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The importance of income for trustees

In our role as Investment Managers, we speak with many trustees and solicitors in a professional capacity, acting as trusted advisers in often complex situations.

by
Louis Coke

03.01.2019

One of these conversations recently centred on what is a ‘reasonable’ level of income to be generated from an investment portfolio for a Life Interest Trust.

As trust practitioners will know, a Life Interest Trust is a very UK-centric type of structure that provides an income stream for one beneficiary (the Life Tenant), whilst giving capital to a separate beneficiary upon the Life Tenant’s death (the Remainderman).

Many years ago, obtaining an attractive flow of income for a Life Tenant from a portfolio of investments was relatively straight forward. Interest rates were relatively high and interest payments on many lower risk investments were in the mid-single digit percentages.

Fast forward to today, and the investing environment is very different. Many investment professionals have diversified their portfolios, for quite justified reasons, into a number of new asset classes in order to achieve ‘total returns’ that are attractive for their clients. This is all well and good, but the purpose of a Life Interest Trust is that it splits trust investments into two elements - income and capital. This is at odds with much of the thinking at many investment firms with the end result being that the natural (or ‘dividend’) income is reduced, sometimes from historically 3-4% per year to 1%.

Our view is different. Charles Stanley understands that every client is unique with different financial aspirations. As such, we build portfolios on a bespoke basis, keeping those individual objectives front of mind. We are aware of the purpose and demands of structures such as Life Interest Trusts, and understand the importance of keeping both beneficiaries’ interests satisfied.

Helped in no small part by Charles Stanley’s depth of expertise across equities, fixed income, collective investments and passive vehicles, we have a great number of tools at our disposal to create portfolios that meet the varied needs of trustees.

To find out how we may be able to help you, please contact us.

 

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