Estate planning
Mr and Mrs B aged 65 and 63 respectively have a home valued at £550,000. They have recently sold another property for £180,000 which has added to other liquid assets of £350,000. They have two grown up children. Their income in retirement is sufficient to cover their normal expenditure. They would like to help their children buy their own property. They would also like to reduce their exposure to inheritance tax on second death but without tying up capital.
Recommendations
| 1. | Gift £100,000 each to the children now. After seven years, these gifts will be exempt from IHT saving £80,000. |
| 2. | Keep £100,000 on deposit to cover planned expenditures of £50,000 and keeping £50,000 as reserve. |
We recommended they invest £230,000 in a loan trust which keeps this amount available to them in whole or in part at any time. The growth on the investment is in trust for the two children and exempt from IHT. Given normal life expectancies and no obvious need for this capital in the foreseeable future, the potential here is for more than 20 years' growth on this investment, wholly exempt from IHT. Over such a period, one would expect the growth to well exceed the original sum invested. The combination of compound growth and time should therefore result in the creation of additional wealth outside the estates and without compromising Mr and Mrs B’s own lifetime needs.