Case study: Supporting a client’s inheritance planning goals

At 7IM, we understand the importance of incorporating robust, tax-friendly inheritance strategies as part of a wealth plan. Making succession plans should enable you to benefit from optimal financial planning that includes wealth accumulation and growth, while facilitating the elements connected with financial succession.

The following case study, based on a real-life scenario, illustrates the importance of creating value through strong inheritance planning that contributes significantly to achieving financial freedom.

Background

Abby, whose name we changed to respect client confidentiality, decided to contact 7IM when she received an inheritance.

The issue

Having received a significant amount of money, Abby wanted to make sure that her children were best positioned to benefit from her future wealth and minimise the tax burden on her own inheritance.

How 7IM helped

Upon taking Abby as a client, our first step was to also bring her husband Raymond onboard so we could optimise their tax position as a married couple (who benefit from some extra allowances compared with single individuals).

We then collaborated with Abby and Raymond to:

• Place their investment accounts into joint names. We also established individual savings accounts (ISAs) for both Abby and Raymond so they could benefit from tax-free interest on cash and capital gains.
• At the same time, we helped Abby and Raymond consolidate their pensions into a 7IM Self-Invested Personal Pension (SIPP) to optimise the costs and fees charged, and make contributions into the newly consolidated SIPP.

Topping up their pensions into a SIPP provided the couple with tax relief on their annual pension allowance.

• Set up a trust for their children, placing the money into a fund via an offshore investment bond. Abby and Raymond had plans to pay for their children’s education, so a discretionary trust was the optimal solution based on tax benefits.

We validated this solution with our industry-leading financial modelling software, which confirmed this transfer would not impact their ability to meet other financial goals.

In this case, it made sense to set up a discretionary trust given the significant advantages it offered to the family. This trust we set up on behalf of the client invested through an offshore bond, offering generous tax benefits, and future flexibility.

This arrangement also ensured that Abby and Raymond retained control over the money placed in the trust, whereas if they were to gift the money to their children through a junior ISA for instance, the latter would receive full control of the money from the age of 18.

In addition, placing the cash in a trust moves it outside of Abby’s and Raymond’s estate. This means that, provided that the parents don’t pass away in the seven years after they passed the money to the trust, it would be free of IHT.

• Adjusted their risk position across investments. Our review showed their risk appetite didn’t match the level of risk in their investments.

To address this gap, we agreed that the clients’ SIPPs would be adjusted to reflect a slightly higher level of risk for the longest timeframe.

We also made some other risk-related adjustments, including shifting the underlying investments towards 7IM’s Select fund range, which looks to provide capital growth over the medium to long term. This also ensured Abby and Raymond benefitted from 7IM’s strategic asset allocation, where our Investment Team looks for growth potential taking a long-term view.

• Set up a life assurance policy on their behalf to cover any IHT liability on the funds they hold.

We have also been working on moving some of the funds in their general investment accounts into offshore bonds, which as mentioned, offer significant tax advantages.

The outcome

The clients have, at the time of writing, been 7IM clients for three years, and as their financial ambitions and dreams evolve, so does our relationship with them. We continue to make changes to their positions to continuously enhance their tax efficiency.

We started working closely with Abby and Raymond because they were concerned about their inheritance planning goals and what these meant for their children. Fast-forward three years, and the couple has become a true example of the benefits of thinking about a multi-generational approach to financial planning.