Managing trusts and tax

Surviving spouse passes excess to children free of IHT

As is usual between spouses, on the first death the whole of the deceased’s estate passed to his widow. This can be a simple and attractive option between spouses, however surplus family wealth tied up in the survivor’s estate is likely to fall foul of Inheritance Tax (IHT) without taking advantage of further planning.

Upon review of the survivor’s estate, it was apparent that she had far more capital than she would reasonably need for the rest of her life. We were able to assist her by making selective, tax efficient transfers out of her estate to each of her children without compromising her standard of living.

This had the benefit of immediately benefitting the children of the family without immediate charge to inheritance tax, whereas a direct legacy to the children from their father’s estate would have been chargeable to tax with the unfortunate effect of reducing his nil rate band, to the detriment of his spouse. The second benefit to the structure is that, provided the gifts are survived by the widow by 7 years, the transfer would have successfully fallen outside of her estate, minimising her own IHT exposure at her death.

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