year of surrender. Policy number(s) Total number of policies Year of entitlement Policy fund 1-5 5 2022 A 6-12 7 2023 B 13-20 8 2024 C 21-24 4 2025 D 25-30 6 2026 E The example table below, that can be found in the second schedule of the Lifestyle Trust deed, specifies the settlor’s entitlements. The Lifestyle Trust is a discretionary trust and may be subject to periodic and exit tax charges. (Please see the glossary on page 3.)