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Wealth Preservation Accounts Case Study 1

Alan:

• Is aged 63
• A widower
• Has two children from his previous marriage, Dan and Sally
• Married Carol four years after his wife’s death
• Has assets worth £3 million

Carol:

• Is aged 42
• Divorced
• Has three children from her previous marriage
• Has assets worth £1 million

Alan and Carol:

• Live in Guildford
• Own their house as tenants in common
• Have a two-year-old daughter, Evie

Both Alan and Carol had made wills before they married each other, but their second marriage revoked their wills and the rules of intestacy now apply.

If Alan died first, the current rules of intestacy would mean that Carol would inherit the personal effects, £250,000 (free of tax) and half of the remaining estate (£1.48 million).

The other half of the remainder would be divided between Dan, Sally and Evie (£1.23 million).

The inheritance tax (IHT) bill is £290,000 (assuming Allan’s executor’s use his first wife’s transferable nil rate band)

When Carol died subsequently, her three children and Evie would share her estate – which includes the amount she inherited from Alan.

But is that what Alan would want to happen?

What Alan would like to happen is:

1. For Carol to have enough to live on for the rest of her life

2. For Evie to be provided for until she finishes her education and to have a substantial amount in trust for her benefit

3. For Dan and Sally to receive a substantial legacy

4. For IHT to be reduced as much as possible

5. For nothing to go to Carol’s children; they will inherit substantial amounts from her estate anyway

Alan could achieve most of this by making a new will but he will not reduce his potential IHT bill.

A permanent solution would be to use a flexible reversionary trust.

Alan makes a new will anyway and also invests £335,000 into a Wealth Preservation Account.
Of this investment, £4,000 is the initial adviser charge, £6,000 is his IHT annual exemption for this and the previous tax year and £325,000 is a chargeable lifetime transfer.

This achieves his objectives because:

• It is a discretionary trust, so Carol and his children can receive trust funds after his death

• The trustees will decide on the appropriate amounts and timing; guided by a letter of wishes that Alan has provided

• The growth will accrue outside Alan’s estate

• Provided he lives for another seven years, the trust fund will not be part of Alan’s estate on death

In addition, the Wealth Preservation Trust allows the trustees to sanction payments to Alan if he is in need of money by letting policies mature each year.

Also, policies in the trust can be appointed to any beneficiary. So Alan’s trustees can help out if his children need help with buying their first home, for example.

For more information on the Wealth Preservation Account, please contact your professional adviser.


Please note: The events and all characters described in this document are entirely fictitious, but the calculations and tax situation described are accurate and feasible. The information regarding taxation is based on our understanding of current legislation, as at March 2017, which may be altered and depends on the individual circumstances.

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.