25 May 2012

Protecting family wealth

Q: My daughter is getting married shortly. How do I help out financially whilst at the same time protecting my family wealth for future generations?

Yours: Overprotective Dad

A: Dear Overprotective Dad

The question raised is one I get asked regularly.  Protecting family wealth may be as simple as ensuring that you have an up to date will which is drafted tax efficiently such that Her Majesty’s Revenue & Customs does not benefit from 40% of the value of your estate on death.  Alternatively, it may be ensuring that in the event of a divorce or bankruptcy the family wealth is protected.

There are many ways to ensure family wealth is protected dependent on circumstances.

As a starting point, in contemplation of your daughter’s wedding,  you may wish to make a contribution towards the wedding directly.  You can do this by making a gift of up to £5,000 per parent which is exempt for inheritance tax purposes.  However, if you are thinking of providing funds for her use for the longer term, then a trust may be the best way forward.  Trusts are primarily for the protection of wealth for future generations,  particularly as a safeguard against divorce or bankruptcy.   If your daughter is planning to have children, a trust can be particularly tax efficient when set up by grandparents where funds can be used to pay for education and maintenance of the grandchildren.

If you wish to protect your wealth for future generations by reducing  your exposure to inheritance tax, as a first step  you must look at the value of your overall estate, establish what your potential exposure may be  and  consider what inheritance tax reliefs are available.  You may wish to look at equalising your estate with your spouse or you may consider it appropriate to make gifts sooner rather than later.   There are also a number of gifts which can be made tax efficiently.

If, alternatively, you wish to protect your family wealth from divorce or bankruptcy, then it may be appropriate to create a trust, either during your lifetime or on death.  There may be tax consequences of doing this, and your personal circumstances would need to be reviewed in detail.  The important thing is to act sooner rather than later. The ideal time to plan and to ensure your will is appropriate, is now – leaving you enough time to do that other important duty: preparing the father of the bride speech! 

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