Estate Planning for Single People

For any individual there are compelling reasons for the use of trusts when it comes to considering how to effectively protect their estate.

In recent years various changes have been announced to the rules around Inheritance Tax (IHT) which suggest, in some people’s minds, that the need for Estate Planning has been alleviated or reduced. The reality is somewhat different.

First off, Estate Planning is considerably more than the simple quest to avoid Inheritance Tax. For the majority of clients bloodline protection is more important.

Beyond this the rules around IHT, which have been tweaked in the past few years, have made some difference to the potential position for some families, but this has been largely offset by rising house prices, improved asset markets and the fact the Nil Rate Band Allowance (the ‘free’ bit, before IHT is charged) has been frozen at its current level since 2009.

Estate Planning is as important today as it has ever been.

Effective Estate Planning will do two things:

  • Aim to minimise the future taxes, paid following the death of an individual, especially future, second generation IHT;
  • Protect the estate and all assets from third-party claims and social impacts, keeping wealth within the family bloodline for generations to come

There is virtually no way of achieving these combined objectives unless a trust or trusts are used.

This is because a Will, however sensible it is to have one, is simply an instruction to distribute assets, normally at a point in time (i.e. on death). Once the assets have been distributed they are then back ‘in play’ for taxation in the hands of the beneficiaries or for third party claims.

Unlike a Will, a trust can maintain protection of assets well beyond the date of death, through the generations that follow.

Combining a solution between the Will and trusts provides comprehensive long-term estate protection, set for future generations.

 

Threats:

Without a trust in place, assets can quickly become subject to third-party claims, once distributed. Beneficiaries receiving an inheritance would now have the assets in their estate. Those assets are now ‘in play’ for possible reductions due to taxation and/or social impacts.

The beneficiaries could become divorced and the assets would be considered in a divorce settlement.  Or the beneficiaries could be subject to claims from other third parties, for example creditors or a local authority making a care fees assessment.

The trust solution can protect the inherited assets against such claims, in all these cases.

In addition the beneficiaries could, in their own right, have other assets, which when added to their inheritance significantly tip them into the bands where IHT applies. In such circumstances if their inheritance was via the trust, the assets would be ring fenced from generational IHT, saving £40,000 for every £100,000 gifted, for the grandchildren.

 

  • If you establish a Family Trust solution you can potentially protect against all of these threats and your children may save considerable future taxation.
  • This trust can incorporate lifetime gifts, should you wish to explore this as part of your wider planning. The flexibility involved, is considerable.
  • Putting such a trust solution in place is straightforward, you can get the trust framework in place now ready to receive the benefits at the relevant time.
  • The trustees will be guided by your letter of wishes, which although not legally binding will be persuasive. The trustees will always have the power and flexibility to ensure your money goes to your chosen parties in a manner which is both tax efficient and