Estate Planning Guide

81 CASE STUDIES Immediate Care Needs Annuity Mrs A is 85 and has dementia. Her sons have been jointly appointed under Lasting Powers of Attorney to manage her Property & Financial Affairs and hold a LPA in relation to her Health & Welfare. She is in a residential care home and has been bound ineligible for statutory funding towards her care fees. She has a modest income comprising state pension and Attendance Allowance, but there is a shortfall between her income and expenditure on care fees and personal expenditure. Her only capital asset is her house (her sons are due to inherit the house in equal shares through her Will). 1 IHT Just over two years have elapsed. Mrs A’s financial security for life is absolutely assured, investments are regularly monitored and performing as expected. Eligibility for state funding is under regular review. When her death occurs, as is shortly expected, her estate will be exempt from IHT and the net value bequeathed to her beneficiaries will have been very substantially increased. Securing care fees and reducing an IHT liability in a short space of time Immediate Care Needs Annuity is purchased to meet Mrs A’s income shortfall. Capital protection is built into the annuity to prevent loss of capital to the estate unless Mrs A dies within two to eight months of the annuity purchase. Cash reserve and cautious portfolio is established up to the value of Mrs A and her late husband’s NRB allowances. Cashflow modelling shows that these are sufficient to meet her financial needs for life in a worst-case scenario, and the remaining capital, £700,000, is surplus to her needs. To take the excess, unneeded capital out of her estate and protect it from IHT, the sons get Court of Protection approval for them to gift their mother’s surplus capital to themselves immediately. The annuity purchase cost is deducted from the top slice of her estate and the true cost to the estate is, net of IHT, only 60% of its purchase price. The annuity income is structured to increase at a rate of 5% per annum - a rate the care provider confirms will offset any fee increases in Mrs A’s fees in that home for life. This leaves significant remaining capital from the house sale. £700,000 Instead, they invest into BR qualifying assets in the expectation that they will receive capital through her will that will be 100% IHT exempt if she lives for 2 years or more. They realise that if their mother dies within seven years of the gift (as is likely), IHT will become payable. Estate Planning OTHER CASE STUDIES Mrs A sells her home for £1.8m SOLD