Family wealth preservation is not solely about ensuring that children do not lose out on 40% of the intended bequest – after all, the Revenue has already had a slice of this money, so why give them anymore?
It can also mean having the funds available to deal with the following, very real, lifestyle issues which are fundamental to family life. However, clients can harbour a fear that passing money into trust will result in the loss of both access and control. Saving 40% on death may be a very fine thing but the prospect of limiting the ability to resolve a family crisis, let alone personal income requirements, is a straight forward and understandable reason why people shy away from most forms of trust planning.
Below we list seven good reasons why a trust, ostensibly written for IHT mitigation purposes, can be an emotional comfort, not a hindrance, to this important part of the estate planning jigsaw:
Every parent wants to help their son and daughter on their way in life and a common assistance is with first house purchase, typically made when they have formed their first real partnership. The often unvoiced fear, however, is that a good relationship turns bad. The consequence of a gift made in happier times that later turn sour, is that divorce or break-up will see up to half of that gift disappear out of the family forever.
Solution: A discretionary reversionary trust that provides the power to make loans to assist the family but remain as a debt owed back to the trust, may ensure wealth stays in the family.
A son’s business goes bad, a sister’s roof blows off, a favourite aunt has a medical problem requiring expensive treatment. Whatever the circumstance, you want to help if you can so you don’t want your money irrevocably tied-up.
Solution: A discretionary trust that allows gifts or loans to a class of beneficiaries aside from the appointed trust beneficiaries.
Golden Wedding Anniversary
Maybe a distant thought now, but if you survive to celebrate then you want to do so in style – but is it worth keeping money in your estate just in case?
Solution: A discretionary reversionary interest trust with flexibility to take, decline or defer reversions at each trust anniversary.
Child or Grandchild’s Wedding
The average wedding in 2012 cost £18,500 (Source: www.weddingsdays.co.uk, December 2012). You will probably want to help the happy couple celebrate in style – but is it worth keeping money in your estate specifically for this event?
Solution: A discretionary reversionary interest trust with flexibility to take, decline or defer reversions at each trust anniversary and/or allows gifts or loans to beneficiaries.
Child or Grandchild’s School, College and University Expenses
The average per term fee at an independent school in 2011/12 was £4,596 (the average per term boarding fee was £8,780). An average increase of 4.5% from 2011 fees, significantly ahead of UK inflation (source: Independent Schools Council census December 2012). Many of the leading universities are now charging the maximum tuition fee of £9,000 p.a. University students will, typically, need to also pay for accommodation and general living costs, so the true cost far exceeds the annual fees – but is it worth keeping money in your estate specifically for this event?
Solution: A discretionary reversionary interest trust with flexibility to take, decline or defer reversions at each trust anniversary and/or permits gifts or loans to beneficiaries.
Long Term Care Fees
A fear of anyone ‘of a certain age’ is the potential requirement to cater for one’s own long term care needs. The current UK state funding aid is limited, as is the likelihood of radical improvement. For some, local authority care will be sufficient, for others the ability to ‘top up’ to higher comfort levels either initially or eventually is a must.
Solution: A discretionary trust that is not vulnerable to attack under the Charging for Residential
Accommodation Guide (published by the Department of Health and commonly known as CRAG rules) if estate preservation is the paramount priority, but otherwise provides capital reversions which can be utilised to ‘trade up’ to care quality of choice.
The Surviving Spouse
Whatever the extent of a couple’s IHT planning, the second to die will usually be left with the bulk of the problem.
Solution: Discretionary single settlor trusts. On first death, the surviving spouse can be appointed to their late spouse’s Trust thus enabling the Trustees to advance non-interest bearing loans to the surviving spouse – particularly relevant if the husband has had the major pension income (as is common) and the widow’s pension drops to 50%. The Trustees of the surviving spouse’s Trust can defer reversions from their plan if no additional income is required, as they have the loan to support themselves. This debt also offsets any influx of assets from the deceased spouse using the spousal exemption.
Inheritance tax mitigation remains a very worthy quest but the trust structure utilised is vital both for peace of mind and to maximise the preservation of individual family wealth.
If you have any questions relating the this article or would like to speak to Swindells Financial Planning, expert Trust, long term care and estate planning financial advisers; then please contact us in either Seaford or Uckfield on 01323 894 202 or by using the booking form on this page.