We all sleep better when we feel confident that our affairs are in order and, as we get older, we think more about the legacy we will leave to future generations: how and to whom our assets will pass after we die.
Increasingly, estate planning is a major concern for most of our clients. You have worked hard to build up your wealth and want to pass it on to your children and grandchildren to help them as they make their way through life.
However, you want to ensure the money is used wisely and at the time your heirs need it most. But how can you have control over what happens after you are gone? You may also have many years left in retirement yourself, and so need to continue to receive income or take capital in the meantime.
Do you want to leave money to your children but are concerned about how they will handle it at this stage in their life? Would you prefer it if they received their inheritance as they reach the end of their working life, to help them enjoy a comfortable retirement? Or would you like to contribute to your grandchildren’s higher education fees?
You may be able to set capital aside now to plan for these situations but need to leave other funds available for your and your spouse’s use through retirement. So you need to have full ownership of these funds now, with full withdrawal and income rights, but set up in such a way that they can easily pass to your chosen beneficiaries when you die.
If you set up your plan years ago, it will be time for a review
And then there is the significant issue of tax. As much as possible you would like all of your hard-earned wealth to pass to your chosen heirs, rather than a large part of it going to the taxman. More people relocate and move to a new country and therefore cross-border taxation is something which can get overlooked. For example, many British expatriates living in Malta have UK inheritance tax to worry about (which is based on domicile, not residence) other than the local tax to contend with. The two tax regimes work very differently. You also need to understand how the tax treaty works in this case.
The solutions you use for your estate planning should therefore be tax-favoured ones – not just for inheritance tax purposes but also during your lifetime, so you can enjoy a tax-efficient income today.
Trusts can also prove to be extremely valuable for estate planning and wealth preservation. The main benefits include a more simplified transfer on death, the preservation of family property, ongoing management of assets, tax planning and confidentiality of ownership.
A trust also provides the settlor with peace of mind that the assets will be managed professionally and can tumble down future generations diligently, under the guidance of the professional trustee.
In certain cases, for example, where disabled children are beneficiaries of an estate, it makes perfect sense to have a trust. Individuals who are unable to assume the responsibility of handling large sums of money, such as those with addictive problems, or people suffering from mental disabilities, are typical beneficiaries of such a structure.
In our experience it is possible to structure your affairs, so that the right money passes to the right hands at the right time, at the same time as reducing tax during your lifetime and after it. It is important to use arrangements that are compliant and EU recognised.
Creating and maintaining a good estate plan is primarily about ensuring your wishes are carried out in the way you wish, but taking account of relevant legal and tax considerations. The plan needs to be flexible to accommodate events like more grandchildren, divorce or re-marriage within the family. It is vital that you review it on a regular basis, so if you set up your plan years ago, it will be time for a review.
Cross-border tax and estate planning has become more complex over recent years, and you need to ensure your arrangements would stand up to scrutiny by the taxman. This is a specialist area and advice from an experienced wealth manager is essential.
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Kevin Cassar is regional wealth manager, Blevins Franks.