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LPC Law Notes Private Client Notes

Estate Planning Notes

Updated Estate Planning Notes

Private Client Notes

Private Client

Approximately 235 pages

A collection of the best LPC Private Client the director of Oxbridge Notes (an Oxford law graduate) could find after combing through twenty-nine LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short these are what we believe to be the strongest set of Private Client notes available in the UK this year. This collection of notes is fully updated f...

The following is a more accessible plain text extract of the PDF sample above, taken from our Private Client Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

ESTATE PLANNING

  • Financial planning is an important element of estate planning as it should help clients maximise their wealth by the appropriate choice of investments.

  • Make full use of available exemptions and reliefs during the individual’s lifetime.

  • Any transfers of value within the NRB are effectively tax-free.

  • Outright transfers in excess of the NRB will only be taxable if the donor dies within seven years of the transfer and even then, only the part exceeding the NRB is taxable.

  • Transfers to a trust will be chargeable, but only at the lifetime rate of 20% insofar as they exceed the NRB. The higher death rate will be payable if the donor dies within seven years of the transfer.

  • Moral: make transfers sooner rather than later.

  • Transfer of assets may also be subject to CGT, but holdover relief may be available where the assets are business assets.

Who should property be given to?
Spouse/Civil Partner
  • Equalisation of estates still a sensible course of action – provides financial security for surviving spouse and greater scope for tax planning

  • Ownership of the matrimonial home – co-ownership is usually better; ownership as beneficial tenants in common may provide more scope for tax planning but may have practical problems

  • Consider impact of other taxes i.e. income tax and CGT

  • Income tax – try to maximise use of each spouse’s lower rate tax bands

  • CGT – transfer between spouses at consideration which gives no gain and no loss; can be sensible to make a preliminary transfer between spouses so that each can make a lifetime gift and utilise exemptions.

  • Consider the availability of reliefs, e.g. one spouse may qualify for BPR but not the other, so would not be sensible to transfer such an asset to the non-qualifying spouse – better to leave such assets to children by will.

  • Any unused NRB will transfer to the surviving spouse on the other’s death

Children and Remoter Issue Outright Gift
  • Consider availability of exemptions and reliefs e.g. annual exemption, and use of NRB

  • Possible charge to CGT subject to availability of holdover relief for business assets

  • s.629 ITTOIA 2005: gifts to minors – income over 100 treated as income of parent and not child

Gift in Trust
  • Tax implications of transfers into trust

  • Will usually be a LCT for IHT purposes and the income deeming provisions mentioned above apply to trusts set up for minor children (s.20 ITTOIA 2005)

  • BEWARE THE RESERVATION OF BENEFIT RULES!

Gifts by Will
  • In practice, often the only practicable measure in smaller estates

  • Availability of exemptions and reliefs should still be considered as should effective use of the NRB

Charity
  • Always consider as a tax efficient method of reducing the assets in the estate

  • Availability of charity exemption for IHT: lower rate of 36% IHT if >10% of estate given to charity

What property should be used?
Insurance Policies Written in Trust
  • Pass to the trustees of the trust to be held on the terms of the trust

  • Pass outside the estate for IHT purposes because the proceeds are no longer payable to the estate

  • No IHT liability

Discretionary Lump Sum Payments
  • e.g. pensions

  • pension trustees are not obliged to pay it to the deceased’s estate

  • no IHT liability

  • ongoing pensions to spouse and dependants not part of deceased’s estate

Property Increasing in Value
  • Making the gift before the value increases ensures the growth occurs in the estate of the done

  • ‘Freezes the value’ of the property at the value at the time of the gift, which will be relevant should death occur within 7 years

  • A ‘disposal’ for CGT will occur, but the disposal consideration will be the market value at the date of the gift

Excluded Property
  • Defined in IHTA 1984

  • e.g. reversionary interest – a future interest under a settlement created before 22 March 2006

How should property be given away?
Outright Gift
  • Straightforward but inflexible inexpensive

  • If circumstances change, property given away cannot be recovered

Trust
  • Flexibility and control

  • Expensive requires proper administration

  • Adverse changes in tax law

Transfer into joint names
  • No control of the property

  • Lack of flexibility

  • Higher operational expense

When are discretionary trusts useful?

  • Most flexible for of trust for providing for dependents – letting clients establish a trust for a group of beneficiaries

  • Trust deed allows the income and capital to be distributed at trustee’s discretion

  • Create flexibility for tax planning purposes

  • Lifetime NRB can be settled on trust without a lifetime inheritance tax charge – 20% lifetime rate to the extent that the amount paid into the trust exceeds the nil rate band (PET)

  • A few trusts will now have to pay an IHT charge when they are set up, at 10 yearly intervals (anniversary charge) and even when assets are distributed (exit charge)

RESERVATION OF BENEFIT RULES

  • Apply where an individual disposes of any property by way of gift and either:

  • Full possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period – s.102(1)(a)

  • At any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor by contract or otherwise – s.102(1)(b)

  • Relevant period = the period ending on the date of the donor’s death and beginning seven years before that date, or if it is later, on the date of the gift

  • Consequences:

    • A gift that is not fully given away because the donor keeps back some benefit for himself is charged to IHT as though they remained in the donor’s estate

    • e.g. a donor gives his home to his adult children (who live elsewhere) and continues to live there tax-free

  • Exceptions:

  • De minimis

  • Where the donor gives full consideration for the property

  • Grounds of hardship

  • Co-ownership

  • Where the done is a spouse/civil partner

  • Deeds of variation

IHT Exemptions
Annual
  • 3,000 per annum

  • Can be carried forward for one year if not used in any year but...

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