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How to protect the family legacy and ensure more of your wealth cascades down to the beneficiaries

Everyone wants to provide for their loved ones and the Covid-19 pandemic has brought home just how important it is to ensure your financial affairs are in order.

While it’s good news that the crisis has increased the number of people executing Wills, and they are important, a basic one may not be enough for many families, according to Jarrovian Wealth. Basic Wills do not include fully effective estate planning and offer no protection across the generations.

A typical couple will leave their residual estate directly to each other, offering no protection from care fees. Then the estate passes to the children with two potential problems. Firstly, there is no descendants’ protection and secondly, the inherited sum may be an issue for children by increasing their tax position in future years which could mean a lot less for the grandchildren.

However, this can be addressed by creating an effective framework to ensure benefits are preserved for longer. Julie Kitson, Trusts Estates specialist at Jarrovian Wealth, comments: “Families can create an effective framework of appropriate Wills and lifetime discretionary Trusts that provide multi-generational wealth preservation benefits. These will provide lifetime benefits for the donor, while shielding and protecting the residual estate for children and grandchildren.”

Kitson says there are numerous benefits of a Family Trust framework which include:
• Protection for the assets of the first to die spouse, for their spouse and children.
• Next generation tax benefits for beneficiaries.
• Benefits remain in the Trust, rather than being paid out.
• Damage limitation for assets from social impacts and third-party claims, such as a divorcing spouse or creditors.
• Flexibility for Trustees on how and when benefits are released.
• Lifetime gifting in a protected manner.
• Flexibility when claiming any required Residential Nil Rate Band tax allowance.
• Valuable family assets, including property and artwork, can be placed in the Trust so future generations can benefit without ownership.

While Trusts cannot guarantee absolute protection, they will always offer more than absolute gifts. What is guaranteed is the Inheritance Tax effectiveness under current statutory criteria and HM Revenue & Customs approved practice.

Kitson adds: “The cash within the Trust is flexible, it can be used to make small absolute gifts, invested to provide income, or loans can be made from it. This means for every £100,000 directed to Trusts, a potential of up to £40,000 in next generation tax benefits can be realised.”

Some families may not be keeping such a keen eye on IHT as after a decade of rising bills, the amount paid dropped to £5.2billlion in the last year - £223million less than in 2018/19. This is mainly due to the main residence nil rate band rising by £25,000 a year from the £100,000 introduced in 2017/18 which has boosted the £325,000 per person IHT tax-free allowance.

While the residence nil rate band has risen to £175,000 in this tax year and is due to rise in line with inflation, the fact the amount IHT raked in has dropped so drastically could put this in the sights of Rishi Sunak as he looks for ways to bring in more cash to pay for the pandemic emergency help.

About Jarrovian Wealth
JW was established in 2017. Our team of skilled and experienced financial planners does more than just look after the numbers for clients around pensions, investments and protection both personal and business. We get to know and understand the deeper motivations and aspirations, so we can challenge people to think bigger. While knowing they are in a safe pair of hands building up a secure financial future. We may be one of the newer players, but we are packed with experience as our clients have been trusting our experts with their financial lives for over 30 years. We don't just focus on individuals we incubate businesses too helping entrepreneurs and those up and running to get ventures off the ground, stay on track and plan the perfect exit strategy, so owners can focus on the day job of running the show. JW's headquarters are in London.

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24th August 2020