By Robert Jones
Senior Business Development Manager
Frank Smith is in his seventies, married to Helen, his second wife, for 15 years. Helen is 60 years of age. Frank has two sons, in their mid-forties, from his first marriage. Helen has a daughter who is 25 by way of her first marriage.
Frank and Helen have decided that they would like their respective children to inherit their individual estates. Frank has a substantial income, whereas Helen has very little in the way of pension provision. Frank has two main concerns;
—Firstly, he’s worried about what income Helen would receive if he were to die first. He wants to ensure that she receives an adequate income for the remainder of her life.
—Second, he wants to direct his capital to his two sons after Helen’s death.
Frank has spoken with his solicitor and is considering setting up an Immediate Post Death Interest (IPDI) trust in his will so as to provide Helen with an income after his death and direct the capital to his two boys on her death.
However, he’s concerned that the value of assets held within the IPDI trust will be aggregated with Helen’s estate on her death and will suffer a charge to IHT before the net capital is distributed to his two sons.
A solution could be for the IPDI trust to invest into a Business Relief (BR) qualifying investment on Frank’s death. Then, assuming Helen lives on after Frank by at least two years and the investment is still held at the time of her death, the trust capital so invested would be IHT exempt.
Furthermore, this strategy would also enable the full amount of Helen’s own nil rate band to be applied against her own estate, thus protecting it for the benefit of her daughter.
Frank could also reduce the timeline of this strategy, by investing in BR-qualifying assets during his lifetime and directing the investment to the IPDI trust in his will. The advantage here is that if his death occurred within two years of making the investment then Helen would only have to survive for the balance of that two-year period to ensure the capital achieved IHT exemption.
CAPITAL AT RISK
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