Simon and Jean are married and in their late 70s

Simon and Jean are married and in their late 70s with independent, grown up children and several grandchildren. They are both retired and are generally in good health, although John has had health issues in the past.  

They have always had a relatively modest lifestyle and had been living in a council house and managing on their State Pensions only, until they received an unexpected windfall of £2.8 million; naturally this completely transformed their lives. They were referred to Mazars Financial Planning Ltd by the Mazars Private Client Tax team for financial advice.

When Simon and Jean first came to see us, they brought with them their daughter and a cousin. It soon became apparent that they had a large extended family.

Simon and Jean had several ideas of what they wanted to do with their windfall and making gifts to their family was very important to them. They also wanted to buy their council house and then use the remaining funds to enjoy life.

We worked with them in helping to decide how much they wanted to keep aside for gifting.  However, when they were deciding how this should be distributed, it soon became clear that some family members were very keen to get involved in the gifting aspects of the planning and a conflict of interests was developing. 

As it was Simon and Jean who were our clients, we arranged to meet with them on their own and agreed with them that, whilst it was good to involve certain family members in the decision making process, it was also creating conflict. We agreed that going forward their daughter should be the only family member involved in the process as she was closest to her parents and had influence over the other family members.  By the time of our next meeting the family gifting issues had been resolved.

We also discussed other issues with Simon and Jean which included the importance of providing cover for future financial liabilities such as care home fees and the significant Inheritance Tax (IHT) liability that would result upon their death. They had not realised that the gifts they would be making to their family would be classed as Potentially Exempt Transfers (PETs) and may therefore become chargeable to IHT if they died within seven years of making the gifts. They did not want their family to be liable for any potential IHT charge.

We worked with them to identify suitable IHT mitigation options which included insuring against the liability, making gifts directly or through trusts and investing into exempted assets.  JSimon and Jeanconfirmed that for personal reasons they did not wish to consider life cover as part of their IHT planning.

We carried out a cashflow modelling exercise to ascertain the level of funds which should be retained in cash, in order to allow them to maintain their standard of living throughout their life, and to also ensure that there are plenty of funds available for care home costs should that be required.   

Acting on advice from the Mazars LLP Tax and Trust department, we then recommended that Simon and Jean establish two appropriate trusts; by each of them gifting £325,000 into the trust, there was no an immediate tax charge, as this amount was within each of their IHT nil rate bands.

The trusts were established for the ultimate benefit of their beneficiaries, and would be free of IHT after seven years; however, because of the type of trust used, the funds could be accessed by Simon and Jean if necessary (subject to the restrictions of the trust deeds), therefore providing a great deal of flexibility.

Having carried out a risk profiling exercise to establish their appetite for investment risk, we recommended that the trust funds were invested in a professionally managed investment portfolio utilising Mazars Financial Planning Ltd’s Investment Management Service. The portfolio was structured in line with their agreed attitude to investment risk, with the objective of providing growth over the longer term, whilst maintaining access to capital and/or income in future should it be required. The portfolio would also be available for any IHT liabilities in the event these became payable.

Although Simon and Jean’s appetite for risk was not high, their large windfall meant that they had a high capacity for loss. Ensuring that they held sufficient assets readily available in cash to meet their short and medium term requirements, meant that we had scope to recommend that a small proportion of their surplus assets was invested in high risk IHT efficient schemes, to meet their IHT mitigation objectives.  The assets held would benefit from Business Relief, which is exempted from IHT after an initial two year qualifying period.  Once again, these investments would allow them to retain ownership and control of the invested funds.

We recommended investment into four different IHT investment schemes in order to add diversity to their investment portfolio and to reduce the impact of any one manager underperforming. One of the schemes was an Inheritance Tax ISA which meant that Simon and Jean were utilising their annual ISA allowances.

Simon and Jean had never previously needed financial advice and the whole process was new and daunting to them. They said they really valued the time we had taken to meet with them and their daughter.

On our advice they also ensured that their will were updated and appointed a lasting power of attorney.

We scheduled our first post implementation meeting with them six months after our first meeting, and thereafter will be meeting with them at least annually to review their circumstances and investment portfolios.