Planning a Tax-efficient Will - Case Studies
| Author | Lesley King/Peter Gausden |
| Pages | 277-284 |
Planning a Tax-efficient Will – Case Studies
Case study A
Providing for the family – Morva and Dan
Morva and Dan are married and have three children. They have a house worth £1 million which they own as beneficial joint tenants and other assets of about £800,000. They want the survivor to have the use of the combined assets and what is left is to go to the children.
They have these three main options:
(a) Option 1: they can leave everything to the other absolutely, relying on the other to ‘do the right thing’ and leave the estate to the children.
(b) Option 2: they can leave the estate to the other for life, and then to the children.
(c) Option 3: they can leave assets equal to the available nil rate band to a discretionary trust created for the benefit of the surviving spouse, children and grandchildren with residue being left to the surviving spouse.
(d) Option 4: this fourth option is really a variation on Option 3 in which the first to die leaves a residence or interest in a residence to the children.
Option 1
They can leave everything to the other absolutely, relying on the other to ‘do the right thing’ and leave the estate to the children.
Inheritance tax considerations
• There will be no inheritance tax to pay on the first death as the spouse exemption will cover the entire estate.
278 Wills: A Practical Guide
• On the death of the survivor, there will be an inheritance tax charge on the combined assets. The survivor will benefit from a transferred nil rate band from the first to die. At 2019/20 rates this would cover £650,000. The assets of the estate may have increased and it is impossible to say whether or not the value of the nil rate band will have increased proportionally.
• The survivor will also benefit from an RNRB transferred from the first to die. In 2020/21 this will be £175,000 and thereafter it will rise in line with the Consumer Prices Index. If the assets have increased by the date of the second death to such an extent that the survivor’s estate exceeds the taper threshold of £2 million, the double RNRB will be withdrawn at the rate of £1 for every £2 by which the threshold is exceeded.
• The survivor can, of course, make lifetime gifts to the extent that there are surplus assets. Such gifts are particularly worthwhile if the estate exceeds the RNRB taper threshold. Some of these gifts may be exempt from inheritance tax, for example, under the annual exemption (section 19 of the IHTA 1984) or the gifts in consideration of marriage exemption (section 22); those not exempt will cease to be cumulated after 7 years.
Other considerations
• None of the combined capital is protected.
• The survivor may need care which is not funded by the state. None of the couple’s assets are protected from fees.
• The survivor may disinherit the children, either deliberately, because of disagreement or inadvertently, because the spouse remarries, which revokes any existing will, and then dies intestate.
• The survivor may lose the capital in unwise investments.
Option 2
They can leave the estate to the other for life, and then to the children.
Inheritance tax considerations
• There will be no inheritance tax to pay on the first death as the spouse exemption will cover the entire...
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