Wanted more dead than alive!

We have all heard the stories of the rich kids gone bad, the heirs and heiresses and trust fund babes who squander their inheritance and sometimes their own lives too. How many of us, however, think about this in relation to our own children? Maybe we think we don’t have enough money to fund any bad habits our children might acquire along the way.

The fact is that most of us are worth far more dead than alive. If both parents were to die prematurely in an accident for example, then the combined value of the house, savings, pension death benefits and life insurances can come to quite a substantial sum.

Until 22 March this year, those who had given some thought to this may well have made suitable provisions for their children in their Wills. This might have included appointing guardians of children under the age of 18 and appointing sensible people to handle the money on the children’s behalf until they reach a more mature age.

Jackie Moor, Head of Tax, Trusts and Probate for Wood Awdry & Ford explains, “Nowadays, young people spend longer in education than in the past, and a good proportion of them are likely to go to university. As a result, most parents and indeed grandparents we meet have decided that should they be deceased before their children are adult, they would like their money handled on their children’s behalf by older more experienced people until they reach a mature age of say 21 or 25.”

Moor adds, “In virtually every case this has been a very sensible move to ensure the children gain some life experience and maturity before receiving large sums of money to handle.”

So what happened to alter this on 22nd March? In his Budget, the Chancellor of the Exchequer, Gordon Brown, made no mention of any provisions that might affect this. However, hidden in the press releases is a massive revision to the way certain trusts are taxed. Many of these provisions will not concern the average man or woman who would generally not be involved with creating lifetime trusts.

However, amongst these draconian new measures, is a provision which means that if parents leave their assets to their children on the basis that the children will not become entitled to the money until an age greater than 18, then the money left in those circumstances will suffer inheritance tax charges every ten years and when the money is distributed. For example, the charge on a combined estate of £500,000 will run into thousands of pounds depending on how old the children are when the Will comes into effect.

Parents are now faced with the choice of leaving all their assets to their children at the age of 18 or their children’s inheritance suffering heavy tax charges, charges over and above the inheritance tax that is payable on the parents’ death anyway.

“These are hardly attractive options!, says Moor, do parents with very young children take a chance on them being mature enough at 18 not to spend their inheritance on wine, women and song or do they instead pay extra tax to the Inland Revenue for exercising what the Chancellor famously calls “financial prudence”?.

“These provisions come into effect from Budget Day, but could be altered before the Finance Bill is enacted, usually in early July. Those who feel that this measure is totally inequitable, and penalises parents who care about their children’s future, should make their feelings known loudly and clearly as soon as possible.”