Linda is in her late 70s, has been widowed for over 10 years and has one daughter who will inherit the majority of her estate.
Linda’s current income is sufficient for her retirement needs thanks to her defined benefit pension and rental income from the four buy-to-let properties she owns. There is a small surplus income but most of her capital is held in her property portfolio.
The total value of her estate is around £2,000,000. Despite Linda’s nil rate bands, the estate will incur a significant inheritance tax liability.
What are Linda’s objectives?
Linda is concerned about the inheritance tax she will leave her daughter. She also doesn’t want the estate to be forced to sell a property as it may have to be sold at a discount. On top of that, Linda is considering whether she might need a carer one day so she’s cautious about making any lifetime gifts.
What does Linda get?
After speaking with her adviser, Linda sets up a Flexible Life Plan to provide a lump sum of £400,000 in the event of her death – which will cover the expected inheritance tax liability based on current calculations.
The policy is placed in a suitable discretionary trust. This means the lump sum can be paid outside of her estate and won’t increase the potential inheritance tax liability.
When Linda passes away, we’ll pay the lump sum to the trustees. They’ll be able to use this to pay the inheritance tax bill without needing to sell one of the properties.
Once they’ve paid the inheritance tax liability, the executors can distribute Linda’s estate to her chosen beneficiaries.
What are the risks?
- Your inheritance tax liability may change and the sum assured may be insufficient to cover the entire amount.
- The cost of the life assurance can increase on a premium review and your premiums may increase or your level of cover reduces.
- The value of units can fall as well as rise. You will need to discuss this thoroughly with your financial adviser.