Making gifts after an inheritance

A client received an inheritance of £1 million, and needed help to establish how much she could afford to give away.

“We contacted Woodruff Financial Planning with no clearly developed view of our priorities. The service we have received has been first class in every respect, Woodruff Financial Planning has explained our options clearly at every stage of the process, always offering professional yet impartial advice and guidance. We have every confidence in the quality and integrity of service provided by Woodruff Financial Planning, and would recommend them without reservation.”

Alan and Liz Lazell – Financial Planning clients

Background

We received a referral from Andrea Godfrey, a local solicitor at Fisher Jones Greenwood, who was managing the distribution of an estate to the daughter of her client. The daughter, who was in her 60s, was to receive an estate of around £1 million, which would be reduced to £800,000 after the payment of inheritance tax.

Our client felt financially secure, and she and her husband wanted to give away as much of the inheritance as possible to their 2 children. The solicitor felt it would be wise to first establish whether the couple were secure enough to give away this money. She referred the client to us to examine their future income and capital needs, and to work out whether they would need access to the capital in the future.

Problems/Challenges

Desire to make gifts to their children

The clients’ priorities were to give away as much as possible to help their children to buy their own homes. They already felt secure enough that they did not require access to the capital.

Secure lifestyle

Their priority was to ensure that they had enough income and capital to cover their likely lifestyle expenses for the rest of their lives.

Future care fees

They were keen to ensure that they had enough capital to cover any future care fees if these would be required.

No risk

They wanted to avoid risk as much as possible since they would not be accumulating significant further assets.

Our approach

Understanding lifestyle expectations

We worked with the clients to understand their current lifestyle, and desires for the future. This allowed us to build a comprehensive picture of the future demands on their income and capital.

Calculated how much they needed

We showed them the amount needed to secure their desired future lifestyle. From this analysis we were able to confidently predict that they had more secure income than they required to cover their current and future lifestyle expectations.

Examined different scenarios

We examined different options for the clients to show them what would happen if they:

  • Gave away all of the inheritance
  • Retained part of the inheritance but kept this in cash
  • Invested part of the inheritance in a cautious portfolio

For each scenario we examined their current position versus the possibility of needing to pay for significant care fees.

A final figure

Each scenario used cautious assumptions to ensure that they could be sure of how much capital they needed to retain no matter what happened.

Outcomes and Impact

Secure lifestyle

We confirmed that the clients had more guaranteed income than they needed to cover their current lifestyle expectations. Indeed, we encouraged them to spend more on their expenses as they were still saving monthly, despite being retired!

We showed them the recommended amount required to cover significant care fees.

Gifts to the children

They were able to plan large gifts to each of their 2 children to allow them to pay off their mortgages. They had the satisfaction of knowing that they children’s futures were far more secure as a result.

No need for investments

Given their secure position, and the fact that they were averse to risk, there was no need to take any risk with their investments.

Referral back to the solicitor

We referred the clients back to their solicitor to examine the possibility of using a deed of variation to effectively pass the planned gifts to their children as if this part of the inheritance had never passed to them. This would not have saved on the initial inheritance tax, but may have had advantages to avoid further tax if the couple did not survive 7 years from the date of their gifts.