Estate Planning Guide

19 ESTATE PLANNING OPTIONS Some key elements to consider in an IHT mitigation arrangement are: • The financial security of the client (in terms of both income and capital) should be protected for the rest of their life • The client’s understanding of the arrangement is important, and, where possible, a ‘less is more’ approach to complications is advisable • Anti-tax avoidance provisions should be respected, including “pre-owned assets”, “gift with reservation of benefit”, “General Anti-Abuse Rule” and “associated operations” provisions • Elements in an estate planning arrangement which are provocative to HMRC (on the basis of current legislation and/ or HMRC practice) or have an uncertain eventual outcome are best avoided • Some degree of illiquidity is a common feature of IHT mitigation products, so some scenario- based cashflow planning may be required to ensure clients have sufficient liquid funds available to meet their foreseeable needs • ASSET REDUCTION: trust-based gifting, which generally provides some degree of liquidity, can accommodate a relatively low risk profile and generally achieve maximum IHT efficiency after seven years. Estate Planning Options • ASSET CONVERSION: investment in assets which attract Agricultural Relief (AR) or BR, which generally increase investment risk and/ or illiquidity but achieve maximum IHT efficiency after two years. The following arrangements can be set up individually or, where appropriate, by clients acting jointly, although some may require clients who act jointly to have an insurable interest in each other’s lives. Pensions 2.1 Death Benefits Where a dependant’s pension from a drawdown fund is already in payment before April 2015, the dependant will suffer marginal rate of tax on the income from the fund. If, at April 2015, no income has been taken yet from a fund designated as a dependants’ drawdown fund, then the new rules can apply. Pension death benefits from money purchase arrangements in the form of an annuity can also now be paid to anyone, not just In general, the insurance bond, collective investment schemes and pension schemes discussed in this section can invest in portfolios which are diversified across a wide range of underlying assets. In addition, usually, that investment can be outsourced to a professional investment manager on either an advisory or discretionary basis. This Guide has been compiled on the basis of our understanding of current legislation and Revenue practice as at April 2018. The potential for future regulatory changes and changes to the clients’ circumstances create the need for ongoing reviews which provide the added benefit of a continuing relationship with the client and opportunities for further commercial interactions. Estate planning can often be a significant part of the process of drafting a Will. An estate planning process will likely influence at least some of the items in a Will, particularly in relation to protecting assets for future generations and ensuring that the estate goes to the intended beneficiaries. Valuing the estate in preparation for making a Will may well highlight issues relating to asset accumulation and decumulation to meet the needs of the client – both during and after their lifetime. But, circumstances and lives change - marriage, divorce, new grandchildren or moving house happen and legislation changes. So, the financial advisers’ model of regularly reviewing their clients’ investments and financial planning, much of which might be referenced in their Will, seems sensible for all professionals involved in Will provision. Clients must regularly review their Wills alongside their assets and investments and take appropriate advice where necessary. Unless a Will is drafted in anticipation of marriage or divorce, for example, those two events invalidate a Will. Wills DEATH BENEFITS Uncrystallised Lump sum Pension Lump sum Pension Lump sum Pension Any beneficiary Any beneficiary Marginal rate of tax 45% from 6 April 2015 to 5 April 2016 and then marginal rate of tax Crystallised All benefits Any beneficiary No tax charge Benefits crystallised or not? How death benefits are paid How death benefits are taxed Who benefits can be paid to UNDER 75 Age of deceased 75 AND OVER SOURCE: AJ BELL