Estate Planning Guide

Drawing on taxable estate instead of pension Mr & Mrs K are both retired and in their mid sixties. They both have a full state pension. Mr K receives a final salary pension from a former employer. Their joint income after tax from these sources is approximately £20,000. Their home is worth £650,000 with no outstanding mortgage or liabilities. The also have ISAs and other investments which total approximately £500,000 and an ‘emergency fund’ of £30,000 held in Premium Bonds. They have three adult sons, none of whom are financially dependent on them. They have both made Wills, leaving their estate to the surviving spouse, then their children. 8 Preservation of Pension Funds 75th birthday Mrs K survives Mr K, and continues to draw on her investments within her estate to supplement her income, only drawing on her inherited pension once these non-pension funds have been depleted. Any funds remaining in the pension at the end of her life, pass to her sons, either entirely tax free or taxed at their marginal rate, depending on Mrs K’s age at death (pre- or post-75). Mr K has built up an uncrystallised personal pension of approximately £450,000. Mr K has writes a letter of wishes, nominating his wife and children as beneficiaries to receive death benefits from his pension fund. Mr & Mrs K are advised to take a regular ‘income’ from their non-pension investments, withdrawing £500 per month. Yearly Expenditure: £28,250 + + car renewals £2,250 holidays £5,000 £21,000 day to day £500 per month ISA NON-PENSION INVESTMENTS Mr K takes 25% of his personal pension as a tax-free lump sum shortly before his 75th birthday. Mr K dies at 77 They also make lump sum withdrawals from their non- pension investments when they change their cars. ISA PERSONAL PENSION ISA MRS K’S INVESTMENTS Her taxable estate remains above her available NRB and that transferred on first death, with the NRB available at that time, so she makes PETs to her sons from her non- pension investments to reduce her taxable estate. 25% tax-free withdrawal Mr K’s letter of wishes states that, if he dies before the age of 75, his uncrystallised pension will pass to his beneficiaries entirely tax free. But he dies at 77, so the funds remaining after the tax free lump sum has been withdrawn, pass to his beneficiaries and any income drawn is taxed at their marginal rate. 88 89 CASE STUDIES CASE STUDIES They suspend withdrawals from their non-pension investments and use this money to supplement their income, until these funds are depleted.