Case Study #1

Married couple with current assets of around £1.5 million

Clients Situation

Our clients in this case were both in their mid 60s and had been fully retired for over 5 years.

Mr and Mrs Williams (note : names have been changed for confidentiality reasons)

  • Mr Williams had a net final salary pension income of just over £35,000 per year including his state pension. Mrs Williams pension income was just over £25,000 per year net including state pension. They were spending around £50K a year jointly net and so had a small surplus income.
  • Mr and Mrs Williams's main residence was valued at around £800,000 in which they wanted to remain long term with no plans to sell unless they went into care. They had a joint investment portfolio of just over £700,000 and around £100K in cash. They did not draw any income from these investments and were, in fact, adding to them annually with a few thousand pounds per year from excess income.
  • Mr Williams had around £200,000 in personal pensions which were not being used for income.
  • Their total current Estate (excluding their pensions which are already in Trust) was £1,600,000 on which their current IHT liability was £240,000. They understood from our projections that this liability would more than double if they lived a normal lifespan into their late 80s.
  • They were married with two married children who were basic rate tax payers. They also had two young (under 15) grandchildren who they wanted to help to pay towards University education.
  • They were both in quite good health. It was assumed that as they were adding to their capital annually and that the value of their assets were growing to the point that the IHT problem could easily double (probably more) by the date the second spouse died.
  • Mr and Mrs Williams did not want to simply give money to their working children as they were concerned they would require capital in the event they need long term care in the future. However, they definitely wanted to eliminate any IHT for their children.
  • They were both basic rate income tax payers for income.

The problems clients would incur if no action was taken

The problems clients would incur if no action was taken

  • They were both in quite good health. It was assumed that as they were adding to their capital annually and that the value of their assets were growing to the point that the IHT problem could easily double (probably more) by the date the second spouse died.
  • Mr and Mrs Williams did not want to simply give money to their working children as they were concerned they would require capital in the event they need long term care in the future. However, they definitely wanted to eliminate any IHT for their children.
  • They were both basic rate income tax payers for income.

The recommended solutions

  • Bluebond worked with Mr and Mrs Williams to determine and agree an overall long term strategy. Bluebond carried out the detailed work and put some of the plans into place.
  • Bluebond advised that Mr and Mrs Williams gift £6,000 a year to their children and grandchildren. Using this allowance would add up over the years to reduce the IHT liability. However, they asked their children to keep this money in an ISA just in case it was required. They understood in the event of their children’s divorce that the money gifted would be at risk.
  • Bluebond set up new Wills and four separate Trusts for the clients and their children.
  • Mr and Mrs Williams were introduced to our recommended firm of Independent Financial Advisers, who over a series of steps adviced on and set up the following plans :
  • Joint life second death standard policy in Trust – paid by fixed fee.
  • Joint life second death maximum policy was suggested but Mr and Mrs Williams decided not to proceed on that plan as they felt it was not the best use of funds. They decided they would ensure they gifted money away on time, as they felt at least one of them would survive 15 years.
  • Investment of £325,000 each into two offshore bonds held subject to two Reversionary Trusts.
  • Existing personal pensions were reviewed and it was advised to move to a discretionary fund manager for better risk management and potential for higher returns.
  • It was also advised that at some point in the future they look into an equity release plan to reduce the Estate further and gift the money into Trusts or directly to their children – only if the property value exceeded £1 million in the future.
Benefits of 6 Trusts
Benefits of Life Policy
Benefit of Reversionary Trust
Benefit of Pensions and Investments review

Benefits of solutions used

Benefits of solutions used

Benefits of 6 Trusts
Benefits of Life Policy
Benefit of Reversionary Trust
Benefit of Pensions and Investments review

Annual Review

As part of the plan, Mr and Mrs Williams would hold a regular annual review with both Bluebond and the recommended IFAs to ensure the plans were adjusted as required in case of changes to circumstances or tax rules. It was also agreed that as the clients got older that their children would attend the annual review meetings with Bluebond.

If they could not afford to continue to gift the £6,000 a year from income, they would use some of the £100,000 left after gifting to the Reversionary Trusts to fund this money. They trusted their children to return the money if required.

The plan here was quite straightforward due to the size of the Estate. However, by dealing with the plan in stages, together with Mr and Mrs Williams's children meant that they were able to achieve all of their objectives in eliminating their IHT liability. They were able to protect the whole Estate and keep the money in the family bloodline.

Mr and Mrs Williams have been delighted with the return on their investments to date. They also continue to work with us and one of their children also attends the annual review meetings.

Summary

Summary

The plan here was quite straightforward due to the size of the Estate. However, by dealing with the plan in stages, together with Mr and Mrs Williams's children meant that they were able to achieve all of their objectives in eliminating their IHT liability. They were able to protect the whole Estate and keep the money in the family bloodline.

Mr and Mrs Williams have been delighted with the return on their investments to date. They also continue to work with us and one of their children also attends the annual review meetings.

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