BR Guide Second Edition

86 WORKING WITH VULNERABLE CLIENTS The lines that have previously divided lawyers, accountants and financial planners are fading. The combination of the Legal Services Act 2007, the Retail Distribution Review (RDR) and the Treating Customers Fairly (TCF) principle in financial services created new opportunities for those focusing on estate- planning advice to work more closely together. These professional groups can all benefit from having a broad understanding of each other’s specialist fields and how they can benefit clients. Financial planners can add value in a number of areas and ultimately help to offer clients a better, more integrated service. Likewise, financial planners working with clients often encounter specific legal or technical issues, that will need referral to a legal or tax expert. Advice cannot be given in a vacuum, and a good awareness of the complex interactions that exist between the legal and taxation factors impacting your clients provides a way for financial planners to differentiate themselves and provide a seamless service. A key part of this awareness is terminology. Often, the various professionals involved in estate planning do not all ‘speak the same language’. A good example is trusts: financial services firms often use marketing names, which do not refer to the tax/legal words that would clarify the tax behaviour of the trust. This can result in a communication barrier. The trust wordings encountered can be written in a very different style to that which most lawyers will be familiar with, and not only are some of the trust wordings unfamiliar to those outside financial services, but the asset that sits inside the trust can be something of a mystery too. Being able to show how the trust (and the asset that sits inside it, often for IHT purposes) meets a client need is essential, if you are to communicate effectively with those outside financial services and overcome these barriers. ‘Speaking the same language’ and understanding legal complexities is particularly important when dealing with the affairs of an incapacitated client or a client whose affairs are dealt with under the various types of powers of attorney. With an ageing population and the number of people with dementia growing every year, this is a highly complex service area in which every adviser needs comprehensive training in order to manage risk and safeguard vulnerable clients. Through acquiring specialist skills, qualifications and knowledge, you can build your expertise and awareness, enhancing your ability to deliver holistic advice to clients as a ‘trusted adviser’ and enabling you to work more effectively with professionals across the industry. Closing Statement MARK WALLEY CEO, STEP SPEAKING THE SAME LANGUAGE Appendix Summary of Current IHT Regulations The main provisions of current IHT law are described in the Inheritance Tax Act 1984 (IHTA84). To review the full Act, visit: www.legislation.gov.uk/ukpga/1984/51/contents There is normally no IHT to pay if either: » the value of the estate beneficially owned by the deceased is below the £325,000 threshold (the NRB). » the deceased leaves everything to their spouse or civil partner, a charity or a community amateur sports club. If the deceased leaves their home to their children in their will (including adopted, foster or stepchildren or grandchildren), the RNRB comes into play In the 2019/20 tax year the RNRB increased to £150,000 per person. The government has set it to reach £175,000 per person during the 2020/2021 tax year, and thereafter it will rise in line with inflation. But where a person died before 6 April 2017, their estate will not qualify for the relief and Nil Rate Band and Residence Nil Rate Band Thresholds Life Assurance estates worth more than £2 million will be subject to a relief taper of £1 for every £2 by which the estate exceeds £2 million. However, the RNRB also allows for downsizing of a property. and the transfer of unused RNRB. HMRC Guidance with examples of downsizing scenarios can be found at: https://www.gov.uk/guidance/how- downsizing-selling-or-gifting-a-home- affects-the-additional-inheritance-tax- threshold Unused RNRB can be passed from one partner to the other provided they are married or in a civil partnership. It’s the unused percentage of the RNRB that’s transferred, not the unused amount. For a breakdown of the calculation, go to: https://www.gov.uk/guidance/inheritance- tax-transfer-of-threshold#history Married couples or those in a civil partnership with an estate worth less than the IHT threshold can pass on any unused NRB or RNRB to their surviving spouse or civil partner. This means the surviving spouse or civil partner can have an exempt amount up to £850,000. The rate of IHT on death is 40% on assets above the threshold and 20% on lifetime transfers where chargeable. Life assurance arrangements can be used as a means of removing value from an estate and also as a method of funding IHT liabilities, including covering IHT due on death. It should be remembered that the prospect of saving IHT should not be allowed to jeopardise the financial security of those involved.