Get your will right
Having decided to do something about it, the next stage in estate planning is to ensure that your will is structured correctly and fully reflects your wishes. We can provide detailed guidance before referring you to one of our preferred will writing partners.
A ‘sticking plaster’ solution
If you are not yet ready to gift substantial amounts to your beneficiaries then we can apply a short-term solution. We can arrange insurance that will pay out an amount equivalent to your estimated inheritance tax bill in the event of your early death.
The process involves taking out an inexpensive, 10-year renewable policy, which would be reviewed at the end of the term of the insurance, when you may be ready to make gifts or continue with the policy.
The table below gives an example of how little £1,000,000 of cover could cost on a maximum cover basis for a couple the same ages, on a joint life second death basis:
|Age of Couple
||Monthly Premium £ (example only)
*Figures taken from the Exchange on 20/4/09. Actual premiums subject to underwriting and these shown for example only.
The regular expenditure exemption is one of the most powerful inheritance tax planning tools available, but again an option that’s often ignored.
If your income is greater than your expenditure, the surplus can be gifted and as such will fall outside of your taxable estate immediately. We can plan for this, looking at ways to boost your income and any surplus that’s created, can then be gifted, either directly to your beneficiaries, or to an appropriate trust.
Trusts are very useful tools, but if not used correctly they can cause more harm than good. A poorly constructed trust could mean having to pay more tax than the trust saves. Or you could even lose access to your funds, as could the beneficiaries! This is an area where expert advice from a specialist could be worth its weight in gold.
When employed correctly, the right trust can be a very powerful IHT mitigation vehicle. Discounted Gift Trusts for example can provide you with an income, and immediately reduce your IHT liabilities, plus all future investment growth falls outside of your estate for tax purposes.
Other types of trust we may utilise include gift and loan trusts, where you lend money to a trust that is gradually repaid and that also provides you with a form of income should you require it. Again, any investment growth in this kind of trust will not be subject to IHT.
In terms of trusts, the simplest solutions are often the best, which is why a straightforward gift trust is usually a key element in IHT planning.
It is vitally important that the trust is the correct type for your circumstances. Although some trusts are more ‘flexible’ than others, they could prove ineffective if the amounts gifted are above the allowances. Absolute trusts on the other hand, are more tax-efficient but less flexible. By carefully combining the two options, it’s possible to gift on a flexible and totally tax-efficient basis.