Estate Planning Guide

Mitigating a substantial IHT liability Mrs D is a widow in her eighties, who has substantial income, more than sufficient to meet her foreseeable needs, and an estate valued at £6 million. The estate comprises property worth £1 million and £5 million held in cash and investments which have largely been inherited following the death of her husband. Her sole objective is to mitigate the very substantial IHT liability of her estate. She is in good health and a seven-year planning time horizon is felt to be feasible. Revert to Settlor Trust/ Discounted Gift Trust 3 All but the last two tranches of investment achieve IHT exemption. Summary The initial gift into the Revert to Settlor Trust expired after seven years and her estate regained the use of a NRB. The full amount of the remaining funds held within the Discounted Gift Trust also achieve IHT exemption. The latter fund is distributed to family members free of IT, CGT and IHT. At the date of her death Mrs D’s investments are valued at approximately £6.4 million of which a total amount of approximately £5.8 million had been exempted from IHT. Mrs D. wants to ensure some tax mitigation is achieved soon and decides to invest BR assets are transferred to the trust without causing life-time IHT charge and avoiding future periodic and exit charges 2 years Mitigating an IHT liability whilst preserving future financial security They want to mitigate their IHT liability and they decide to use £500,000 of the ISA portfolio to fund two Discretionary Trusts 2 Revert to Settlor Trusts Mr & Mrs C are in their seventies and in reasonable health. They have an estate valued at £1.7 million and have sufficient income to meet current expenditure. They want to mitigate their IHT liability, particularly to ensure capital growth does not result in the loss of the RNRB, remain living in their home for the rest of their lives and to ensure that funds are available to meet a reasonable standard of care and giving them independence and choice in later life, and to pass responsibility for managing their investments to a professional investment manager. The remaining ISA portfolios are transferred to the oversight of a different investment manager and reinvested into BR qualifying AIM shares. A proportion of the cash is reinvested into unlisted BR qualifying investments. As Mr and Mrs C survive to April 2021 their estate is exempt from IHT. Each trust is settled by a single spouse in their sole name Each spouse makes IHT efficient gifts to their trust whilst also ensuring that they can receive sufficient distributions from the trusts during their lifetime to fund care provision if necessary. (20% CLT fee applies) Investment policy statements are drawn up, investment managers are interviewed and the capital gifted to each trust is reinvested to achieve the target return while minimising the risk taken with investments. to protect against possible care fees Mrs D survives into the eighth year Cash reserve £2.6m into endowment policies for IT efficiency reinvestment Trust 1 reinvestment Trust 2 Property Cash ISA Portfolios £750,000 £250,000 £700,000 ISA Mr and Mrs C’s Estate: £1.7m ISA £5m CASH & INVESTMENTS into Discounted Gift Trust Maturities succesfully reinvested into BR into BR (incl. AIM shares) £325,000 £2m Trust BR £2.6m IHT exempt 82 83 CASE STUDIES CASE STUDIES