Estate Planning for couples with an Estate value less than £650k (2 x Nil Rate Band)

Updated: Feb 11

Most family homes are held as joint tenants meaning each person owns the property jointly. So a typical basic mirror Will leaves everything to surviving spouse/partner on first death. However, there are risks to both the survivor’s inheritance and that of the beneficiaries.

On 1st death RISKS to the surviving partner's inheritance:

Care fees

The surviving spouse/partner may need care in the future. If so, the entire inherited estate

– including the family home – would be assessed by the local authority to pay for that care.

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.

Creditors or bankruptcy

If the surviving partner went bankrupt or was the subject of claims by creditors, the entire inherited estate would be at risk.

On 2nd death RISKS to your children's and other beneficiaries' inheritance:

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.

Care fees

If children and other beneficiaries need care in the future, their assets – including their inheritance from you – could be assessed to pay for the cost of that care.

Creditors or bankruptcy

The estate inherited by a beneficiary is at risk if they go bankrupt or are subject to claims from creditors.

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.


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 share of the property is passed into their Property Protection Trust (PPT) or Flexible Life Interest Trust (FLIT) via the Will. Only half of the property is at risk. Still qualifies for residence nil rate band if there are lineal descendants (children, grandchildren etc). The 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 are not part of the beneficiary’s estates. This means these assets cannot 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.

Divorce

None of the inheritance intended for children or other beneficiaries will be lost to their ex if they get divorced.

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.




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