Kevin is 55 years old and in good health. He’s divorced, with four children and three grandchildren. Kevin owns a range of investments including shares, investment property and collectives. He also has an investment bond, which he sometimes takes withdrawals from. His total estate is valued at £3m.
Worries over Inheritance tax
Kevin knows that his family could end up paying a large inheritance tax bill when he dies, as some of his assets might be difficult to sell straight away.
He knows that his family will need to pay any inheritance tax before they get probate. Getting probate could take up to 18 months and Kevin’s worried that his family won’t have the funds to give him the funeral he wants.
A discretionary Probate Trust
After talking to his adviser, Kevin chooses a discretionary Probate Trust. Kevin assigns his investment bond into the trust. He is automatically a trustee and appoints his two children as additional trustees.
This trust will allow his children to get cash quickly when he dies – without having to incur the costs and delays that can happen with getting a Grant of Probate. Kevin also likes the fact that as he is a beneficiary, the trustees can make withdrawals to him
Although this is a transfer of value for inheritance tax purposes, no tax will be payable as Kevin has not used any of his lifetime gifting allowance of £325,000. As Kevin is a potential beneficiary, the whole value of the trust fund will be included in his estate and in scope for inheritance tax.
Investment fund paid immediately
When Kevin dies, the trustees are able to give the funds to the beneficiaries immediately. His children can use some of this money to organise and pay for their dad’s funeral whilst awaiting for probate on the rest of his estate.
They haven’t had to use their own money while waiting for the Grant of Probate to be administered.
What are the risks?
The value of your investment can go down as well as up and you may get back less than you invest. The way investments performed in the past is not a guide to how they’ll perform in the future.
Tax rules depend on individual circumstances and may change. Speak to an adviser, if you need more information on tax.