The estate planning scenario: Mark Lambert of HSBC Life gives an overview on the importance of estate planning

by | Jun 27, 2018

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Mark Lambert of HSBC Life looks at why is estate planning such an important part of the financial planning process

The first thing we must remember is that everyone has an estate.  A client’s estate is comprised of everything they own; for example their home, bank accounts, investments, life insurance, furniture, personal possessions etc. No matter how large or how modest, everyone has an estate and one other thing in common, they can’t take it with them when they die.

When someone dies, if they haven’t made plans to control what happens to their estate and how much tax their estate will be liable pay, then the law will make these decisions on their behalf.


Estate planning is therefore best described as the process of anticipating and arranging, during a persons’ lifetime, the management and disposal of their estate and minimizing the amount of tax payable. As part of the financial planning process, this is an essential aspect for professional advisers to consider when working with clients to organise their affairs in the most effective way.

What are the key issues to consider in estate planning?

In general, estate planning involves much more than someone just documenting who they want to leave things to. Good estate planning is an opportunity for advisers to discuss with clients how they wish their estate to be managed after their death and involves consideration of a range of issues, such as:

  • Who should deal with the estate?
  • Who should look after any children who are under 18?
  • Who should benefit from the estate and by how much? This can be family members, charities, close friends, in fact anyone the person so chooses.
  • Funeral arrangements.

What inheritance tax rules and allowances need to be considered?

Inheritance Tax (IHT) is usually charged at a rate of 40%.  However until 2020/21 the IHT tax free allowance (also called the nil rate band) is fixed at £325,000 per person.

This means that estates worth less than £325,000 pay no inheritance tax. Married couples and civil partners can transfer any unused inheritance tax allowance to the remaining partner when they die. This means the threshold for that partner can be raised to as much as £650,000 in 2017-2018.


In addition, a new allowance called the Residence Nil Rate Band was introduced from April 6, 2017. This is currently £125,000 and this can be added to the existing £325,000 inheritance tax threshold where a home (or the proceeds from a previous home) is left to children who are direct descendants.

How can an estate plan be implemented?

There are two important methods of defining an estate plan.



Wills are a common and highly effective estate planning tool. They are usually the simplest device for planning the distribution of an estate and are usually the foundation which advisers will recommend as the starting point for all clients when it comes to estate planning.


A trust is another key estate planning tool which is commonly recommended by advisers. As a reminder, a trust is created by a settlor who transfers title to some or all of his or her property to a trustee who then holds title to that property in trust for the benefit of the beneficiaries. The trust is governed by the terms under which it was created.

By gifting assets into a trust during their lifetime, a client can, for IHT purposes reduce the size of their potentially taxable estate on death and can also specify who will benefit from the trust’s assets.


A key aspect of the effective use of trusts for estate planning is consideration of an appropriate investment option for the trust’s assets.

Are there any investment options that are particularly useful for estate planning?

An often overlooked option when advising on estate planning is the Onshore Investment Bond.


These long established products are provided by life assurance companies and offer a particularly effective estate planning tool when used as an asset of a trust. Their effectiveness is based on a number of features that these products uniquely offer.

Tax treatment

Trust taxation is a complex and often onerous matter, where in some circumstances, income tax rates of 45% can apply. In addition, trusts are also subject to capital gains tax, although certain exemptions and allowances apply. Accounting for this tax adds administrative complexity and cost to a trust. As a result, advisers should make sure that when recommending a trust for use with clients, that they recommend suitable investments to be held within that trust, so that not only are they in line with the clients risk profile and requirements for income and/or growth, but also in order to minimise the amount of ongoing tax which will fall due.


Investment bonds provide a particularly effective solution. This is mainly because such bonds are not assessed as producing income in the hands of the trustees, even if the underlying investments are generating interest or dividends. As advisers will know, withdrawals from bonds are treated as capital withdrawals and are only subject to tax when a chargeable gain is produced. Until a gain is generated, there’s usually nothing to report to HMRC, which makes for more simplified trustee administration.

Investment bonds are also useful for some trusts that rely on regular payments to be made to the settlor (or original investor). This can often be accommodated with the facility for an investment bond to generate a 5% withdrawal of the amount invested each year without any immediate liability to tax.

Investment choice


Bonds a can offer a range of investment choices for advisers to select from in line with suitability requirements for the client, thereby allowing them to ensure the trust assets are effectively managed. It’s also possible for funds to be switched within the bond wrapper without triggering a charge to capital gains tax. This allows trustees to rebalance or adjust the asset allocation of the trust without capital gains tax implications which can be a constraint to investment decisions within collective schemes.


Investment bonds can be divided into multiple segments. Trustees can then assign these segments to beneficiaries when they become entitled, avoiding a charge to tax. This allows the beneficiaries to surrender the segments with reference to their own tax position.


When considering which investment bond to use, it is important to consider a number of factors, in particular:

  • Wide investment choice. Does the bond give access to a wide choice of funds to offer choice and flexibility in how the trust is invested and to allow the investment to be adjusted over time?
  • Segment flexibility. Does the bond offer a large number of segments to help trustees to assign the policy to multiple beneficiaries, if needed?
  • Does the insurance company offer a range of bespoke trust deeds to help with estate planning or the option for an adviser to use their own trust if preferred?
  • Convenient regular payment options. For relevant trusts, does the bond offer a choice of income frequencies and flexibility on how much can be withdrawn?
  • Transparent and good value charges. Is the bond competitively priced and are all transactions clearly reported?
  • Multi-life and multi-owner flexibility. The more the better as this provides more flexibility for the bond to be continued over several generations.

About Mark Lambert 

Mark’s career in financial services has spanned over 20 years and he currently holds the Chartered Wealth Manager designation from the CISI. His roles have encompassed the provision of Independendent Financial Advice at American Express’s IFA business, National Wrap Platform Sales roles and the Distribution of Private Banking Investment solutions into the IFA marketplace. In 2017 Mark joined HSBC’s life business and he now has responsibility for the business development team that distributes and supports their open architecture Onshore Investment Bond to Financial Advisers across the UK.

For more details on how HSBC Life can help you with your clients’ estate planning requirements, contact, 07880054881.

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