Estate Planning Guide

65 64 ESTATE PLANNING OPTIONS ESTATE PLANNING OPTIONS SELF FUNDED 41% PUBLIC FUNDS 37% SELF-FUND PART OF THEIR CARE OR RECEIVE OTHER FUNDING 22% Home care funding SOURCE: OCCASIONAL PAPER 31, AGEING POPULATION AND FINANCIAL SERVICES, FINANCIAL CONDUCT AUTHORITY, SEPTEMBER 2017 41% SELF FUNDED If the client eventually qualifies for full or partial NHS funding towards their care needs, the monthly benefit reverts to the client. It is then, in part, a taxable income, but as with any annuity and particularly where the client is elderly, the majority of the benefit would likely be deemed to constitute a return of capital, so any IT charge should be relatively small. It is worth noting that only financial advisers who possess specialist qualifications can give comprehensive advice on the various options for funding care fees. An easy way to establish that they do is to look for Full Members of the Society of Later Life Advisers. A list of those advisers who hold the accreditation can be found at https://societyoflaterlifeadvisers.co.uk/ On average, across the UK, 41% of care home residents are entirely self-funded, 37% are funded by the public purse, and others self-fund part of their care or receive other funding. It is estimated where self-funders run out of money, this costs the state approximately £425 million. Therefore, access to good regulated advice is important, not only for improving consumer outcomes but also mitigating the financial impact of poor planning. OCCASIONAL PAPER 31, AGEING POPULATION AND FINANCIAL SERVICES, FINANCIAL CONDUCT AUTHORITY, SEPTEMBER 2017 Other arrangements Artwork Some artwork collections grow to become very valuable and, if held within the estate, this value is subject to IHT on death. As a result, what may have started out as a hobby becomes an asset that requires some consideration from a tax perspective. However, unlike other assets, artwork can also be used to offset IHT liabilities. If gifted to a UK or EU registered charity (or to an institution recognised by HMRC as accepting gifts ‘to the nation’), the artwork will benefit from full IHT relief and if the total value of assets donated to the charity(ies) is 10% or more of the estate, then the remainder of their estate will be subject to IHT at a rate of 36%, as opposed to 40%. Under ‘acceptance in lieu’, HMRC also accepts heritage property to pay off IHT liabilities. This can be artwork and other property deemed by the government of sufficient national, scientific, historic or artistic interest. The cultural gifts scheme is also aimed at encouraging individuals and entities to give to the nation; a person can give qualifying objects to the nation of up to £30 million per year under both schemes. In return, he or she receives a tax credit of 30% of the amount gifted, which can be offset against any CGT or income tax due within the five tax years from the date of the gift. DEEDS OF VARIATION A deed of variation allows for the alteration of a will after death. It can be used by a beneficiary to redirect their inheritance to another person. In effect, the beneficiary is transferring to another beneficiary some or all of the interest 2.11 he has inherited. This transfer is usually made by way of a gift and it may be undertaken to either pass the funds to a more needy beneficiary, or for tax planning. For example, transferring the assets to another party might have the benefit of reducing the original beneficiary’s estate value to below the IHT threshold. Alternatively, a transfer to charity may allow the original beneficiary to reach the 10% net estate value threshold for charitable giving so that the lower 36% rate of IHT applies. The transfer can be made either during the administration of an estate or after it has been finalised, when assets may already have transferred to the original beneficiary. And, provided it is made within two years of the deceased’s death, the original beneficiary has not already changed the destination of the asset and everyone involved/affected by the alteration signs the deed, when it is granted it is treated as though the variation was made to the will by the deceased person and not by the beneficiary. This means that if the beneficiary were to pass away within seven years of the redirection then the gift would not be brought back to their estate for taxation. One of the advantages of BR based IHT solutions is that investors maintain ownership and control of their investment meaning that if their circumstances change they can redeem some or all of the investment. NICK MORGAN, PARTNER, FORESIGHT GROUP