Problem
We have children from previous marriages and want to make sure that each of our assets goes to our own children.
My Mum has just passed away and I need to pay Inheritance Tax. I think my family will need to pay Inheritance Tax when I die too. Is there anything that I can do?
Robert and Charlotte have recently married. Robert has 3 children from a previous marriage and Charlotte has one daughter from a previous marriage. They have purchased a house between them which is valued at £200,000. Robert has other assets in his own name of £150,000 and Charlotte has assets in her own name of £300,000.
If Robert and Charlotte made simple Wills leaving assets to each other on first death, their children are at risk of sideways disinheritance. This means that, for example, if Charlotte died first and Robert remarries without making a new Will Charlotte’s daughter will now receive nothing. If Rob does make a new Will, he could miss Charlotte’s daughter out of this new Will in favour of his own children or his new wife’s children.
Solution
To help Robert and Charlotte achieve their objectives and to ensure that their personal assets go to their own children when they die, we recommended that they each have a Will with a Discretionary Trust of Residue. Both Robert and Charlotte each have a trust within their Will with their own children as the beneficiaries of any assets that they leave in their trust.
Ownership of the property was changed so that they each became ‘tenants in common’. This means that they now each own 50% of the property in their own name. This is a simple process and included as part of the work that we do to establish the trust.
Following the example above, if Charlotte dies, her half of the property and any assets in her own name will fall into the trust for the benefit of her daughter. However, to protect Robert, there is a clause within the Trust that grants him the right to continue to live in the property until such time as either he re-marries or passes away. This is called a right to reside in the property.
By putting this planning in place, Robert has ensured that his assets of £250,000 are protected for his children whilst Charlotte’s estate of £400,000 is protected for her daughter.
An added benefit of this type of estate planning is that the assets inherited by the children are protected by the trusts from threats they may have to their inheritance, such as any future divorce settlements, creditor claims, care fee assessments and will also not be included in the value of their own estates for Inheritance Tax calculations.