Estate Planning Scenario

[neversay]

A friend has asked for a chat on how to plan his estate. I don't have the details but would appreciate any suggestions for when we do get to talk so I can point him in the right direction. His position is as a widowed parent, two children aged 10 and 14, currently being an amazing stay at home father. His assets are 'well above' the IHT threshold and, while I don't know his assets and investments, he will be 'secure' and has no plans to re-marry. With the Covid-19 situation and no close family, he is naturally concerned about the wellbeing of the kids should anything happen to him.

As well as getting professional advice, he obviously needs a Will if he hasn't got one already. There is the route of gifts and CTFs where he wants to transfer wealth to the kids sooner rather than later. I've read that using a SIPP as a vehicle to avoid IHT is one approach but it's unlikely he will have much income. Otherwise, I know very little about trusts or use of life insurances in these circumstances. Without going into details (as no figures) I would really appreciate tips on what should be on the checklist for our conversation?

[swill453]

One thing to point out, if it's not known already, is that if:
- he inherited all his deceased wife's assets
- he has a house worth at least £350,000
- his will leaves the house to his children
then his IHT allowance will be £1million.

Scott.

[neversay]

One thing to point out, if it's not known already, is that if:
- he inherited all his deceased wife's assets
- he has a house worth at least £350,000
- his will leaves the house to his children
then his IHT allowance will be £1million.

Scott.

Thank you so much Scott. I didn't know that and the answers will be yes, yes and yes. That might go along way to answering his query and providing some valuable reassurance.

[swill453]

Thank you so much Scott. I didn't know that and the answers will be yes, yes and yes. That might go along way to answering his query and providing some valuable reassurance.

OK now you've put me on the spot Hopefully someone else can confirm.

I'm talking about the property allowance of £175,000 per person, which is fully transferrable as is the normal allowance of £325,000.

Scott.

[GrahamPlatt]

Confirmed

[scrumpyjack]

I might add that the 'home allowance' only applies in full if the total estate is less than £2m.

[PinkDalek]

I might add that the 'home allowance' only applies if the total estate is less than £2m.

Not quite. (Edit: I missed your later edit which now includes in full!)

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

It can get even more complicated though:

How downsizing, selling or gifting a home affects the residence nil rate band
https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

[PinkDalek]

Thank you so much Scott. I didn't know that and the answers will be yes, yes and yes. That might go along way to answering his query and providing some valuable reassurance.

Claims required and documentation needed, so an idea to collate them well in advance if possible. Did you see one of the earlier topics discussing what would be needed as outlined here?:

Transferring unused residence nil rate band for Inheritance Tax
https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

See also https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/497793/IHT402.pdf and https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/606089/IHT435.pdf.

There's a calculator which I haven't used:

https://www.tax.service.gov.uk/calculate-additional-inheritance-tax-threshold

[neversay]

@PinkDalek, @scrumpyjack, @GrahamPlatt, @swill453 - super advice. I'm most grateful for your kind guidance. It will put my friend's mind at ease knowing that his children have more security.

[Chrysalis]

If he has dependent children he could consider a life insurance policy, written in trust, to ensure their security should he die before they become independent adults. Writing in trust will take it outside his estate for IHT purposes.

Also, we recently went through the claiming transferable residential nil rate band for my mother on my father’s estate. We were almost caught out by the need to provide: marriage certificate, death certificate, will, and probate - given that my mother died 14 years ago and we were not involved in the administration of her estate. (I assume this is covered on PDs link). So yes, keep all the documentation, forever, with his own will.

[neversay]

If he has dependent children he could consider a life insurance policy, written in trust, to ensure their security should he die before they become independent adults. Writing in trust will take it outside his estate for IHT purposes.

Also, we recently went through the claiming transferable residential nil rate band for my mother on my father’s estate. We were almost caught out by the need to provide: marriage certificate, death certificate, will, and probate - given that my mother died 14 years ago and we were not involved in the administration of her estate. (I assume this is covered on PDs link). So yes, keep all the documentation, forever, with his own will.

Thanks @Chrysalis - I have advised him as you suggest. On that second point, is that only for when the residential value is over £350k? (I'm still sorting my mother's affairs following my father's death 2 years ago).

[Adamski]

Stating the obvious but he should put together and maintain a list of assets, including property, investments, bank, pensions, gifts and physical assets. If not doing already, consider open junior isa's (to £9k tax year) may want toward uni fees or first house deposit.

[PinkDalek]

... On that second point, is that only for when the residential value is over £350k? (I'm still sorting my mother's affairs following my father's death 2 years ago).

No - see the links to the 2 pdfs in one of my prior posts - IHT402 & IHT435. The first lists what documentation will be required. Possibly an idea to print the forms out for future ref.

[neversay]

... On that second point, is that only for when the residential value is over £350k? (I'm still sorting my mother's affairs following my father's death 2 years ago).

No - see the links to the 2 pdfs in one of my prior posts - IHT402 & IHT435. The first lists what documentation will be required. Possibly an idea to print the forms out for future ref.

Thanks @PinkDalek and @Adamski!

[Chrysalis]

... On that second point, is that only for when the residential value is over £350k? (I'm still sorting my mother's affairs following my father's death 2 years ago).

No - see the links to the 2 pdfs in one of my prior posts - IHT402 & IHT435. The first lists what documentation will be required. Possibly an idea to print the forms out for future ref.

It’s required if you want to use a previously deceased spouse’s nil rate band (whether or not in relation to the property).

[PinkDalek]

... On that second point, is that only for when the residential value is over £350k? (I'm still sorting my mother's affairs following my father's death 2 years ago).

No - see the links to the 2 pdfs in one of my prior posts - IHT402 & IHT435. The first lists what documentation will be required. Possibly an idea to print the forms out for future ref.

It’s required if you want to use a previously deceased spouse’s nil rate band (whether or not in relation to the property).

That is what I am saying, we are in agreement!