Brian and Veronica

Brian and Veronica, both aged 65 and retired, initially contacted HC Wealth Management for Inheritance Tax advice and to discuss placing assets into Trust for the benefit of their family in the event of both of their deaths. All of their children were adult and independent and they had a number of grandchildren.

After initial discussions it transpired that they had an investment portfolio of just under £1,000,000 and also three properties, one in a prestigious area of London, a holiday home in the UK and a ski chalet in France. Their main concern was that in the event of both of their deaths the family would be left with a large Inheritance Tax bill because the insurance policy that they had in place to cover this liability was due to expire.

Whilst there was a potential IHT liability should they die, given the age of the couple we had concerns as to whether they could actually afford to give away any assets by placing them into Trust at this stage and maintain the lifestyle they wanted. We therefore undertook an exercise where we built a lifetime cash flow for them, based upon their current income and expenditure. As a result of this it transpired they were likely to run out of capital within twenty years simply by continuing to spend at their current level. We then modelled various scenarios, showing the likely effect on their capital if their spending requirements were to reduce at various ages, in the event that either of them should die or become disabled. We then developed an action plan.

As a result of this exercise it became clear that the initial objective (to place assets into Trust) was not the prime concern and we agreed to address how they could best utilise their assets to continue providing the lifestyle to which they had become accustomed. We also agreed to seek replacement insurance to cover their immediate liabilities.

During this exercise and our initial meetings it became clear that the couple were dependent upon the investment portfolio to provide the income they required, with the only sources of non-investment income being their state pensions and a small pension Brian had built up before his retirement. The main source of income came from withdrawals from investment bonds, which made up the bulk of the investment portfolio, the majority of which had been held for nearly twenty years.

Having agreed the overall plan, we reviewed the structure of the portfolio and recommended a strategy of unwinding the investment bonds over a number of years without triggering large tax bills, and using the proceeds to cover ongoing income requirements, as well as beginning to realign the investment portfolio towards achieving the long term objective.

Six months after the couple first approached us we completed the first stage of the strategy, having realised cash to cover their income requirements for the next two years. The first review is due within a couple of months, at which point we will set in progress the strategy for the new Tax Year.