IHT-Solutions

How to Ski (Spending the Kid's Inheritance)

I am conscious that this blog primarily deals with inheritance tax matters in a fairly earnest manner and hopefully it can assist you in taking decisions to avoid IHT where possible.

It is, of course, true that the quickest way to avoid IHT is to spend your money. As such I am delighted to reprint this article by MARK Phoenix, managing director of Prestigious Retirement Villages who sets out simply some "Top ways to spend the childrens' inheritance" :-

• Touch the sky: Recent research claims that the over 55s jet off on an average of nine holidays per year - so get catching up and seeing the world.

• Get the latest gadgets: It's time to ditch the family colour TV and invest in a new plasma screen, a new PC or a new set of wheels.

• Don't slave over a hot stove: Eat out. Go and visit all the top restaurants in your town.

• Take up a new hobby: Remember all those nights you'd spend dropping the children off at ballet, football and piano lessons - it's time for you to try those things. Perhaps take up golf, swimming or tennis.

• Take a gap year: It's not just university students who should have all the fun.

• Forget wheels: Invest in a speedboat! Buy a place on the British coastline so that you can spend your days out at sea.

• Supersize your assets: Invest in some plastic surgery to keep that glamorous youthful glow and be the envy of all your like-minded friends.

• Look the part: Get yourself a tailor-made suit, hand-made dress or a nice pair of designer heels.

• But ... we're living longer so remember to save enough to have fun for the extra years.

Now there is some food for thought.

Saving IHT and giving Charity in your name

As most people are aware, the gift of monies or property to any registered UK charity and public institutions such as schools and museums grants full relief from inheritance tax

For instance, if someone dies with an estate worth £500,000, they will currently be due to pay £80,000 inheritance tax. This is due to the fact that after using up their current nil rate band of £300,000 the estate will be responsible for IHT at the prevailing rate of 40% on the remaining £200,000 equating to £80,000.

If in the example above, the testator had left say £200,000 to Cancer Research UK then no IHT would have been payable, thus saving £80,000 tax.

As a practicing solicitor, I find that although many of my clients are happy to consider making generous gifts to Charities, they are often highly suspicious of what they perceive to be the high level of administrative costs incurred by many of the larger charities. I think that this perception is overstated but nonetheless
this is a view expressed on a regular basis to me and something that the Charities need to address.

I have, however, recently come across a charitable solution which can both save IHT and give great control to the donor in the distribution of the charitable monies. The solution is by way of the CAF Charitable Trust scheme .
With a minimum initial contribution of £10,000 (£7,200 plus tax relief) you can set up a Trust under the auspices of the CAF in your own name (i.e. The Joe Generous Charitable Trust). The CAF act as Trustees and fully administer the Trust for an annual fee of 1% of the Trust assets.

I am also advised by the CAF that it is possible to set up a pilot Trust in your own name during your lifetime with a nominal sum and no fees to which funds can be added by your Will. In addition, the CAF can also invest the Trust monies either on deposit and/or via specific managed funds.

The donor's job, for which the CAF can provide specialist advice is to identify suitable charitable causes for which the Charitable trust's monies can be applied. If the donor, for instance, has a strong passion in supporting the homeless then the donor can identify existing or new homeless charities and effectively become a patron of these charities via the CAF charitable trust scheme.

If the donor dies or wishes to set up a relevant Trust under the terms of their Will, then it is possible to appoint your personally-chosen director of funding to follow through your wishes in accordance with any memorandum of wishes signed by you. By default, the CAF will also follow any memorandum of wishes left if there is no one personally appointed left to follow your wishes.

For anyone of Charitable intent who wishes to remain in control of destiny of your charitable gifts whilst still having an eye an eye to saving inheritance tax, I would certainly recommend following the CAF Trust route.