Protecting the Estates of your Blended Family Clients
Generally, relatively few blended families receive adequate advice on the protection and inter-generational tax planning of their estates, be it pensions, Death in Service (DIS) benefits, life cover, property assets, savings and investments or lifetime inter-generational transfers, it is up to you to rectify this with your own clients and make sure they are as prepared and informed as possible.
Integrated financial planning and effective legal planning are essential in delivering the desired outcomes for blended families. The use of lifetime and deathtime Trust frameworks is a popular, reliable solution but many clients are rarely advised to use them by legal service providers and may be led to believe they are overly complex and expensive to maintain which need not be the case.
Many blended families do not even have a Will and do not fully understand what difficulties can be created at probate, and that their assets may not be directed where they would like them to go under intestacy rules. Their partner is often excluded from benefiting from the residual estate.
Thankfully, the majority of blended families at least have simple Wills that direct assets “absolutely” to their chosen Beneficiaries which is effective for directing wealth but inefficient in protecting it and extremely tax ineffective when assets are directed to a partner where spousal exemption rules do not apply, thus running the risk of double taxation in some cases.
If your clients are a parents or have family members who they wish to benefit from their wealth, you must consider possible future outcomes that may befall your client’s chosen Beneficiaries and address any concerns that they may have now or that may emerge in the future.
Common concerns many blended families have are:
- What is the risk to their wealth following their death?
- If they leave their estate to their partner and they require long term care, what will happen?
- Loss of tax allowances because their Wills are tax ineffective.
- Will their assets ultimately pass to their chosen Beneficiaries after their partner deceases if they change their Will?
- What would happen to the inheritance the chosen Beneficiaries receive if they were to divorce?
- There may not be IHT payable when they die but it means their partner is highly likely to pay IHT because of their combined wealth.
- IHT will be payable when the first partner deceases and unnecessary double taxation may occur on the death of the surviving partner.
If you look beyond the inheritance to the Beneficiary, you will appreciate the many potential issues that exist and some of them are unique to blended families.
Questions and Answers
No, as a proportion of the value you protect it is typically much less than one percent of the estate value.
No, apart from £10 nothing goes into them until your client dies, so until then there may only be an occasional cost e.g. changing a Trustee. You can charge an initial advice cost to the Trustees upon your clients death at your discretion.
You can encourage your clients to consider adult family members, or trusted friends as Trustees. It would need to be someone they can trust to have the best interest of their Beneficiaries.
It is usually possible to make most changes by means of a new instruction to the Trustees (Letter of Wishes).
125 years in England and Wales and 80 years in Northern Ireland. Most families use them for at least one further generation.
Under current rules there is no tax going into the Trust after any IHT has been paid. A Trust is like a person and has its own tax allowances for Income Tax, Capital Gains Tax and Inheritance Tax.
The majority of personally owned assets can go into a BPP apart from specific assets like ISAs which may be transferred to a spouse or cashed in.
Trusts can face claims from third parties but without an BPP there is no protection.
Single persons, whether widowed, divorced or simply single, require specific advice customised to their needs.
Protective benefits for married couples is particularly important and is a focus of our customised solutions.
The control and distribution of assets within blended families can be complex, our solutions ensure the desired wealth transfers are guaranteed.
Co-habitees frequently have inefficient tax and protective arrangements for their estates, which can easily be avoided with bespoke planing.
Estates where Inheritance Tax is a potential issue can take legitimate actions to mitigate IHT. The majority of estates of £2 million+ have inefficient estate planning arrangements.