Estate Planning below £650k

Updated: Nov 19, 2021

Legacy planning for: - Couples with total estate value below 2NRB (below £650,000).

Basic mirror wills leave everything to the surviving spouse/partner on first death. Cheap and simple. Your assets are at risk Care fees The surviving spouse/partner may need care in the future. If so, the entire inherited estate – including the family home – is assessed by the authority to pay for the care. Creditors or bankruptcy If the surviving spouse/partner went bankrupt, or was the subject of claims by creditors, the entire inherited estate would be at risk. Care fees If children and other beneficiaries should need care in the future, their assets – including their inheritance from you – could be assessed to pay for the cost of care. Divorce If children or other beneficiaries get divorced, half of what you intended them to receive could end up in the hands of their ex. However, there are risks to both the survivor’s inheritance and that of the beneficiaries. Remarriage On first death, the estate is solely owned by the surviving spouse/partner. If they remarry, the Will is automatically revoked, which could lead to children being disinherited. Generational inheritance tax (IHT) A Will typically divides up an estate between beneficiaries. This adds to the beneficiaries’ own estates, which could then be subject to inheritance tax on their deaths. Creditors or bankruptcy The estate inherited by a beneficiary is at risk if they go bankrupt or are subject to claims from creditors. Cons On 1st death risks to the surviving partner’s inheritance On 2nd death risks to your children’s and other beneficiaries’ inheritance

On first death, the deceased’s share of the property is passed into their Property Protection Trust (PPT) or Flexible Life Interest Trust (FLIT) via the Will. The surviving spouse/partner continues to live in the property and is still able to move home if they choose to do so. In the event that the survivor enters care, the survivor only owns a half share of a house. Pros The type of ownership of your home is changed at HM Land Registry from ‘joint tenants’ to ‘tenants in common’. Each partner now owns half of the home. In addition, the Will creates two trusts – one for each partner. On first death, the deceased’s half of the home passes into a trust. Other assets can also be placed in the trust after the first death.

  • The surviving spouse/partner can continue to live in the home or move house.

  • Only half of the property is at risk.

  • Still qualifies for residence nil rate band if there are lineal descendants (children, grandchildren etc).

  • Surviving spouse can continue to use the assets owned by the trust.

  • Assets held in the discretionary trust don’t add to a beneficiary’s estate.

Now protected from: Care fees Assets held in the trust don’t form part of a beneficiary’s estate. This means they can’t be assessed to pay for care fees. Remarriage If the surviving partner remarries, the assets in the trust cannot be taken into the new marriage. The surviving partner can still use the assets in the Trust but children cannot be completely disinherited. Creditors or bankruptcy If a beneficiary goes bankrupt or is subject to claims by creditors, inheritance held in the trust would not be subject to these claims. Generational inheritance tax (IHT) The inheritance held in the Trust doesn’t add on to beneficiaries’ own estates so it won’t affect their inheritance tax (IHT) liability or that of future generations. Divorce None of the inheritance intended for children or other beneficiaries will be lost to their ex if they get divorced.

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