Estate Planning Guide

RNRB planning It is 2021. Mr & Mrs Smith have a property worth in excess of £350,000. Their total assets are £2.7m and they are concerned to pass on as much of their estate value as possible to their children. BR If the trustees disposed of the BR qualifying assets within seven years the transfer into trust would become chargeable and IHT would become payable on the amount by which the value transferred exceeds the NRB. Their £2.7 million estate value is £700,000 above the RNRB £2 million taper threshold. So, Mr & Mrs Smith invest £700,000 into BR qualifying assets. Once they have owned assets for 2+ years, the BR assets are settled into Discretionary Trust(s). (This would still represent a CLT but, as the BR assets are exempt from IHT at that point there is no immediate 20% charge for transferring the assets into trust. The tax is charged at 0%) At their death the £700,000 investment into BR is exempt from IHT thus saving £280,000 of IHT. Without any planning total IHT liability is £820,000; with planning total IHT liability is £400,000. The BR assets are outside of the estate, meaning the value of the Estate on death is £2 million so the RNRB taper does not apply. So, the full joint RNRB of £350,000 is reinstated saving a further £140,000 of IHT. Above this threshold, £1 of RNRB relief is lost for every £2 the estate exceeds it. So, the full £350,000 joint RNRB for 2021 is tapered away to £0. BR BR Trusts 2+ years BR and life cover Edna is 83 years old and is concerned about her health declining in the next two years. She has two sons and an estate valued at £2 million. This includes her home, which is valued at £1 million. Edna wants to shelter her estate from IHT and is worried about her health. ** If Edna had lived for two years and continued holding her shares, her Life Cover policy would have expired and automatically switched to Downside Protection Cover, provided it was available at that time. Downside Protection Cover is designed to reduce the impact of a loss in value of up to 20% of the net initial investment for those aged up to 90 years. * The example assumes no growth or loss on Edna’s portfolio and that she utilises her NRB elsewhere. The example assumes that Edna pays an adviser charge of 2%. If the conditions set out in the relevant product literature are not met in full, the policy will not pay out. Edna dies 18 months after investing in DEPS and the life cover pays out ** She invests £250,000 in DEPS This includes an additional Life Cover option for the under 85s for the first two years before IHT relief begins and pays out 40% of the original gross investment if she dies in that period. The value of Edna’s net estate is £90,525 greater than if she hadn’t used the Life Cover and if her Life Cover was written into trust, the £100,000 insurance pay-out would be outside of her estate for IHT purposes. Without Life Cover With Life Cover Investment in DEPS £250,000 £250,000 Adviser charge at 2% (£5,000) (£5,000) Downing initial charge at 2% (£4,900) (£4,900) Net assets £240,100 £240,100 Cost of Life Cover (included within Downing annual management charge of 3.5% plus VAT) £0 £9,475 IHT at 40% (on death within two years) £100,000 £100,000 Life Cover payout on gross subscription £0 £100,000 Net estate £140,100 £230,625 Please note, this is an illustration only and no forecast is implied. Capital is at risk and returns are not guaranteed. After discussing with her adviser, Edna decides she is comfortable with the risks associated with investing in the Downing Estate Planning Service (DEPS). DEPS 73 CASE STUDIES