CASE STUDY 2: Victor and Violet

Unfortunately Robert’s father, Victor, passed away recently. Having worked hard throughout his lifetime Victor had left a large house worth approximately £500,000, various investments of £300,000, and cash on deposit of around £100,000. As was normal in his era his Will left all his assets direct to his 75 year old wife Violet. Violet was understandably shocked by his death and her health has since deteriorated.

Robert is an only child and he and his wife Sandra are comfortably well-off, although their 3 children are now coming to an age where they’re deciding whether to continue their education.
 
Robert wants to know whether any tax planning could help save the approximate tax of £250,000 that would be due on his mother’s death.

Advice:-

As Victor has passed all his assets to his wife under the spouse exemption he has not made use of the nil rate exemption band. This presently stands at £285,000, so effectively £114,000 could be saved immediately.

A great tool that can be used for inheritance tax planning is a deed of family arrangement. This deed, which can be created within 2 years of the date of death, is basically an amendment to the Will of the deceased. As long as anybody who would have benefited under the original Will agrees to give up their inheritance, then the assets can be redirected.

In Robert’s situation, if his mother Violet agrees, a deed of Variation could be drawn up and some of the assets could be redirected to the rest of the family.

There are many possible ways that the assets could be redistributed. A deed could redirect cash/investment assets of up to £285,000 either directly to Robert, or his children. If Violet feels that this is too risky because the kids may spend the money straight away, she could consider a Trust which would preserve the capital but allow distribution of income for example to pay for University fees.

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