As life expectancy increases, it's not uncommon for parents to pass assets to children who may themselves be in their 50s or 60s with adult children.
And those set to inherit may well be considering their own inheritance tax (IHT) positions and may wish to give their adult offspring a financial helping hand — whether to fund tuition fees or to get started on the property ladder.
Take, for example, Susan who is due to receive £100,000 from her father, Peter's, estate. Susan and her husband are financially comfortable with two children: Edmund and Lucy. Edmund is due to start a degree in medicine at university and Lucy still has a few more years left of school.
Rather than accepting the inheritance from Peter's estate (thereby increasing the IHT value of her own assets) and making financial gifts to her children (after which she must survive seven years for the gifts to fall outwith the reach of her IHT position), Susan and her husband could benefit from one of the trusty inheritance tax mitigation tools: a deed of variation.
By using a deed of variation, Susan can divert some — or all of her share — of the inheritance to specific people, such as her own children. In this way, although she'll decide where those funds should go, they will, for IHT purposes, be deemed a gift by the deceased (Peter).
Susan then chooses to pass £50,000 to Edmund to fund his studies and buy his own property. She diverts the remaining £50,000 into a bond for Lucy, due to mature in a few years, once her daughter's older. As such, Susan doesn't need to survive the seven-year period and, should she need to go into care, those funds will not form part of her care costs assessment: she never owned them.
Get in touch if you're interested in finding out if this approach would work for you.
there is a way to beat the taxman from beyond the grave. A deed of variation (DOV) is a legal document that allows the beneficiaries of an estate – children, for example – to make changes to a will, in the name of the deceased, after their death