Intestacy
This scenario is real and illustrates just what can be achieved through the use of tax efficient Wills.
Mr & Mrs Mac came to see me recently. Previously their affairs had been dealt with by another firm in Lymington High St. The reason for the appointment was that they had 4 minor children but had never made Wills.
They advised me that their assets were comprised as follows:
Mr & Mrs Mac came to see me recently. Previously their affairs had been dealt with by another firm in Lymington High St. The reason for the appointment was that they had 4 minor children but had never made Wills.
They advised me that their assets were comprised as follows:
Matrimonial Home (Tenants in Common) £1,000,000
Investment Property (Tenants in Common) £400,000
Cash (Mrs Mac) £2,000,000
I explained how the provisions on intestacy would operate. In the scenario whereby Mrs Mac were to die first, Mr Mac would receive a statutory legacy of £125,000 and a life interest in one half of the remainder of the estate of the first to die. Essentially this would be a life interest in one half of £2,575,000 the other half being held on statutory trusts for the children on attaining age 18.
This is unsatisfactory on many counts including:-
a) The inflexibility for the survivor.
b) The inability to control the vesting age of significant assets in the children.
c) The unnecessary immediate charge to Inheritance Tax (IHT) caused by the share of the estate being held in trust for the children who are non exempt beneficiaries.
The IHT liability would be £395,000.
The situation then got worse, or better, depending on your viewpoint, when Mr Mac then mentioned, almost as an aside, that he was a minor shareholder in a chemical development company. The value of his minority interest could be worth as much as £50 million. It later transpired that the shares are actually held between Mr & Mrs Mac for income tax reasons.
The shares, being shares in an unquoted trading company, currently qualify for 100% Business Property Relief (BPR) from IHT. However, I ascertained that on death, the shareholders agreement provides for the shares to be converted to Loan Notes and which would not subsequently qualify for BPR on the survivor’s death.
Assuming the shares are held equally, then on the survivors death there would be potential liability to IHT of approx £10,725,000 based on the intestacy and BPR provisions outlined above. This is in addition to the £395,000 payable on the first death.
By putting in place Wills which, even in the simplest terms, leave the shares on the first death on discretionary trusts in favour of the survivor, children and future grandchildren, and the residue absolutely to the survivor, the revised IHT liabilities are as follows:-
First death – Nil
Second death - £1,120,000
Exit charge on trust - £1,482,000
Total £2,602,000
Saving £8,518,000
But as a former member of the company dept once said, “it’s just a Will isn’t it, what’s that £60?”
Authors Robert Arnold ( Source IFA ) and Andy Kirby (Moore Blatch Solicitors)
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