Wealth Management Update – November 2019
Woodford is all wound up
Link Fund Solutions Limited, who are the authorised corporate directors of LF Woodford Equity Income Fund, have made the decision to wind up the fund as soon as possible.
The fund has been suspended since 3rd June this year and, following discussions with the Financial Conduct Authority (FCA), it has been agreed that the wind up will likely commence in January 2020 as there is not sufficient recovery of the fund to warrant it remaining open.
This means that Woodford will cease to be the investment manager of the fund immediately and Link have appointed Blackrock to redistribute part of the fund’s holdings in a bid to get investors’ money back as soon as possible – hopefully by the end of January 2020.
In addition to the closure of the fund and the removal of Woodford as the investment manager, Neil Woodford has announced that Woodford Investment Management will also be closed entirely once its outstanding responsibilities have been fulfilled.
We have been talking about this for quite some time now but this is proof that you have to spread your eggs. Unfortunately, some people had life savings with Mr. Woodford because of the hype he has had from the press, yet they are all now hammering him. Make your own conclusions. Our advice is to seek advice from a firm like us here at Penguin when saving and investing to be sure that you diversify your funds.
State pension increase greater than expected
The state pension is expected to rise by 3.9% in April 2020 – more than double the rate of inflation and the largest increase for some time! The increase equates to just over £6 per week if you receive (or will receive in the future) the full state pension.
Because Tory ministers pledged to protect the state pension with a ‘triple lock’, it rises by inflation, 2.5% or the average earnings – whichever is highest. It would seem that average weekly earnings rose by 3.9% in the year May to July, prompting the proposed increase.
But, before we get too excited, the increase still has to be approved by Parliament!
In addition, following the announcement that those over 75 will now have to pay for TV licences, they will actually only receive about half of the increase if it is all approved.
Financial Ombudsman way behind
There have been reports that those awaiting compensation from banks, pension firms, investment houses or insurers are facing huge delays in the resolution of their claims.
The failures are being attributed to a reorganisation at the Financial Ombudsman more than three years ago that has affected the resolution of complaints. Expert adjudicators have been replaced by general investigators who cover large areas of the financial spectrum, resulting in a situation where some consumers have been left not knowing whether they will receive life-changing settlements regarding life or health insurance and where complaints are still unresolved more than a year after being lodged.
Hopefully, by shining a light on the issues that need to be resolved within the Financial Ombudsman Service, service levels can be returned to a more reasonable standard.
Proposed Probate fees are finally scrapped
After nearly a year of debate and delays, a positive decision has finally been made regarding Probate fees. Probate is an important step to getting control over someone’s estate after they pass away. The proposal to charge Probate fees on a sliding scale instead of the current flat rates would have detrimentally affected almost 300,000 people. As these fees would not have reflected the administration costs of obtaining Probate, it led to them being referred to as a ‘Death Tax’.
The Law Society referred to the proposals as an ‘unfair way to squeeze money out of vulnerable families’. Thankfully, Justice Secretary Robert Buckland has decided that although fees are important to ensure that the courts can run effectively, the fees must be ‘fair and proportionate’. Instead of introducing a sliding fee, there will now be a wider review of court fees, which will take place imminently.
It is worth keeping in mind, however, that even though the proposal has been scrapped the costs associated with a loved one passing can build up. These often-unexpected costs are why we have started advising our clients about the importance of setting up a Probate Trust. If you want to ensure that your funeral costs, Probate costs, etc. will be covered without unnecessary financial strain on your loved ones, speak to us here to see if setting up a Probate Trust could be the right thing for you.
How can a Trust help you?
With so many different types of trust available, it can be confusing to know which is the right trust for you, and why. The benefits of trusts may be unclear to many, especially now the government is reviewing the inheritance tax structure, but inheritance tax mitigation is only one element of what a trust can do for you.
Tax planning: This is probably the most well-known benefit. For Inheritance Tax purposes, gifts given to a trust can reduce the tax to which your estate could be subject, providing you live for 7 years after making the gift. Trusts can also be used to direct an income to beneficiaries. That income (subject to certain conditions) will then become a part of that individual’s taxable estate instead of yours.
Longevity: A Trust can be used to protect the assets of your surviving spouse and/or any children. Trusts can last for up to 125 years, and this is a long time to be certain that your future generations are being looked after. For example, if you want to make sure that in 20 years’ time your grandchildren will have money for a deposit on a house, you can. You can have peace of mind knowing that your legacy is not only being passed down to future generations but that it is also happening at the right time.
Control: As a settlor of a Trust, you can have varying levels of control. If you were to simply gift someone a sum of money, you would have no say over how it was used and when. However, if money is left through a trust, the trustees can decide how and when the beneficiaries can access it. This allows the benefits to remain in the trust rather than being absolutely distributed. You could also increase the amount of control over these decisions by also making yourself a trustee when the trust is initially created.
Protection: This is a major advantage as the assets are protected from third-party claims. For example, if one of the beneficiaries is going through a divorce or bankruptcy, it is not possible for anyone to attempt to claim any of the assets held in that trust. (This is a major advantage if you have any concerns over who your children have tied the knot with.)
Other: often-overlooked benefits of trusts include increased levels of confidentiality and speed of access to benefits. Upon death, a person’s Will can become accessible to any member of the public who is willing to pay to view it on the online Probate Registry. The contents of a trust, however, will never be shared with the public. As well as increasing privacy, having assets in a trust will also reduce the waiting time for beneficiaries to receive their benefits. For example, if your pension or any other life policy were placed into a trust, it would not be necessary to wait for Probate to be granted before using those assets to pay any inheritance tax liabilities.
Our Advisers are always happy to discuss what type of Trust is best suited to your and your family’s needs. If you would like to know more about the types of trust we offer and how they can help you, please get in touch.
You can download your free copy of our Trust guide here, which is full of useful information on Trust Planning.
Notes of Brexit
Another deal has been put to Parliament and, while it was agreed in principle, the fast-track deadline to ratify it was rejected outright by MPs. It seems that the Government’s initial plan to push everything as close to the deadline as possible as a means to force MPs to vote for whatever deal was brought to the table backfired slightly.
The deadline for the extension request as decided by the Benn Act came and went and, after much bragging from Boris about how he would get Brexit done, he has been forced to reluctantly request an extension to Article 50. While he may not have signed the letter, he had to send it nevertheless, and EU leaders have agreed to a flexible extension until 31st January 2020. So, the promise that we will definitely leave on the 31st October has been broken. While this is kicking the can down the road a little further, the EU have agreed that we may leave earlier if Parliament are able to agree on a deal.
The next plan is for a pre-Christmas General Election in the hope that Boris can increase his majority to give him the mandate needed to push his plans through Parliament.
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Source: www.moneywise.co.uk 30th October 2019