Wills for Couples with Inheritance Tax Concerns
Well, the first step when drawing up tax-planned Wills is to incorporate into the Wills a trust of cash or assets up to the maximum limit any person can leave free of tax to beneficiaries other than their spouse or to exempt charities. So, this sum ‘ring-fences’ on death the maximum which can be passed to the next generation without any payment of inheritance tax. The surviving spouse can then ‘borrow’ cash or other assets from this trust, but these would have to be repaid on his or her death, or possibly earlier if they go into care. When that happens, this amount will generally be divided among your children, grandchildren, or whoever you have named.
This has advantages other than simply giving flexibility. If after your death your surviving spouse were to remarry, or find a new partner, then these assets would be ‘ring-fenced’; they would not actually belong to your widow or widower (or civil partner), even though he or she may have the use of the funds by borrowing them from the trust, and consequently these assets cannot in due course pass to his or her new spouse or the new spouse’s children – they will pass to your own children or grandchildren (or to whoever you named in your Will).
If your widow or widower (or civil partner) were to go into care some time after your death, then in the same way your assets would be ‘ring-fenced’ and could not be taken into account when the local authority were assessing them for care fees; the assets would be protected, and again in due course would pass to your children or grandchildren, although in the meantime the assets could be used for the benefit of your widow or widower if needed by them.
As I said, on the eventual death of your widow or widower (or civil partner), any assets of the trust which have been loaned to them are repaid to the trust; these will usually then be divided among your children or grandchildren (or your named beneficiaries). However, if any
of these beneficiaries are on the verge of divorce or bankruptcy, if they should have a drink, drug or gambling problem, or if there were any other reason why it would not be a good idea for them to receive a lump sum, the trust can remain in place for however long is needed; funds can then be ‘drip-fed’ to them as and when required, while protecting the assets from their former spouse, trustee in bankruptcy, or addiction.
Finally, in the perfect scenario – where you are both quite elderly when the first of you dies, there is almost no likelihood of the survivor remarrying, your children are all settled and problem-free, and in the event that the survivor of you needs care there are ample funds for that purpose – then when the first of you dies the funds in the trust can simply be appointed in
favour of the survivor; if this is done within two years of death of the first to die, the result is that the trust does not get set up, and on the death of the survivor their estate can fully utilise the inheritance tax allowance of both of you.
The real beauty of Flexible Wills is, not surprisingly, their total flexibility. Since few of us know when we are going to die, and none of us can be sure what the future holds, it is usually impossible to make decisions now about what should happen on our eventual death because of that uncertainty. It’s therefore reassuring that, with these Wills in place, no decisions need to be made until the first person dies.
However, if you have considerable assets – maybe a joint estate well in excess of a million pounds – there are Wills which can potentially assist much further with mitigating Inheritance Tax.