Estate Planning Guide

61 60 ESTATE PLANNING OPTIONS ESTATE PLANNING OPTIONS Some managers are able to create and manage bespoke forestry or land portfolios if the client prefers this approach. The minimum investment required for these facilities tends to be in the region of £250,000. Investment through collective schemes may be more convenient. This approach can also reduce risk (through diversification and pre-arranged insurance); it can improve liquidity; and it certainly reduces the level of initial investment required. Corporate BR for Trading Businesses BR continues to work as a mechanism to protect small businesses from IHT and ensure that they could be handed onto the next generation intact. While many businesses are likely to meet the qualification criteria and qualify in full for BR, excess funds which are not held for an identifiable future use in the business could be treated as ‘excepted assets’ and excluded from the relief (a proportionate reduction in the total amount of relief available). BR qualifying investments can provide an exit route for business owners looking to sell, but keen to retain IHT relief. It allows for the business to be sold and, provided the proceeds are reinvested in other BR qualifying assets within three years, and the individual owned their shares in the business being disposed of for at least two years so that the two years out of five rule applies none of the IHT relief is lost. SUBSIDIARIES AND PARTNERSHIPS For businesses looking to preserve or regain their BR status, some managers provide corporate BR solutions whereby a subsidiary company is established which invests surplus cash into BR qualifying investments. This can potentially reinstate BR but allows the business to retain access to the funds should they be required (subject to the liquidity of the underlying investments). Certain managers set up a wholly-owned subsidiary for the corporate client and the subsidiary then becomes a partner in a number of underlying LLPs. Other managers operate a structure whereby the corporate client directly becomes a partner in a single LLP. Life Insurance Gender, age, state of health, lifestyle and personal habits (most notably smoking) are all important factors in determining the cost- effectiveness of a life policy. There are two types of policy worth considering: Term Insurance Term insurance is relatively low-cost because it is a pure insurance contract with no investment element. Therefore, clients who survive beyond the expiry date of the policy will generally not receive any benefit beyond the peace of mind they may have gained during the policy term. As a result, term insurance is typically considerably cheaper than whole-of- life policies. Clients could consider effecting a “gift inter vivos” policy at the time of making a gift, so as to cover the potential IHT liability while the gift remains in account for IHT for seven years (subject to taper relief on PETs). Such policies are designed with policy terms of up to seven years and the cover can decrease in line with IHT taper relief. Whole-of-life insurance policies to pay out, subject to the premiums being maintained and the policy terms being met. As a result, whole-of-life policies come at a higher cost, but this also means that, depending upon how the contract is arranged, it may accumulate some degree of surrender value over time - i.e. the policy may combine assurance with an element of investment gain. Whole of Life Traditionally, premiums have usually been reviewable and in these cases, there is always a risk that the premium may increase to a level where it becomes uneconomic. However, some providers now offer policies with a guaranteed fixed premium and it may also be possible to arrange a contract where premiums cease at a particular date but the cover continues. Term life vs. Whole life Provides protection for a specific, limited amount of time such as 10, 15, 20, 25 or 30 years; or to a maximum age, such as 80 Designed to stay in force for individual’s entire life - normally to age 120 Typically provides no cash value but offers a lower premium Has a cash value that accumulates over the life of the policy Often provides protection for specific times of need, such as mortgage or a child’s college tuition Cash value can be accessed if needed for any reason and can provide guaranteed income after retirement 120 2.8