For one of our clients, building wealth was not a primary concern. After having built a successful real estate business, Giles came to Efficient Portfolio with a concern about his next generation, and how he could protect his wealth for their benefit. Giles has four children and a growing brood of grand kids, so wanted his loved ones to be able to reap what he had spent many years sowing. He felt that if he didn’t take action, their inheritance could be at serious risk.

I think, for most of us, the real reason we want to build wealth is so that we can provide a comfortable, enriched future for our loved ones, but sadly, many of us overlook how we can ensure that our wealth delivers the greatest impact upon their lives. When it comes to any type of estate planning, there are several risks to consider, namely Inheritance Tax, divorce and third-party risks such as care fees. Giles fully understood these issues and wanted to look at how to overcome them.

After having explored and researched Giles’ position, we decided that a collaborative approach was the best tact to overcome his concerns. We worked incredibly closely with Giles’ accountant, Smith Hodge and Baxter, and reviewed his current gifting strategy, to make use it was tax efficient, and also considered some more sophisticated estate planning strategies.

Gifting is a generally good strategy, as these gifts can be exempt from Inheritance Tax, if they are made 7 years prior to death. However, we wanted to make sure that this money wasn’t being squandered or was open to the threat of a divorce in the family. To help with this, we decided that gifting into a Trust was a sensible strategy, as the money could then be given in the fashion that Giles wanted and only be used for it’s intended purpose. With young grandchildren, this was especially important, as Giles retained some control over when they were able to access their inheritance and ensure they didn’t blow the lot on a frivolous or flashy purchase.

In our conversations, Giles also told me that he wanted to make sure that him and his wife could maintain their current standard of living and that if anything were happen to either of them, this would continue. One option to overcome this issue was to put some cash aside, but this could have led to an Inheritance Tax issue or could reduce the amount being gifted into Trust. Given Giles’ situation, we decided that a Whole of Life policy was a prudent move, as this would provide protection and peace of mind, but would also not impede on his intended gifting strategy.

Th final piece of the puzzle was to try to mitigate as much Inheritance Tax as possible. The use of Trusts would help, but we felt that there was still ore we could do. Giles still held some surplus wealth, which would have been subject to Inheritance Tax upon his death, so we wanted to try and remove this issue. We elected to invest some of Giles’ assets into a Business Property Relief scheme, as the money would benefit from some significant IHT breaks, leaving more for Giles’ future generations.

We continue to monitor Giles’ ongoing situation but are delighted that he now feels that his wealth is protected for his loved ones and that he and his wife can enjoy their retirement with peace of mind.

A few years ago, I met a couple in their early forties called Liam and Teresa. They ran a successful, but relatively small business together, where they didn’t have any employees- they did everything themselves. Liam and Teresa were in good health: They were reasonably fit, didn’t smoke and had three young children.

Tragically, Teresa was diagnosed with late stage breast cancer. This came completely out of the blue and seriously rocked their seemingly steady boat. Whilst Teresa was recovering, Liam had to completely take over the business; this was of course stressful for him, but meant that the company could keep afloat.

But life has a funny way of testing us. Just when you think that you’ve hit rock bottom, the ground beneath you opens up to show you the abyss. And that’s what happened. Almost one month after Teresa’s diagnosis and treatment, Liam had a serious bike accident smashing his shoulder. There was no permanent damage, but it meant that he needed to take some time off work too. Thankfully, Bob had some basic Income Protection in place on his earnings, which gave them a little financial stability in these stormy times, but not nearly enough. This threatened to shatter their lives, personally and financially.

I’m pleased to say that both Liam and Teresa made full recoveries, and are still clients and friends of mine today, but speaking to them afterwards, Liam admitted to lying awake each night wondering how he was going to pay their mortgage, put food on the table for their children, pay Teresa’s medical bills and keep the business afloat. They lacked the protection to ensure that their financial plan wouldn’t be derailed.

It was an awful, frightening and eye-opening period of their lives. But what this episode showed them was the importance of ensuring there is a backup plan. If they had had some safety nets in place, life would have felt far more secure for both of them. They would have had peace of mind that they were still financially secure, and could have focussed solely on getting better, rather than worrying about money.

Kiran and her mother had been clients for a number of years, and we had reviewed their investment and financial plans on a regular basis. Sadly, Kiran’s mother started to exhibit memory loss and was subsequently diagnosed with dementia. Kiran still lived with her mother, and was part owner of the family home, but was worried that when her mother was taken into a care home that the cost of the fees would eat into her mother’s share of the equity in house, which might eventually mean the home would need to be sold to cover these costs.

We started planning for this by first ensuring a Lasting Power of Attorney had been drawn up and registered, so that Kiran could look after her mother’s affairs, when the dementia became too bad for her mother to make decisions on her own.

Next, working with the care home, we negotiated a price for the accommodation and care costs for Kiran’s mother for the estimated length of her residency. Once the cost was known, we were then able to buy a special annuity, with the proceeds of the mother’s investments, which was sufficient to meet the cost of the care home fees for the rest of her life, regardless of how long she survived.

This took a great worry away from Kiran and allowed her focus on spending quality time with her mother, rather worrying about how the fees were going to be paid.