Affordable IHT Protection for Illiquid Estates
In this video, Jacob Fay, Associate at John Lamb Hill Oldridge, explains how his team structured a cost-effective Inheritance Tax (IHT) protection plan for clients with predominantly illiquid assets.
The Challenge
The team was introduced to clients in their late 60s who had been advised to take out a whole of life policy to protect their estate against IHT. The complexities of their situation included:
The bulk of the clients’ wealth was tied up in relatively illiquid investments, primarily properties.
The clients did not want to draw down on their liquid assets, such as their existing investment portfolios and pensions, to fund expensive whole-of-life premiums.
The primary challenge was balancing affordable premiums while ensuring there was sufficient protection in place to cover the overall tax liability.
The Solution & Outcome
Recognising that a standard whole-of-life policy is not always necessary for a full IHT liability, the team designed a tailored solution based on the clients’ plans to gift assets to their children and grandchildren. The successful restructure involved:
Implementing a strategic blend of term assurance cover alongside a small portion of whole of life cover.
Placing a portion of the term to age 80 cover, enabling the clients to gift assets up to age 73.
Placing a portion of the term to age 90 cover, allowing for further asset gifting up to age 83.
Securing a separate, smaller whole of life policy purely to protect the assets the clients would continue to live in and live off, such as their main home and remaining investments.
Significantly reducing the overall premiums to an affordable level that could be comfortably funded through excess income, preserving their liquid assets.
Other Insights
‘How protection can help advisers support clients in funding or mitigating inheritance tax liabilities’ published in IFA magazine
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