Estate Planning

Brock_and_Roll

Dear all,


Grateful for any advice. Following the death of my father 5 years I have been helping my mother with a myriad of legal, financial and business issues which thankfully are now all fully resolved.


She is now happily retired and living well off income received from her pension & financial assets (circa 800k) which is invested primarily in blue-chip equities. She rents her current house and has no plans/desire to buy a property.


Her primary financial objective is to preserve her capital and pass on as much as possible to her children.


My mother is in good health, but if she were to pass away today, there would be an IHT bill of circa £191k so now that all her various issues have been solved, we are turning our attention to (sensible) estate planning.


I guess a discretionary trust would be a possible solution - what makes me reticent is that she relies on the income from her investments to maintain her standard of living, so if for example half her assets were transferred into a trust she, would lose the income.


Also, all her equity investments etc are in her own name - is it possible to assign/transfer these into a trust or would they have to be sold?


Any ideas /thoughts much appreciated.


Thanks

Keep_pedalling

I think the best thing she can do is actually buy a home to take advantage of primary resince nil rate band, which will take her estate out of IHT territory entirely. This would use up some of her assets, but with no rent to pay, she would need less income from her investments.

Having most of her savings in blue chips would suggest her investments could do with a bit more diversity. Some professional advice from a IFA might be wise here.

Has she set up a LPA?

Brock_and_Roll

Keep_pedalling wrote: »

I think the best thing she can do is actually buy a home to take advantage of primary resince nil rate band, which will take her estate out of IHT territory entirely. This would use up some of her assets, but with no rent to pay, she would need less income from her investments.

Having most of her savings in blue chips would suggest her investments could do with a bit more diversity. Some professional advice from a IFA might be wise here.

Has she set up a LPA?

Thanks


Surely, as she is single, buying a house for say £400k would not take the estate out of IHT entirely - for 2017/18 I make the IHT liability £150k?


I was generalising a little about her stock market portfolio, the actual breakdown is 15% North American, 20% W European, 65% UK equities. Of the total stocks, most are FT100/250 however there is a small "higher risk" portfolio. She also has uses her cash ISA allowance and has £100k on term deposits.


Of course we could switch investments into AIM stocks....but this obviously ups the capital risk considerably.


At present we do not think a LPA is appropriate - we are happing to sit down and discuss finances together - she ran her own business for 30 years and I am a banker so generally speaking we are ok with money issues, however, tax planning is of course a whole new ball game.....


I think we will have to bite the bullet and speak to an IFA.

le_loup

Brock_and_Roll wrote: »

At present we do not think a LPA is appropriate

It's always appropriate to have one in place - you don't have to use it now. You never know what tomorrow will bring.
The most appropriate time to set up an LPA is before yo need it - trying to do it afterwards is asking for trouble.

Keep_pedalling

Brock_and_Roll wrote: »

Thanks


Surely, as she is single, buying a house for say £400k would not take the estate out of IHT entirely - for 2017/18 I make the IHT liability £150k?


I was generalising a little about her stock market portfolio, the actual breakdown is 15% North American, 20% W European, 65% UK equities. Of the total stocks, most are FT100/250 however there is a small "higher risk" portfolio. She also has uses her cash ISA allowance and has £100k on term deposits.


Of course we could switch investments into AIM stocks....but this obviously ups the capital risk considerably.


At present we do not think a LPA is appropriate - we are happing to sit down and discuss finances together - she ran her own business for 30 years and I am a banker so generally speaking we are ok with money issues, however, tax planning is of course a whole new ball game.....


I think we will have to bite the bullet and speak to an IFA.

Sorry I rather stupidly assumed she was a widow. Still worth owneing her own home as that takes £100k out of IHT, which will rise £175k by 2020.

As for the LPA we are both fit and healthy, but have ours in place. Anyone can become incapable of managing their affairs in an instant from things like an accident or stroke, and by that time it is too late.

getmore4less

NO transferable nil rate band from your father?

getmore4less

The capital levels are quite high and to avoid IHT don't want to get higher.

Transition to high yield portfolio methodology is worth looking at to try to increase income and sacrifice some capital growth.


If she trusts her kids to bail her out if she gets stuck some stratagic gifting may be worth looking at

How much is in tax wrappers?

xylophone

It is as well to have the LPA in place - then when and if the time comes, it can be activated.

https://www.gov.uk/power-of-attorney

You have said that your father died five years ago.

Re transferable nil rate band

https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

If your mother buys a house as her main residence, see

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

Is your mother using her gift allowance?

Has she considered gifts from income?

http://www.pruadviser.co.uk/content/knowledge/technical-centre/normal-expenditure-facts/#

Keep_pedalling

According to earlier posts the OPs father left everything to his mother and had not made any gifts in the preceding 7 years, so unless they were not married, she has the combined £650k nil rate band to play with.

She was also planing to buy a house with the proceeds from the sale of a business, so whatever her marital status she should keep to the original plan.

Brock_and_Roll

Thank you all for your helpful advice.


The elephant in the room here seems to be the possible availability of transferable nil rate band....


Rewinding to my father's death, his estate was primarily made up of a business and a residential property less the debts & mortgages. In the IHT400 submission, the entire Estate was taken out of IHT due to business transfer relief on the business.


I might as well give the approx. figures:


Gross Value of Estate: £1,180k
Net Value: £810k


Exemptions & Reliefs:


Spousal relief: £45k
Business Transfer Relief: £675k


Total Reliefs: £720k


So am I right in assuming that potentially there is £325k - (£810k - £720k) = £235k available on the transferable nil rate band?


Should I have to do anything now in this regard? - the HMRC form says must be done within 2 years of the death of the surviving spouse.




* one further and possibly relevant complication is that the Estate settled a substantial legal claim several years subsequent to my father's death and the IHT400 submission

getmore4less

if assets from the estate(and gifts in the last 7 years) that did not qualify for relief went to someone other than the spouse they use up Nil rate band.

KP says
According to earlier posts the OPs father left everything to his mother and had not made any gifts in the preceding 7 years,

if that's the case then the lot got spouse relief why only £45k