"We want to make sure that we have financial security and that our respective kids inherit what they should"
Using a flexible trust arrangement to ensure the right people get the right money at the right time.
- Is age 63
- Previously widowed
- Has two children from his previous marriage, Dan and Sally
- Married Carol four years after his wife's death
- Has assets worth £3 million
- Is aged 42
- Previously divorced
- Has three children from her previous marriage
- Has assets worth £1 million
Alan and Carol:
- Own their house as tenants in common
- Have a two-year-old daughter, Evie
Both Alan and Carol 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, £"50,000 (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 Alan'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 included the amount she inherited from Alan.
But is that what Alan would want to happen?
What Alan would like to happen is:
- For Carol to have enough to live on for the rest of her life
- For Evie to be provided for until she finishes her education and to have a substantial amount in trust for her benefit
- For Dan and Sally to receive a substantial legacy
- For IHT to be reduced as much as possible
- 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 trust.
Alan makes a new will anyway and also invests £325,000 into a Wealth Preservation Account.
This achieved his objectives because:
- Carol and his children can receive trust funds after his death
- The trustees will decide on the appropriate amount and timing, guided by a letter of wishes that Alan has provided
- Any investment growth will accrue outside Alan's estate, so will not be subject to IHT when he dies
- Provided he lives for another seven years, the whole of the trust fund will not be past of Alan's estate on death
In addition, the Wealth Preservation Account allows the trustees to sanction payments to Alan each year if he is in need of money
Also, Alan's trustees can help out his children if they need help buying their fist home, for example by passing on policies to them.
For more information on the Wealth Preservation Accounts, please contact your professional adviser.