Welcome to agespace money, the podcast that gives you insight, ideas and perspectives on elderly care and finance.
This podcast is presented to you by Annabel James, Founder of agespace, which is a one-stop online resource for anyone looking after, or caring for, an elderly parent; and Jason Butler, financial wellbeing expert and author of “Money Moments: Simple Steps to Financial Wellbeing”.
This podcast discusses the topic of inheritance.
Inheritance can be an emotional and tricky subject, and money can sometimes become a proxy for other feelings or issues in the family, and that’s why it’s sometimes difficult for people to raise and discuss.
When does inheritance tax apply?
With inheritance tax, you pay 40% above a certain amount – for most people, that’s going to be about £650,000, or with a home, nearly £1 million.
If you give an asset away to an individual or trust, and live for at least seven years following that, the gift falls immediately outside of your estate after that time.
However, if you die within the seven year period, there is normally a tapering of the charge if the gift is in excess of your nil rate exception, which is £320,000.
If you have more assets or money than you need in your lifetime, you have three choices:
- Give the money away to people that matter to you now, when they can make better use of it, instead of waiting until you die.
- Leave some or all of your money to charity, and the amount you give won’t be subject to inheritance tax, whether you do this now or when you die.
- Do nothing, and if the excess is more than around £1 million and you have a home, and are married or in a civil partnership, then you will pay inheritance tax of 40%.
Lots of people want to help children or grandchildren with either loans or gifts to support them to fund a house purchase, university or starting up a business. However, your needs should come first.
TIP: The first thing you need to look at, whether you are future planning for yourself, or looking after someone else, is how much you are going to need in the future, in order to have a choice over your own care and lifestyle in later life.
Inheritance is about the right money, in the right hands and the right time.
For example, let’s say your elderly parents want to help your grandchildren. There is no point in them giving you the asset to give to your children, and so it might be better to skip a generation, as younger family members are unlikely to die for many years, so this gift won’t be assessed for inheritance tax, and they are likely to make better use of the money.
TIP: Be careful that you do not encourage elderly family members to give away to you or to anyone else, assets that are deliberately depriving them of assets for a long-term care assessment. However, if an asset was given away years before needing care, there is a good chance this won’t apply.
It’s good to have the conversation about:
- How much money is enough?
- Who you or the person you’re looking after wants to give money to in your/their lifetime.
What if I don’t want a gift to go directly to a person?
You might want the person who is giving the gift to loan the asset. The advantage of this is that it is still in the person’s estate for inheritance tax purposes and care fees, but avoids growth of the asset occuring in person’s estate.
For example, someone in their 70s or 80s who is not sure if they will need the money, but wants to help other members of the family, could lend £40,000-£50,000 to help grandchildren buy a home; they could take a charge against that house, and ask for the money back at a later date. This way, the asset is frozen in the estate and doesn’t grow and add to the estate, and the loan can also be called back in the event of the recipient facing relationship or financial complications.
What if I want to gift the money, but am worried about it’s security?
If you want to give away money, but are worried about its security, for example, if the person you are gifting to is at risk of getting divorced, you can put it into a trust.
This becomes a separate legal entity and whilst the person you are gifting to can still benefit from the money, it is unlikely to be assessed in the case of a divorce or bankruptcy order, however you would need to check the legal rules around this.
The same applies if you want to gift to a younger person, say, in their twenties:
The trust could lend them the money, and it would be outside of your estate for inheritance tax purposes, -as long as you live for seven years-, and also not in their estate, which could protect against any relationship or financial complications.
SUMMARY OF TOP TIPS:
- The first thing you need to look at, whether you are future planning for yourself, or looking after someone else, is how much you are going to need in the future, in order to have a choice over your own care and lifestyle. Think about: How much money is enough, and who you or the person you’re looking after wants to give money to in your/their lifetime.
- Talk about it: Be open about who wants what, or what you’d like to leave to whom, and confront it before it becomes an issue, or before you or family members reach an age where health-related difficulties may come into play.
- Don’t get hung up on the tax or legal stuff – start with the human and emotional element, and have the relevant conversations. It make take a few years to decide what you want to do. The important thing is not to put it off until it’s too late, or it becomes more difficult or complicated.
- Look up and down the family: think creatively about whether you want to loan or gift assets, and to which generation. For example, and advantage of loaning an asset is that the asset remains in your estate for inheritance tax purposes and care fees, but avoids growth of the asset occuring in your estate. The loan can also be called back in the event of the recipient facing relationship or financial complications.
- Or you might consider a trust as a step in-between, where the assets are outside of your estate for inheritance tax purposes, but the person you are gifting to can still benefit from them.
- Also, Be careful that you do not encourage elderly family members to give away to you or to anyone else, assets that are deliberately depriving them of assets for a long-term care assessment.
- A good lawyer or financial planner can help you in thinking about the options.
If you’ve enjoyed this episode, and it’s been useful, please do rate and review us, so that more people can find us. You can listen and subscribe to agespace money on iTunes, or wherever you get your podcasts, by clicking on the ‘subscribe’ button. You can find lots more information about some of the issues we’ve talked about, and all the things we do, at agespace.org. Do join our forums or suggest ideas for topics to discuss at agespace.org. There are more additions of the agespace money podcast about funding care; financial organisation; equity release; legal powers of attorney; and making wills.