Financial Planning with Trusts, Wills and Powers of Attorney °

1. Financial Planning with Trusts, Wills and Powers of Attorney ° Annie Pearson

2. Lawyers and Financial Planning Main areas of concern for clients • Inheritance Tax • Nursing Care • Complicated Family Circumstances

3. INHERITANCE TAX°

4. Inheritance Tax • Gifting is the best way to avoid IHT • Annual Allowance: £3,000 saves £1,200 in Tax • Potentially Exempt Transfer – “PET” • Falls out of your estate for IHT purposes after 7 years

5. Inheritance Tax - Trusts • Outright gifts to children or grandchildren not always appropriate • Age • Ability to manage finances • Increases the recipient’s estate for IHT and benefits means testing purposes • Trust allows the client to retain an element of control and doesn’t affect the recipient’s capital position • Can be adverse Tax consequences

6. Trusts – IHT consequences • A Gift into a Trust is a “Chargeable Lifetime Transfer” ≠ PET • CLTs above Nil Rate Band attract 20% Inheritance Tax, rising to 40% if the Donor dies within 7 years • CLTs are cumulative for 7 years • CLTs can affect the Tax treatment of subsequent PETS • If a client is planning to make a series of PETs and CLTs, the PETs should be made first. • 10 Year Charges and Exit Charges • Potentially unfavourable Income Tax and Capital Gains Tax treatment

7. Inheritance Tax – Wills & Powers of Attorney • Transferable Nil Rate Band removes the need for IHT planning for many clients • Opportunity to make best use of various reliefs – APR, BPR etc • PoA allows the Attorney to continue to arrange client’s affairs tax efficiently in the event that capacity is lost. • MUST BE SPECIFIC!

8. CARE COSTS°

9. Care Costs • More concerning for many clients than IHT • Around £550–600 per week = around £30,000 pa • “Personal Care” (£163 p/w) and “Nursing Care” (£74 p/w) elements are not means tested but “Hotel” or “Accommodation Costs” are. • Thresholds for government contribution towards Hotel costs element are £24,750 for limited funding and £15,250 for maximum funding

10. Care Costs – Transferring Property • Following transfer there is no fixed period after which the house can’t be assessed • Risky to gift outright – can be attacked by donee’screditors • Transfer will not be effective for Inheritance Tax purposes – Gift with Reservation of Benefit • Clients have to choose whether or not to take the gamble

11. Care Costs - Wills • House is disregarded while a spouse (or other dependent) is living there • Most “asset rich, cash poor” clients will qualify for some level of funding • If house passes to survivor on first death the whole value will become assessable should the survivor need care • If half share of house is passed elsewhere only half of the house’s value will become assessable if the survivor needs care

12. Care Costs – Powers of Attorney • Allows the Attorney to consider how best to fund care • Without them it’s likely that a Guardianship Order will be required • Costly, emotionally draining and time consuming • Billy Jones and his parents • Whole house ended up in the name of incapax Mr Jones • Council ceased funding care • Care home had to be paid but no liquid funds • Mr Jones couldn’t sign a disposition and had no PoA

13. QUESTIONS?°