- 68 years old
- Inherits £200,000 from his parents
- Doesn’t need the money right now
- Might need some of it at some time in the future
- Reluctant to give it away to reduce own inheritance tax bill
A flexible estate planning solution
After speaking to his professional adviser, Walter decides to invest in a Wealth Preservation Europe Account (WPEA) as this allows him to potentially reduce the inheritance tax (IHT) payable when he dies, whilst allowing him to receive payments back from the trust on specific dates.
- the people who he wants to run the trust [trustees] and
- those he wants to eventually benefit [beneficiaries], these can still be changed in the future
- the dates for any future payments back to him. These are not fixed and the trustees he selects can defer these payments if they want to. The trustees also have the option of paying money to the beneficiaries at any time should they want to.
This flexibility is what attracted Walter to the WPEA.
In the short-term Walter doesn’t need any payments so he asks the trustees to defer them as they fall due. The decision to do this rests with the trustees and they are happy as it allows the value to remain invested.
However, a few years down the line Walter has an unforeseen emergency just before some payments fall due and he asks for the money to be paid to him. This decision is down to the trustees and they agree to this. Walter receives a payment of £20,000. This includes growth of £4,000 and as Walter is a basic rate taxpayer he is liable to pay £800 in income tax on this. Bearing in mind that he has received £20,000, Walter finds this entirely reasonable.
Ten years after investing, sadly Walter dies. As he survived seven years from the original investment, this amount is outside of estate and is free of IHT, as is any growth in the trust.
The beneficiaries have no immediate need for cash so the trustees decide to keep the money invested in the WPEA for the time-being, until a need arises. This means that the money in the trust will be fully protected in the event of any beneficiary becoming bankrupt or divorced and will not be subject to IHT if any beneficiary were to die.
- The value of investments can fall as well as rise and you should speak to a professional adviser to ensure that any investment is suitable for you.