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Case Study - Cohabiting Couple
Situation
Sarah and Simon are both divorcees and have lived together for 30 years. They have two children together but have decided not to marry.
They have built up a substantial joint estate, and their current Wills leave everything to each other on a Life Interest Trust, with the remaining assets passing equally to their children after the second death.
Concerns
Because Sarah and Simon are not married, the spousal exemption from Inheritance Tax (IHT) does not apply. This means that when the first of them dies and their assets pass to the surviving partner, IHT will be payable on any value above the available Nil Rate Band.
When the surviving partner later passes away, the assets held within the Life Interest arrangement will also form part of their estate and would therefore be subject to IHT again.
Solution: Solidus Beneficiary Protection Plan
A Solidus Beneficiary Protection Plan would would provide Sarah and Simon with new Wills that leave their respective estates into a Discretionary Trust on death, rather than passing assets directly to the surviving partner.
Support for the Surviving Partner
The surviving partner would be included as a discretionary beneficiary of the Trust. This allows the Trustees to provide financial support where required, while the assets themselves do not form part of the survivor’s estate for Inheritance Tax purposes on their later death.
Flexibility to Use Key Tax Allowances
The Trustees would retain the ability to appoint assets out of the Trust to the children within two years of death if appropriate. This flexibility allows the family to utilise the Residence Nil Rate Band (RNRB) if required, depending on the circumstances at the time.
Protection for Family Wealth
Holding the assets within a Trust structure helps ensure they are managed for the benefit of the family, while providing a degree of protection from risks such as divorce, creditor claims, or financial instability affecting the beneficiaries.
Generational Inheritance Tax Planning
After both Sarah and Simon have passed away, the Trust can continue to hold and manage the assets for the benefit of their children and future descendants, potentially helping to reduce future Inheritance Tax exposure as wealth passes through the generations.
