“Have they made any gifts that don’t benefit from an exemption and would give rise to a tax liability if they died? If yes, then is cover already in place and is it in trust for the right person? If no, consider getting cover in place and putting existing cover in trust.”
Once this calculation has been done then it can underpin IHT planning discussions between client and adviser.
Trust solutions
According to Graeme Robb, senior technical manager at M&G Wealth, a popular IHT planning exercise is a bond in trust solution from an insurance company where the trust deed can typically be supplied free of charge.
The correct trust to use will depend on the client’s need to access the trust fund and desired flexibility.
Robb adds: “For example, does the client need regular withdrawals from the trust? If not, is access to original capital needed? Again, if not, can the client give up access to all capital? Also should an absolute or a discretionary trust be used?
“Rather than lump sum trust planning, perhaps the client’s attitude to risk suits a business property relief solution which doesn’t involve gifting but investment in and retention of unquoted trading company shares.
“Perhaps the client has excess income out of which regular gifts can be made, leaving the client with enough income to maintain their normal standard of income. Where these conditions are met, those gifts can be immediately exempt from IHT.”
When putting cover in trust it is also important to help clients choose appropriate trustees; someone who is likely to outlive them and will stay in touch.
Their role should also be explained to them so they understand what is expected of them and when they will need to act.
Smart says: “The adviser should also consider and explain the tax treatment of the trust itself and what this means in terms of what the trustees may need to do when dealing with the trust in future.
“The adviser should also review the cover on a regular basis so that it remains appropriate. They should also remind the client of the trust and check whether any amendment to beneficiaries or trustees is needed so that it is carried out at the right time rather than waiting for a claim.”
It might be expected that a life policy immediately before death owned by the deceased could have a low or insignificant value, but Robb says changes in value caused by death must be taken into account.
