Of course precise circumstances vary from client to client, but with an increasingly affluent and healthy senior population, estate planning is an area of growing interest. Here’s one lady’s story as told by Downing.
Elizabeth is 80 years old and widowed. Her late husband’s full nil rate band was used following his death.
She has an estate worth £500,000 in addition to her home and would like to pass as much of this wealth on to her grandson.
Elizabeth talked to her adviser about her estate planning options. While she liked the control that comes with settling assets into trust, she was concerned about the charges and a potential IHT liability if she dies within seven years.
Her adviser discussed the option of using Business Relief (BR) to complement a trust and she also took further tax and legal advice. Elizabeth confirmed she was happy to take on the higher risk associated with BR-qualifying investments.
The example below shows how Elizabeth can use both BR and a trust to meet her main objectives: estate planning and protecting her family.
Option 1 – settle £500,000 into trust
The first £325,000 is set against Elizabeth’s nil rate band.
The next £175,000 is subject to a 20% lifetime transfer charge (£35,000).
If Elizabeth dies within seven years, there is a potential IHT liability of up to a further 20% (£35,000).
Total potential tax liability and charges: £70,000.
Option 2 – use both BR and trust in estate planning
Invest £500,000 into Downing Estate Planning Service; after two years Elizabeth’s shares should qualify for IHT relief (if held at death).
After two years, Elizabeth places her BR-qualifying shares into a discretionary trust.
There is no lifetime transfer charge and Elizabeth can utilise her nil rate band for other assets.
Any growth on her investment is considered to be outside her estate and not subject to IHT.