SBA Financial - Solving the financial puzzle... ...piece by piece

Monthly Update - January 2012

New Year – New Investment Outlook!

2011 is now firmly behind us and looking at 2012; it is as difficult as ever, if not impossible to predict exactly what will happen. But listening to all the noise around the world and from various market commentators, my view is that I think by the end of 2012 we will be in positive territory, but I also believe it is very possible that Q1 and Q2 will continue to be challenging and we may well see yet more instability whilst economies sort themselves out. In particular the Euro Zone which is still likely to see very turbulent times and even stay in recession for most Euro Zone countries during the best part of 2012, but in the UK we should at least start to see inflation track downwards from the end of Q1 onwards.

For now, there are four main reasons why I think that 2012 should be positive for global Equity markets:

1. Equities are cheap - valuations in many markets are very low following the strong growth in company earnings over the last few years.

2. Companies look set to be able to continue to grow profits.

3. The Euro Zone debt crisis will be resolved following sufficient progress on closer fiscal union.

4. Investor sentiment will improve as a result of greater economic stability, boosting demand for risk assets such as Equities and non-government Bonds.

So the key message is to continue to sit tight through what will probably still be a volatile start to the year. For those that do sit tight, we should start to see the rewards and returns towards Q3 & Q4. For those of you who have any spare funds sat in cash, I would that you get these monies invested sooner rather than later, so you don't miss out on the strong growth that is expected in Q3 and Q4.

Steve

Planning for the next generation!

Here is a recent Hampshire Life Reader, who wrote in with a common problem facing many people today.

Question:
We are both recently retired and find that we are lucky in that that we still have disposable income each month and would like to put something aside for our two grandchildren so they have something towards their first house or university fees when they grow up, but we are not sure what the best plan would be. Do you have any suggestions?

Also we are already over the Inheritance Tax limit and we have heard that if we make gifts out of our income, then this is exempt from Inheritance Tax. Is this correct?

Mr & Mrs C
Hayling Island, Hampshire

Answer:
You may want to consider setting up what we refer to as a Guardianship Trust Fund. We have set these up for both Parents, Grandparents and even for Great Grandparents before, all looking to use spare monthly income to build a fund for a young child's future needs. You can also set them up with a lump sum, as well as using regular monthly options, as you are also correct that if you 'gift money out of your regular income' without it being detrimental to your standard of living, then such gifting is exempt for Inheritance Tax purposes, no matter what the amount is.

As I do not know the ages of the grandchildren involved, I will make some assumptions to give you an example of how this type of Trust Fund would work:

Let's assume you have a grandchild who is 6 years old and you want to put aside say £200 per month for the next 12 years, so the money can be made available to them from the age of 18, for help with university fees. It would be a reasonable assumption that this amount should grow to be worth around £39,000 by the time they reach their 18th Birthday. If you continued until they reached 21 for help with a deposit for their first home and a wedding, then the figure you could reasonably expect to build for them would be closer to £53,000.

It is always best from an Inheritance Tax planning point of view to use a Trust for gifting and building these nest eggs for your children and grandchildren, as it is perfect for not creating or passing on an Inheritance Tax burden to the next generation. Assuming that the Trust is used properly, then it can also be very effective indeed in protecting them from other unforeseeable social impacts, such as divorce and bankruptcy or care fee planning. Also, by using a Guardianship Trust Fund you can ensure that should the worst happen and you pass on, before they reach 18 or 21 then the funds can be looked after for the benefit of the children and grandchild to help keep it safe for them until they reach the right age and ensure that they use the Trust Fund for the purposes you had intended it to be used for.

You may also want to speak with your children about putting aside the child benefit that they receive, if this is done as soon as a child is born, the benefits that build up can be huge, as there is longer for the Trust Fund to grow and the effect of compound interest on the savings is dramatic. Even when the monthly savings are as small as the current child benefit rate for the first child of just £20.30 per week; if you saved this money from birth to age 16, this could grow to around £25,000, so it is well worth starting as soon as possible.

If you want to know more of "The Truth about Wills, Trusts and Estate Planning" including how to reduce or wipe-out inheritance tax come along to one of our regular public workshops.

Steve

Up-coming Workshops!

There is a lot going on at SBA in 2012. We are busy holding regular monthly workshops on all different financial and estate planning topics. Our aim is to help educate and inform the public, so they can avoid the mistakes and pitfalls, which we encounter every day, when we meet new clients who have been mis-sold or poorly advised in the past. If you or someone you know would benefit from coming along to one of our informal workshops, then please take a look at our Workshop Calendar and find a workshop that interests you. Our next upcoming workshops are:

Wills, Trusts & Estate Planning –
Tuesday 28th February 2012 at Langrish House, Petersfield

Wills, Trusts & Estate Planning –
Tuesday 27th March 2012 at Brookfield Hotel, Emsworth

Wills, Trusts & Estate Planning –
Tuesday 24th April 2012 at Cams Hall, Fareham

Steve

Book your own expert speaker!

Over the years I have been delighted to help many groups by delivering presentations on a whole range of financial planning areas of importance, ranging from Wills, trusts and estate planning to pensions and retirement planning, savings and investments and many more.

Apart from our own regular workshops, which of course are open to the public, we regularly provide an expert speaker to a number of organisations for their group meetings. If you would like to book an expert speaker for group you belong to, then contact us at our office on 01489 878 290.

Regards