Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

mirelli

Hope someone can advise me - the whole thing is giving me a headache!:(

In 2004 my husband & I set up Loan Plan Wills as our joint assets then totalled approx 800 th. We are now both aged c70, & have 3 sons aged bet 37 & 42, all married, 2 with children, 1 expecting. We wanted to avoid IHT, but also safeguard each spouse's estate for our sons from care charges, second marriages etc etc. The solicitors we used are a well known firm in London who specialise in these wills (I'll refer to them as SB) & we were each charged c£400. At the time we had just moved back to England to East Anglia, & were not familiar enough with any solicitors or bank professional in the area to consider using them as trustees, so accepted SB as one of the Trustees along with a spouse, after 2nd death SB & our 3 sons. There was no pressure to do this.

When the IHT threshold changed SB informed us that the plans would still have the benefits I've already mentioned, not just the IHT aspect, so we decided to stay with them. Since then I have been rereading the info on their charges & am worried about their fees, and also the logistics of having a trustee who is not local to us. There was also some press recently about extortionate charges some trustees have been making when carrying out probate.

As far as I can tell, after 1st death the setup charge is 1% of the value of the Loan Trust + VAT; annual reviews after 1st death charge 0.2% of value of LT + VAT; winding up on 2nd death 1% valu of LT + VAT. On a present reckoning of our estates that would mean about £4/5000 on first death; ann. review about £7/900; about £4/5000 on 2nd death or do they charge on the whole estate at this stage? which would make it about £8000? In fact, I notice that their hourly rates range from £3/£400. These seem pretty high to me now.

We have both been used to managing our financial investments & presumably this can still be done by the surviving spouse & if they are incapable, through law by other family members. I also feel that either of us would be knowledgable & capable enough of dealing with a great deal of the probate matters arising from 1st death. I'm sorry to say that we both have a fairly sceptical opinion of financial advisers - rightly or wrongly.

So my questions are -
1. Should we change the use of SB as trustee?
2. Should we now look at appointing a local solicitor or bank professional who will be convenient to where we live & available as required with charges based on work done rather than fees based on a % of estate?

As the law stands I know change of trustee cannot be done after death, but would require a codicil to the existing will before then, and is fairly straightforward matter through a solicitor. So I am really anxious to get this sorted out ASAP

Mirelli

Didi1

HI

WE ARE A COUPLE WHO HAVE LIVED TOGETHER FOR OVER 20 YEARS BUT ARE NOT MARRIED, WE HAVE BEEN TOLD BY THE BUILDING SOCIETY THAT WE NEED TO GET IT SORTED AS LEAVING A WILL IS NOT ENOUGH, WE DO NOT WANT TO PAY £200 PER MONTH TO PROTECT OUR MONEY THROUGH INSURANCE THEY ALS O DISCUSSED TRUSTS BUT WE ARE TOTALLY CONFUSED. WHO SAID SAVING ALL YOUR LIFE WAS A GOOD IDEA!!!!

can anybody help please

SeniorSam

Hi Didi1,
You obviously need advice and may get suggestions on this site from some contributors. However, the fact that you have been together for 20years still begs the question, 'have either of you been married before and lost your husband/wife'?

It is highly unlikely that you need insurance, but in order to obtain suggestions that may help, do your individual estates amount to more than the individual nil rate band allowance of £325,000, below which your estates will not have to pay any inheritance tax. Also, who do you wish to inherit your estates when you die and have you yet made Wills?

There are many types of Trust, including investment that can be made in Trust, but it is impossible to determine if Trusts would be beneficial or the correct vehicle for either of you. If you can add as much information as possible, it will help with possible solutions to consider, but do not rush into anything without first checking it out.

Good luck

Sam

mirelli

mirelli wrote: »

Hope someone can advise me - the whole thing is giving me a headache!:(

In 2004 my husband & I set up Loan Plan Wills as our joint assets then totalled approx 800 th. We are now both aged c70, & have 3 sons aged bet 37 & 42, all married, 2 with children, 1 expecting. We wanted to avoid IHT, but also safeguard each spouse's estate for our sons from care charges, second marriages etc etc. The solicitors we used are a well known firm in London who specialise in these wills (I'll refer to them as SB) & we were each charged c£400. At the time we had just moved back to England to East Anglia, & were not familiar enough with any solicitors or bank professional in the area to consider using them as trustees, so accepted SB as one of the Trustees along with a spouse, after 2nd death SB & our 3 sons. There was no pressure to do this.

When the IHT threshold changed SB informed us that the plans would still have the benefits I've already mentioned, not just the IHT aspect, so we decided to stay with them. Since then I have been rereading the info on their charges & am worried about their fees, and also the logistics of having a trustee who is not local to us. There was also some press recently about extortionate charges some trustees have been making when carrying out probate.

As far as I can tell, after 1st death the setup charge is 1% of the value of the Loan Trust + VAT; annual reviews after 1st death charge 0.2% of value of LT + VAT; winding up on 2nd death 1% valu of LT + VAT. On a present reckoning of our estates that would mean about £4/5000 on first death; ann. review about £7/900; about £4/5000 on 2nd death or do they charge on the whole estate at this stage? which would make it about £8000? In fact, I notice that their hourly rates range from £3/£400. These seem pretty high to me now.

We have both been used to managing our financial investments & presumably this can still be done by the surviving spouse & if they are incapable, through law by other family members. I also feel that either of us would be knowledgable & capable enough of dealing with a great deal of the probate matters arising from 1st death. I'm sorry to say that we both have a fairly sceptical opinion of financial advisers - rightly or wrongly.

So my questions are -
1. Should we change the use of SB as trustee?
2. Should we now look at appointing a local solicitor or bank professional who will be convenient to where we live & available as required with charges based on work done rather than fees based on a % of estate?

As the law stands I know change of trustee cannot be done after death, but would require a codicil to the existing will before then, and is fairly straightforward matter through a solicitor. So I am really anxious to get this sorted out ASAP

Mirelli

Any advice available on this topic?

SeniorSam

Hi Mirelli,

In my opinion, you should apply to change Trustees and appoint yourselves and your sons to act as Trustees. Then, if necessary, find a good IFA who specialises in Trust and investments who can guide and advise you on how best to deal with the investments. You can negotiate your fees with him, but get comparisons from 3 IFA's before appointing anyone and do not sign anything until you feel confident that you can be helped. Certainly never appoint banks as Trustees, their charges are usually higher than most others.

The term ' Loan Plan Wills', is somewhat confusing as this could be different from my understanding of Wills and Loan Trusts. However, I understand that Loan Trust Wills are different from the more general Discretionary Trust Wills in that the deceased assets, up to the nil rate band are invested using a Loan Trust rather than simply a Bond in Trust holding those assets. In the latter case, the Trustees are free to make loans or gifts from the Trust (not gifts from the Loan Trust, so more restrictive) and therefore if family members needed capital, this may be more helpful.

If you are unsure, and it sounds as if you may be, then seek the advice of a local solicitor that is Trust qualified and have an initial 'without obligation' meeting to discuss your concerns. You should see if they can clarify matters for you and then what their fees would be if you appointed them.

Without full details of your Wills it is impossible for anyone on this site to give you correct guidance.

I hope this helps

Sam

mirelli

Thanks so much for your reply.
The plan we have gives the available balance of the tax free nil rate band to the trustees of the loan trust. After first death the gift to the loan trust is usually satisfied by means of a loan (an IOU) ultimately owed to the trustees by the surviving spouse. This allows use of the trust for spouse & beneficiaries, if the trustees agree. So the surviving spouse is able to enoy the capital as well as the income if they wish.
We have each already made equal loans to 2 of our sons for house purchases, & these are recorded with our wills. So these will only be due on second death, & presumably subtracted from their final inheritance.
I am glad you suggest appointing sons & spouses as trustees, & getting IFA advice when needed. We would then have more control over what happens.
We need a solicitor for that so will discuss any other issues when we do that
Many thanks again
Mirelli

MrConfused

Can someone help with a gifting situation that I am stuck on?
I have read many forums posts and legal documents but still quite get to grips with this.

I am one of 3 brothers. We are currently stuck in our mortgage on our property, with no way out due to LTV on the property. We are therefore after talking to my mother looking for her to gift us the house, sell our current house and pay off our mortgage, then re-mortgage on her house at a much lower LTV position, allowing us a lower mortgage interest rate, and therefore a lower repayment.
Current value of her house in its current state is £475k, and she owns a property in Spain of approx £80k. She has both her own and late husbands IHT allowance of £650k.

I know that if she moved in with us at any point in the future, unless she pays market rent, the property will always be seen as a 'gift with reservation' and therefore liable to tax when she dies. If she pays the market rent, then we pay income tax on that amount, but am I correct that the house is then not included in here IHT position if she dies?

I also need help on timings on when this should be done. Should we sell our house, pay off the mortgage, THEN have her transfer the property into our names to re-mortgage? Im worried that if she gifts it now, we technically own two properties and are liable in some way to pay tax on this situation.

Any help will be gratefully received!

SeniorSam

Hi MrConfused,

You have not made it clear, but is your mother living in Spain? If so, what is the position with her house in the UK?

However, nothing wrong with the idea, as long as you appreciate that should she need to go into care at a later date, she, or you and your brothers will need to pay for that care as the state would not.

If she gifts the house to you and your brothers now, then you are correct in that the value of that house would remain part of her estate for a 7 year period. However, if there is no IHT liability, that does not matter at all.

You would be wise to seek arrangements regarding mortgage before you get too far with this. Sometimes lenders will not be as helpful as you may wish.

As far as giving the property to you and possibly coming to live with you at some future date, I feel that this would not constitute a gift with reservation if her need to be with you was for health reasons alone, but you may wish to speak with the Revenue to clarify this.

If you are selling to move into your mother's house, tax will not come into is as the new home will then be your principal residence.

Hope this helps

Sam

MrConfused

Thanks Sam

She is not Spain domiciled it is a holiday property.

So is there any issue on timings if we still own our current home, and she gifts us hers before we sell ours, technically isnt there an issue of 2 properties so one must be categorised as a second property?

Thanks

SeniorSam

Hi MrConfused,

AS she lives in the property she intends to give to you, the main problem may well be the mortgage arrangements and lenders do not like this type of lending. Also, the property value will remain part of her estate as it will be a gift with reservation because she will remain in residence.

I would suggest you clarify lending arrangements and make sure that they will be available, before taking any action to transfer ownership.

AS this will require a solicitor to handle the transaction of re-mortgage, (the lenders will insist upon that), you can be guided by them as to the timing, but I do feel that the lending side may be a problem.

Good luck

Sam