Inheritance Planning

In order to avoid a significant inheritance tax bill, many of us are now choosing to give money away to our children in our lifetime but inheritance tax can be a complex and often emotive issue says Andy Kirby of Moore Blatch Solicitors based in Hampshire.
There are two main areas to consider with estate planning - the robustness of the basic will, as recent legal challenges have raised some serious issues and second, how best to give the money away, whilst also protecting its security.
Question 1
To avoid a large inheritance tax bill, I want to begin giving my money away to my children now but I am worried that money may be lost if one of them enters a disastrous marital relationship and is left with a large divorce settlement to pay.
Answer 1
This is actually one of the most common problems we face when looking at inheritance tax mitigation. It is a sad fact that 45% of marriages end in divorce and with the divorce rate continuing to increase, wealth management professionals need to consider not only how best to mitigate the 40% inheritance tax bill that will be charged on assets over £312,000, but also how to avoid placing their client in a potentially damaging financial position should their children's lives not turn out as expected.
Accepting the fact that we will always want to do best by our children, most parents are also realistic and know that handing over cash is not always the most responsible of actions. Prudent tax planning should always start before the seven year 'gift inter vivos' period and ideally over a decade before you anticipate dying.
Sadly, the divorce process is normally acrimonious and regardless of the fact that the family estate was not earned by one or the other party, the spouse does have the right to claim a portion of it. One option would be to put some of the money you want to give to your children into trusts.
There are several types of trusts available depending on your personal circumstances including bare trusts, discretionary trusts and trusts which give beneficiaries a right to income but not capital. There are also a number of options available in order to safeguard your assets and mitigate inheritance tax while still providing your beneficiaries with the financial provision (and protection) that you personally choose.
Question 2
Can my children challenge my will if they disagree with it?
Answer 2
While it is often said that we are all free to deal with our assets as we would wish under our will, recent court cases governed by the Inheritance (Provision for Family and Dependents) Act 1975 have undermined this basic tenet.
Several recent court cases have sought to address the issues of whether the distribution of the estate whether by Will or under the provisions on intestacy is such that reasonable financial provision has been made for the maintenance of the claimant. If the provisions fail to make such a reasonable provision then the court has discretion to consider what order it may make.
In considering the position, the Court will have regard to the size of the estate, the claims of other interested parties to the estate and in the case of able-bodied adults capable of earning their own living, why the deceased should have made provision for them if they are capable of maintaining themselves.
In 2005, two successful cases were bough in which the Court had regard to the claimant's financial circumstances and whether or not the claimant's reduced financial circumstances were brought about through fault of their own or perhaps through misfortune or ill-health. Also assessed was the behaviour of the claimant towards the deceased and whether the deceased's interpretation of that behaviour was reasonable given the facts, the circumstances of the defendant beneficiaries and what, if any, financial provision has been made for any of the beneficiaries during their lifetime.
In a more recent case in 2007, Garland vs Morris, the claim of a daughter against her father's estate failed, despite her being a single mother of three small children in very difficult financial circumstances. The Judge decided that the claimant had already benefited from her mother's estate and that the claimant had been estranged from her father for many years and had made no effort to see him.
In order to protect your wishes you must ensure that your will is as robust as possible and detailed in its explicit content.
For more information, please contact Andy Kirby at Moore Blatch on 01590 625804 or email andy.kirby@mooreblatch.com
www.mooreblatch.com