The UK financial services firm WAY Group is launching a sub-set of an existing US life settlements fund as part of its strategy to widen investors’ asset class options in mitigating inheritance tax bills.

WAY is to launch a separate class of shares in the EEA Life Settlements Fund on 8 December. The fund is run by EEA Fund Management ( Guernsey).

Life settlement funds, which invest in life assurance policies, provide the kind of steady returns that clients need when putting assets into trusts for inheritance tax purposes, WAY said.

A life settlement is the sale of a US life policy to a third party where the policyholder has an impaired life expectancy. People sell these policies because they cannot afford premiums, need cash up-front or do not have beneficiaries. Instead of selling these policies at a large discount to a life company, holders can instead sell them to a third party. When the policyholder dies, the buyer receives the full “face value” of the policy.

At present US policies are preferred as the asset class because laws in the US regarding insurance companies are much stricter than the UK. Any policy running for at least two years from inception cannot be contested from that point onwards, making the US market more predictable.

The current EEA fund targets total returns of 9 to 10 per cent net of charges.

“The steady near-certainty of returns on this fund is likely to appeal to more cautious investors alarmed by the fall out in equities since the credit crunch started to bite – and the comfort of being able to access a fund which has achieved 34 consecutive months of positive returns will go a long way to allay wider investment concerns,” said Eddie O’Gorman, WAY head of sales.

The EEA fund is an open-ended investment portfolio, holding 277 policies. Minimum investment into the fund is £20,000. The fund carries an initial charge of 5 per cent and an annual management charge of 1.95 per cent.