Why Traditional Estate Planning Usually Fails

Why Traditional Estate Planning Usually Fails – Estate Planning or Inheritance Tax Planning, is a complex area, to provide for planning that will allow your assets to pass to beneficiaries with the minimum of tax, a considerable input of time and expertise is required.

When I hand clients my co-authored book of 295 pages “Inheritance Tax Simplified” – they normally laugh and say “and that is simplified!”.

Well, yes – it is.

So much change in both legislation and tax law that any will over two years old is almost certainly out of date.

Let me bring you up to date on Will trusts after the Finance Act 2006.

Most new lifetime interest in possession trusts and accumulation and maintenance trusts created since 22 March 2006 are treated in the same way as discretionary trusts for IHT purposes.

If the trust is created on death it will in any event be a chargeable transfer and it will now, depending on the values involved, give rise to a periodic charge (every 10 years) and exit charges when property leaves the trust or where an absolute interest in it is appointed.

There are four exceptions to this relevant to Will trusts:-

  • Bereaved Minor’s Trust (BMT) – a trust which comes into effect on the death of a parent and under which his or her minor child will become absolutely entitled by 18 continues to be exempt from the periodic and exit charges.   (
  • An 18-to-25 trust – a trust which comes into effect on the death of a parent under which his or her minor child must benefit by age 25. It will only be subject to the discretionary trust regime if benefits are not paid at age 18 and only then at a maximum tax rate of 4.2% at age 25. Where the value of the trust property is within the nil rate band available to the trust there will be no inheritance tax charge.
  • A Disabled Person’s Interest (DPI) – where a testator wishes to make provision for a disabled person, ensuring that the gift is structured to prevent anyone other than the disabled person being able to benefit from capital or income during the disabled person’s lifetime can have significant tax advantages
  • An IPDI (immediate post-death interest) trust – a trust under which a person (not necessarily the deceased’s spouse or civil partner) has an immediate life interest in which case the trust fund will be treated as passing into that beneficiary’s taxable estate.   A typical life interest trust for the spouse, even subject to a power of appointment (which is often created in respect of the residue after the nil band trust), will still benefit from the spouse exemption if the spouse is the life tenant. Such a provision is common in many Wills for existing clients. However, if the life interest is terminated and the property remains subject to trust (that is not otherwise exempt from the discretionary trust regime) this will give rise to a chargeable transfer and the continuing trust will then be subject to the discretionary trust regime going forward. Furthermore, if the spouse if able to benefit from the discretionary trust following the termination of his or her life interest, the gift with reservation provisions will apply (IHTA 1984, s102ZA).

Checklist for to help you decide if you are still hesitating about making a Will:

  • Do you want to make sure that only those you want to benefit will benefit from your estate?
  • Do you want to make controlled provision for minor children or other vulnerable beneficiaries?
  • Do you want to spare your loved one’s hassle, possible arguments and extra cost after your death?
  • Would you prefer to decide the terms of any trusts that will come into effect on your death yourself or leave it to others?
  • Is there any transferable nil rate band available?
  • Do you know the potential IHT liabilities that may arise on your and your spouse’s death?

You should!

Would you rather that less money went to HMRC and more to your family?

Then you need to seriously consider paying the fees required by getting a professional to assist you.

The reason most traditional Estate planning fails is because clients often will not pay for proper advice, despite significant potential savings for their family.

Does that make sense?

As ever, if anything here has led to further questions please don’t hesitate to contact our Estate Planning team on 01189 347 920.