Estate Planning Guide

Accessing funds from existing property assets Mrs G is a widow in her 90s in very robust health, a comfortable level of income but little in the way of cash reserves or savings and is not in a position to fund regular holidays. However she lives in a large property valued at £500,000 with no mortgage attached to it. She has one daughter and a son- in-law who are relatively wealthy. Her daughter and son-in- law have funded Mrs G’s holidays until a falling- out over a male friend of Mrs G’s in Portugal. 5 Equity Release Mrs G enquires about an equity release loan so that she can fund her own trips to Portugal. However, she finds a reputable adviser who understands her preference to maintain privacy and not to involve family members and is happy that Mrs G has the capacity to give her own instructions and is clear on what she wants (particularly as her male friend is independently wealthy). Mr & Mrs F want to retain personal control of the monies to ensure they are used at their discretion for Peter's education. Gifting to grandchildren Mr & Mrs F have recently established IHT planning with discretionary trusts up to the value of their unused personal NRBs of £662,000 (neither had used their £3,000 annual gifts in the current or previous tax years hence their available NRBs were uplifted by £6,000 each). The beneficiaries of these trusts are their children. They also have a grandson, Peter, and want to take care of his education needs. Controled Access Gift 4 A series of maturing policies are established with an offshore insurance company, settled into a controlled access trust established as a bare trust. Prior to their grandson turning 18*, two of the policies’ payouts are deferred to ad hoc future dates as they are not immediately required. (By establishing multiple endowment policies with deferrable maturity dates the trust can fund education needs until the age of 18) Maturity proceeds are paid directly to the school. They choose age 21 to pay off university fees and 25 to help towards a house purchase. Several adviser firms refuse to arrange an equity release without her daughter’s approval, concerned that the daughter might challenge them at some future date. *As a bare trust, normally Peter would have an absolute right to the remaining value of the trust fund at age 18. But the controlled asset trust allows them to re-date policies that mature prior to age 18 (not those maturing post age 18) for specific dates in the future. After discussions between Mrs G, her solicitor and her adviser, Mrs G choses an equity release plan where the interest on the loan does not roll up. The loan is finalised and monies are released to Mrs G. These policies are PETs and they don’t combine with the discretionary trusts to create a 20% charge for IHT on entry, but it takes seven years for the PETs to be fully IHT exempt. Growth on the policies is free of IHT immediately, taxed on Peter and not Mr & Mrs F and the offshore bond means no UK tax is payable until monies are brought back into the UK. 84 85 CASE STUDIES CASE STUDIES