There are a number of reasons why you may wish to alter the way money is allocated from a deceased’s estate. Probably the most common reason to make an alteration is to achieve a future inheritance tax saving.
Currently, if a person dies with assets in excess of the ‘nil rate band’ of £325,000 (£650,000 for a married couple), inheritance tax is potentially payable at a rate of 40%. Therefore, if a married couple’s joint estate was valued at £850,000, inheritance tax would be due on £200,000 creating a tax liability of £80,000!
Where an inheritance is received that compounds the value of the estate above the nil rate band, measures can be taken to remove the value of the inheritance from the estate (thereby reducing the tax liability), whilst still retaining full control and full access to the inherited asset.
Under current legislation it is possible to alter the deceased’s Will within two years of death using a ‘Deed of Variation’. A Deed of Variation enables the recipients of a deceased’s estate to alter the distribution of the estate, or relinquish a bequest from an estate in order to change the distribution or to ensure that it passes on in the most inheritance tax efficient manner.
By using a Deed of Variation to settle the inherited asset into a suitable Trust, significant inheritance tax savings can be made.
If the married couple in the example above were to inherit £100,000 and subsequently died, their estate (now valued at £950,000) would be subject to an additional £40,000 of inheritance tax.
However, if a Deed of Variation had been made and the couple had re-directed their inheritance to a suitable Trust, they could have had full access to the £100,000 during their lifetimes and on their death the funds would not have formed part of their estate meaning that the £40,000 inheritance tax bill could have been saved.
This is a significant reduction in inheritance tax for a relatively simple structural arrangement that most beneficiaries of an inheritance can arrange within two years from the date of death.
Springfield Financial Services Ltd will work closely with you and your Solicitor (or a Solicitor from our panel) who will draft the Deed of Variation and establish an appropriate Trust. Our Chartered Financial Planners are qualified to provide comprehensive advice in relation to the investment of the assets within the Trust. We aim to structure a suitable portfolio whilst minimising both tax and reporting.
Contact us for more information on how to change a Will following death, invest within a suitable Trust and reduce the potential inheritance tax liability on your estate.