IHT planning under LPA for aged parent

aroominyork

My 89 year old father did not do any planning to avoid IHT, of which a fair sum is likely to be payable on his death. My sister and I now have financial power of attorney and I am wondering if it too late to remedy this to some degree. The new edition of Money Observer explains how IHT is avoided on AIM shares held for over two years, and I am interested to know what other schemes are worth looking at? I do not think it is sensible, at his age, to look at seven year tapered gifts, but the AIM scheme – of shares which would be worth holding within a diversified portfolio even if he did not survive two years – is interesting.

Marcon

An LPA has to be used for the benefit of your father. IHT planning isn't going to benefit him financially, so you need to be very careful how you proceed.

aroominyork

Marcon wrote: »

An LPA has to be used for the benefit of your father. IHT planning isn't going to benefit him financially, so you need to be very careful how you proceed.

That's logical. Do others also think I should shelve this idea altogether?

Aegis

Before proceeding with any planning of this nature, you would be best-advised to approach the court of protection for permission to act in a manner outside the norm. More often than not (anecdotally, at least) they will reject such requests; the exception being where you have identified almost without question that the assets being used are not going to ever become necessary for the client's well-being. For example, if you have arranged an immediate care annuity to cover the care fees and have still earmarked a chunk of cash for unexpected increases in cost, then some of the excess above that may be suitable for IHT planning.



Unless the amount is genuinely very significant indeed, it's probably not worth this process, as it can end up being costly in either time or finances to approach the court, and without a history of your father making similar arrangements in the past, the view of the court may well be that, even if he has the means to reduce inheritance tax, he wouldn't have done so had he retained capacity. If so, their view may be that the decision is being driven by what you want rather than what he would have wanted, which is not a valid reason to act on behalf of another, especially where there is a great deal of risk involved.

Linton

At 89 your father almost certainly does not need to take risks with his wealth. I assume that as LPA is involved he is incapable of making financial decisions. If so it would be wrong for you to manage his money for your own personal benefit and as Aegis says the court of protection should be involved. On the other hand if he is fully capable of such decisions you and he could discuss the options and then it is up to him.

aroominyork

Thanks All. I'll forget the idea.

kkgree1

I've done some IHT planning for my MIL under an LPA but she still has mental capacity, is fully behind this and informed throughout.

LPA states you must act in their best interests but in my personal opinion, this doesn't preclude making such decisions if the donor has capacity and is fully behind the decision making process.

The only thing we have done with shares is to dissolve a family trust (bare trust) which she held with her sister, as it was in both their interests not to be financially linked any longer. We have mainly used the gift allowances to maximum effect.

Dox

Linton wrote: »

At 89 your father almost certainly does not need to take risks with his wealth. I assume that as LPA is involved he is incapable of making financial decisions.

A property and financial affairs LPA will come into effect as soon as it is registered (unlike a health and welfare LPA, which can only be used where mental capacity has been lost).

itwasntme001

If your father has income (from say annuity, pension, interest, dividends) and it can be proven he does not need it to live then he can pass this income (there is no limit) to you IHT free with no rules whatsoever.



This should work if your father has savings for example he can use to live on instead.

aldershot

Hmmm....my aunt was recommended a portfolio of AIM shares by a financial adviser for the IHT benefit a few years ago. I looked at the recommendation and fees involved and turned her off the idea. Looking at some of the blow ups in the intervening years, IHT would not have been a problem as the portfolio would now be worth substantially less.

Be aware also that those AIM shares that may be eligible for IHT relief are priced to reflect that and are high risk investments compared to other equities.

Tom99

itwasntme001 wrote: »

If your father has income (from say annuity, pension, interest, dividends) and it can be proven he does not need it to live then he can pass this income (there is no limit) to you IHT free with no rules whatsoever.

This should work if your father has savings for example he can use to live on instead.

No that will not work. You have to show that your income, which can include interest and dividends, exceeds your expenditure.