It's not Rocket Science but estate equalization is something very few of us think about. And why should we? After all, when the two personal allowances for Inheritance Tax (I.H.T.) are added together the total estate can be value up to £650,000 before I.H.T. is due. Most of us will say that we don't have £650,000 in the bank, but that is not what I said.
Everything is taken into consideration when assessing an estate for I.H.T. The taxman looks at the value of your home (less any mortgage on it), your pension, investments, savings, cars, house contents, insurance policies like life cover and more. It is not very hard to have an estate worth more than £650,000.
To solve the problem and possibly save thousands of pounds in tax in the process, there are only three things to do.
STEP 1. Make sure that the tenancy agreement on your house is Tenancy in Common and not Joint Tenancy. It is very common for husband and wives especially, to have their tenancy agreement on their home as a Joint Tenancy. Read the deeds or talk to your solicitor to find out what kind of Tenancy you have and if it is not Tenancy in Common, then get it changed.
STEP 2. Once you have your tenancy agreement changed, now both of you write a Will. Remember to keep it simple and if you have any requests like favourite hymns at your funeral service then include them as a memorandum letter in your Will.
STEP 3. Finally, when the tenancy is of the right type, and the Wills are written, set up a Family Trust each and include these Trusts within your personal Will. You will only need £10 to set up each Trust. Each trust shall have your own half of the house plus any money, investments etc you both have. They don't have to be equal even though the process is known as estate equalization. You may have more or less money and investments than your spouse/partner, so the two Trusts may be different in size.
That's all there is to it. Now your money and your half of the house is safe for your children. They receive their legacies quickly, as probate is not required to settle the Trust and they can receive from the Trust your half of the value of the property.
Now for the good bit! You are dead and your spouse/partner has to go into a nursing home. The Inland Revenue don't recognise any value to half a house. You cannot sell half a house. So it has no value and thus cannot be assessed for the payment of Nursing Home Fees. So don't keep too much money in the bank.
The result is that you have ring-fenced your estate, minimised your I.H.T. liability, got your children their legacies quickly and financially protected your bloodline in the future. These Family Trusts last 125 years. I don't know how many generations that is.
Brian McHugh deals in wealth management. This article is written only to inform the reader of the power of Family Trusts, Wills and Tenancy Agreements. Before attempting any form of estate planning please contact Brian on 07763 102 534 or send him an e-mail at will_writer@hotmail.com. Should you wish to view a free video these can be seen on his web site http://www.nichewizard.co.uk
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