In this article our Head of Private Client, Jade Gani, discusses her recent experience with a particular Client, Ms A, and how it made her reconsider standard Estate Planning advice.
I have been in this area of work for a long while now, so there aren’t many situations which take me by surprise or make me re-consider my approach. So when I met with Ms A, I was taken aback and joyfully reminded that every Client’s needs and goals are distinct and different.
I attended the meeting together with a well-trusted and excellent Financial Advisor, as Ms A’s Estate was taxable and she had indicated she would like to actively Inheritance Tax [“IHT”] plan, following a recent cancer diagnosis. She owns two properties, some cash investments and a beautiful, friendly cat. She had never been married and doesn’t have any children.
In her Will, Ms A appointed her good friend, Mr B, as her Executor and wished to gift her second property to another dear friend, Ms C, leaving the remainder of her Estate to a beloved family member. We spoke about her funeral wishes and personal effects, but her main concern was the amount of IHT that would fall due on her Estate.
Of course, we discussed the current Nil Rate Band [“NRB”] and Residence Nil Rate Band [“RNRB”] allowances and it was clear she would not meet the criteria for the new RNRB allowance. This left her with only the ordinary NRB allowance of £325,000.00 and an Estate in excess of £600,000.00 – meaning a substantial IHT bill might fall due on her death.
Together, we discussed various IHT planning tools, such as the annual allowances, Potentially Exempt Transfers [“PETs”], Business Property Relief [“BPR”] investments and much more. Ultimately, Ms A wanted to retain the rental income from her second property while she still might need it and didn’t feel like diversifying her investments further.
“But, is there nothing else we can do to save tax quickly?” she queried, as I looked at the Financial Advisor for any last suggestions I might have missed. “What about spouse allowances? How does that work?” she asked. I dutifully explained the spouse exemption and transfer of allowances to Ms A, but politely reminded her that as a single person who had never been married, this would not apply. I asked if she was in a current relationship to which she confirmed she was not.
“But…” she pondered, “Does it work the same for Civil Partnerships?” – I confirmed it did. “Well then, I think I should like to enter into a Civil Partnership with my friend, Ms C, then! Would that work?”
The Financial Advisor and I shared a look. With a wry smile, I confirmed that I couldn’t see any reason why not, provided that Ms C was willing. We discussed the drawbacks – if Ms C decided to dissolve the partnership at a later date, if they fell-out and how it could impact Ms C’s Estate if she passed away first. On balance, Ms A felt the benefits greatly outweighed the negatives.
I confirmed I would include an “expectation of” clause in the Will, so that it wouldn’t be revoked if she married or entered into a Civil Partnership with Ms C. With a knowing smile, Ms A said she was looking forward to the speculation amongst her associates that would follow such a plan, as she and Ms C had been the best of friends for a very a long time.
I realised that, amongst all of the complex and detailed planning advice we had offered, I hadn’t seen the very simple, incredibly effective solution that was right in front of us the whole time; probably because it hadn’t occurred to me that Ms A would consider such a route with someone other than a partner.
But, just because it isn’t a common approach, does not mean it isn’t a sensible one. Granted, this probably wasn’t the approach the government had in mind when they first introduced Civil Partnerships, however, as there is no legal requirement to consummate a Civil Partnership, perhaps it will teach those in charge a lesson about the importance of equality for all from the outset…
By the end of the meeting we had a plan that would mean very little, if any, IHT would fall due on Ms A’s death. As a result, we were left with a very satisfied Client.
To be eligible to register for a Civil Partnership, you must ensure you and your proposed Civil Partner:-
- Are both 16 or over. If you are 16 or 17, you will usually have to get written consent from your parents or legal guardians;
- Have lived in the same area in England or Wales for at least seven days;
- That neither of you is already either a civil partner, or married; and
- Are not close blood relatives to each other.
So, whilst you might routinely advise unmarried couples of the benefits of marriage or Civil Partnerships from an IHT perspective, have you ever advised your single Client to do so with one of their potential beneficiaries? If not, now might be a good time to start!