Married Couples

Protecting the Estates of Married Couples

Generally, relatively few married clients or those in legal partnerships receive adequate advice on the protection and inter-generational tax planning of their estate, be it pensions, Death in Service (DIS) benefits, life cover, property assets, savings and investments or lifetime inter-generational transfers.

Integrated financial planning and effective legal planning are essential in delivering guaranteed outcomes for the distribution and protection of your estates. If you do not have Wills, you may be unaware of the complexities and misdirection of wealth that can occur under intestacy rules. If you, like so many couples, have simple Wills directing your estate to each other and then to your chosen Beneficiaries in equal shares you should achieve your desired distribution, but you may be missing an opportunity to protect the surviving spouse’s interests, you may be missing tax planning opportunities and you will not provide inter-generational benefits to your chosen Beneficiaries.

The unpredictability of life requires us to be prepared but you ought to act now to address the shortfalls of the most common estate planning arrangements. On the death of the first of you, protective and tax efficient planning can be put in place and similarly protection, flexibility and inter-generational tax planning can be delivered to the ultimate Beneficiaries of your estate when both of you have deceased.

A customised plan for your family can address any number of concerns such as:

  • If your spouse enters into a new relationship after you die, your share of the estate will be protected for your spouse and ultimately guaranteed for your chosen Beneficiaries.
  • If your spouse is in poor health or requires care fees in the future, your share of the estate can be ring-fenced following your death. It should avoid a claim being made by a local authority. This is more robust and less intrusive than some of the care fee avoidance schemes that are marketed.
  • If you have an estate that may creep into the realms of IHT when the second of you deceases, a Beneficiary Protection Plan may help to reduce the tax burden for your primary Beneficiaries.
  • As hard as it is to accept, if you have two children, statistically, one of them may be unfortunate enough to experience a relationship failure. Without protection, a risk to their inheritance exists and may mean their children inherit less.
  • If your chosen Beneficiaries are independently wealthy your generous legacy could be caught unnecessarily by inter-generational taxation.

If you look ahead, you will see the potential threats that may arise in the future and consider more robust and tax efficient planning.

Questions and Answers

Can all our property and investments be directed into a BPP when we die?

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.

Is a BPP expensive to set up?

No, as a proportion of the value of the estate you want to protect it is fractional.

Is a BPP expensive to run?

No, apart from some minor admin costs until the first partner deceases there are no other costs. There are some costs when each of you decease. After the death of both of you we encourage continued family involvement where costs are kept low by paying for advice and services only when required. There may be an occasional cost, e.g. for changing a Trustee.

Who should our Trustees be?

We encourage you to consider each other and adult family members, or trusted friends. Speak to your adviser for guidance.

What happens if we want to change our estate distribution?

No problem, often your new Wills do not need changing and your wishes can be accommodated with new instructions to your chosen Trustees by means of a Letter of Wishes.

How long does our BPT last for?

125 years in England and Wales and 80 years in Northern Ireland. Most families use them for at least one further generation.

Are Trusts taxed?

There is no tax on funds going into your BPP framework. After that a Trust is like a person and has its own tax allowances for Income Tax, Capital Gains Tax and Inheritance Tax. Your Trustees can take advice in the future.

Can a BPP be contested?

Trusts can face claims from third parties but without a BPP there is no protection.

Protecting the DIS Benefits of Married Couples

Generally, few married clients receive adequate advice on the protection and inter-generational tax planning of their estate, be it pensions, Death in Service (DIS) benefits, life cover, property assets, savings and investments or lifetime inter-generational transfers.

Integrated financial planning and effective legal planning are essential in delivering guaranteed outcomes, and DIS benefits are one of the most significant considerations often neglected by providers of legal services. This is largely because married clients are unaware of the risks to their DIS benefits and do not understand what simple steps can be taken to address them.

The unpredictability of life requires us to be prepared. DIS is an excellent employer benefit that will pay out tax free (in many cases at the discretion of your employer) to your chosen Beneficiaries if you are employed by them when you die. It is good practice to check the details of your employer’s scheme and its benefits and establish the value of any likely payment.

Your DIS benefits will be paid to the approved nominated Beneficiary (usually your spouse) and it will be their choice how to use the funds, to pay off a mortgage if required or to be invested by your financial adviser to provide a long-term income source.

You should consider any possible future outcomes once your spouse receives the DIS payment (tax free).

  • If your spouse enters into a new relationship could there be a potential risk to the funds intended for your family (especially if your spouse is younger)?
  • If, historically, your spouse is not good with money, will the DIS benefits be used wisely?
  • Would the DIS benefits be exhausted if they were required to pay for care for your spouse, with the result that your children would not then benefit?
  • If your estate is likely to attract Inheritance Tax (IHT), will the addition of a DIS benefit make the requirement to pay tax more likely, resulting in your children (Beneficiaries) inheriting less?
  • When the DIS benefits pass to your children as part of your residual estate, would you like them to do so in a protected and tax-efficient manner?

Questions and Answers

Can my DIS benefits definitely go into an APT?

The majority of DIS benefits can go into an APT at the discretion of your employer. We encourage you to check with your employer before establishing your APT.

Is an APT expensive to set up?

No, as a proportion of the value you protect it is typically much less than one percent of the DIS benefit.

Is an APT expensive to run?

No, nothing goes into your APT until you die, so until then there may only be an occasional cost, e.g. for changing a Trustee. There will be some initial costs for advice when you die.

Who should my Trustees be?

We encourage you to consider adult family members, or trusted friends. Speak to your adviser for guidance.

What happens if I change employer?

No problem, just fill out a new nomination form from your new employer to direct benefits to your APT.

How long does my APT last for?

125 years in England and Wales and 80 years in Northern Ireland. Most families use them for at least one further generation.

Are Trusts taxed?

There is no tax on funds going into the APT. A Trust is like a person and has its own tax allowances for Income Tax, Capital Gains Tax and Inheritance Tax. Your Trustees can take advice in the future.

Can an APT be contested?

Trusts can face claims from third parties but without an APT there is no protection.

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