Inheritance Tax Planning

Inheritance tax is primarily a tax payable on death.

It is then that the major liability normally arises and there is frequently a physical problem in finding the cash with which to pay it. The deceased’s legal personal representatives must deliver an account to Her Majesty’s Revenue and Customs (HMRC) of all the deceased’s property before the grant of representation can be obtained. They must also pay the tax due before they get the grant, unless any of itcan be paid in installments.

In practical terms this can be a problem because the assets of the estate (which could be used to pay the tax) cannot be released because the legal personal representatives cannot prove their title without the grant which they cannot get until the tax is paid. Inheritance tax is normally classed as a voluntary tax since there are a number of methods with which this tax may be avoided. It is recommended that a full financial planning review is carried out at this stage to review the potential IHT liability and provide solutions.

A trust may be created expressly during the settler’s lifetime or may be included in their will or it may arise by operation of law (implied) or as a result of the courts assessing the behavior of a person towards some or all of their property or that of another person (resulting or constructive trusts).

The main reasons for using a trust is to:

• Ensure the right property (assets or money) go to the right person at the right time

• Protect the assets

• Protect the beneficiaries, or

• Retain control over assets and beneficiaries by setting out the terms of use in the trust deed

On top of this, trusts are often a way of helping a client and their spouse or civil partner to save capital taxes, e.g. IHT or capital gains tax. A further benefit of trusts is that they avoid the need to obtain a grant of probate and the money may be paid out at that point. It is important you choose a trust practitioner who can not only provide a solution and ultimately the type of trust which might be more suitable or appropriate but takes into account what motivates a client and what objectives he or she might want to achieve.

Financial planning is a process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child’s education, planning for retirement or estate planning.

The financial planning process consists of six steps that help you take a “big picture look” of where you are financially. Using these six steps you can work out where you are now, what you may need in the future and what you must do to reach your goals.

The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans. You should include your independent financial advisor and discuss your requirements with him/her or we can put you in touch with three IFAs locally.

Any outstanding debts must be repaid out of the estate prior to distribution. There is a fiduciary requirement on executors (who could be held personally liable) to ensure anyone who may have a legitimate claim and notifications are required to be carried out to permit anyone with a legitimate claim to be made to the executors and assessed and included in the accounts, before applying for Grant of Probate, and distribution of the estate.