How can I protect my inheritance?


Having worked hard and saved even harder it is often important to know that we have enough money to get us through retirement and to pass on an inheritance to the next generation. But both objectives are no longer guaranteed. Increasingly, there is an awareness that future generations may have to look after themselves. This does not support the idea of a developing society in which each successive generation is expected to do better than their parents after having received a “leg up” from their parent’s own hard work and savings.

Wills And Probate

Still, we try where we can to pass on our wealth to our children and this means protecting their inheritance wherever possible.

Inheritance tax thresholds

For those fortunate enough to worry about Inheritance Tax there are ways to reduce the amount of tax payable on death.

  • Inheritance Tax is paid at a rate of 40% of any money over £325,000 for a single person.
  • Married couples benefit from an Inheritance Tax exemption on assets passing to the surviving spouse on the death of the first spouse. Then on the second death the deceased’s estate can claim a full individual allowance of £325,000 and the first spouse unused allowance which could be a further £325,000. This effectively means that the assets of a married couple up to £650,000 won’t be subject to Inheritance Tax.

Are your assets over the threshold?

If your assets are over these Inheritance Tax allowances then obtain financial advice on mitigating the Inheritance Tax liability. Such advice is dependant on how you hold your assets, if you have sufficient cash assets then you could consider making gifts to relatives, setting up a trust or investing in financial arrangements such as Discounted Gift Trusts which avoid being taxed.

Other considerations…

Inheritance Tax used to be all there was to worry about. For the vast majority of people under the Inheritance Tax thresholds their children could rely on inheriting all that their parents had built up. A liability to pay care home fees has made society think differently.

Partly this is due to the population living longer but not necessarily being able to live independently. In particular, Dementia or Alzheimer’s can make it unsafe for someone to stay living on their own. They don’t need nursing care but they do need the security of sheltered or residential accommodation.

There are increasingly alternatives to going into care. More and more services are emerging to cater for elderly people who need support at home with the cleaning, shopping and gardening.

All of these options – care homes, sheltered accommodation and help at home need paying for. The local authority will only assist in a limited way if you have no savings or property. This is causing us to find ways of protecting that inheritance from care home fees.

For couples who own their own home some care home fee planning can be undertaken within mirror Wills. This involves changing the way the house is owned from jointly to two separate halves. Then in each spouse/partner’s Will their half is left to their children with the proviso that their surviving spouse/partner can still live in the house. If the surviving spouse or partner later goes into a care home only their own half can be used for care home fees. The half of the house own by the deceased spouse then is protected for the children.

Plan early

It is best to undertake inheritance tax planning as early as possible in your retirement. The only other way to ensure that the government or care home doesn’t get your money is to spend it!

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