By Hugi Clarke, Sales Director, Foresight
After a lifetime of working, saving and investing, you may have a sizeable estate to pass to your heirs, but are they as likely to inherit a substantial headache as they are a valuable collection of assets?
Most people want to ensure their assets are passed to their beneficiaries as quickly and easily as possible and creating a will is the first important step in this process. A professionally drafted will should ensure your estate is distributed as you intended and that those closest to you are taken care of. Failure to do this can not only lead to family disputes, but it may mean your assets end up in the wrong hands as ‘intestacy’ laws take over.
However, the creation of a will is only one stop on the road to ensuring those that survive you are not placed under undue distress after your death. Unfortunately, there are several other issues that should be addressed to minimise the challenges that will be faced by your loved ones after you die.
Before assets can be passed to beneficiaries, they must go through a process known as ‘probate’. Probate is a High Court process through which a will is proved valid and the legal process through which executors are given permission to liquidate and/or distribute assets. Unless otherwise provided by statute, a will must go through probate before a court will allow the distribution of property according to its terms.
A critical aspect of the granting of probate is the settlement of debt to creditors, which includes any tax owed to HMRC. Where Inheritance Tax (IHT) is due on an estate, a complex catch-22 is created. IHT falls due six months after a person’s death and must be paid before probate can be granted (allowing assets to be liquidated), but often the funds to meet the cost of IHT cannot be found without liquidating assets to meet the cost. So how do you pay an IHT bill when the money to meet the bill is not available until the bill is paid?!
Even where assets can be liquidated to meet the cost of IHT, a substantial bill will often require the liquidation of assets which hold significant sentimental or personal value and, under normal circumstances, would not be sold.
This unexpected and complicated process will often create additional stress and heartache at a time when family members are already under significant mental and emotional strain, but can it be avoided?
While the situation is a difficult and unhelpful one, it can be avoided with some foresight and planning.
Foresight Accelerated Inheritance Tax Solution
Recently, the Foresight Group has launched the Foresight Accelerated Inheritance Tax Solution. It combines Business Property Relief (BPR) with a group insurance policy to offer investors a solution that provides immediate protection from IHT while maintaining access and control over the invested assets.
Assets that qualify for BPR are exempt from IHT meaning there will be no inheritance tax to pay on the value of these assets. Typically, it takes two years for shares to qualify for BPR meaning, during the first two years, if the investors dies their estate would continue to be liable for IHT on the value of the investment. However, the Foresight Accelerated ITS is specifically designed for those who want their assets to have immediate protection from IHT and the peace of mind that comes with this.
The product automatically includes an insurance policy with a Lloyds of London syndicate which covers the two-year gap between the purchase of a qualifying investment and the availability of BPR.
If an investor dies during the first two years, with Foresight Accelerated ITS, the proceeds of the insurance policy will pay out 40% of the original investment to the named beneficiary or beneficiaries, which can be used to offset their IHT liability. When it comes to easing the often long, drawn-out probate period, the proceeds of the product and insurance can be paid direct to HMRC and other creditors without the need to encash other assets.
After the two year qualifying period has elapsed, the shares should qualify for BPR, at which point no IHT would be due on their value, subject to the investor continuing to hold the shares at death. Therefore, once this initial two-year period is over, the insurance cover will automatically cease.
When considering your legacy, the Foresight Accelerated ITS enables you to keep tasks as simple as possible for your beneficiaries from the day you invest. The last thing you want is for your family to be the ones tied up in probate.