Inheritance Tax vs Personal Loan
Discussion
Hi
OK, not strictly a business query, but I guess this is where the legal and accounting cognoscenti hang out
My mother has terminal cancer, but for the time being is fit and healthy. I’ve told her she should be doing ‘all the things she wanted to do’ while she can. I know she fancies seeing Rome & Venice for example. Problem is she has no spare cash for such ventures, and won’t let me pay either! I could, of course, just book something up as a surprise, but I know that she’d feel guilty that I’d paid for it and that would tarnish the whole experience. Daft I know, but she’s never taken ‘assistance’ and won’t start now.
However, I’ve just had an idea that I think could be the solution. She does own her house, although she has already released some of the equity just to live on after my father died. It’s touch and go whether her estate will hit the inheritance tax limits, and in the current climate probably more go that touch!
If she had the money in cash, then clearly she could spend it – no problems there. And if she went through a further equity release exercise with the bank, then again that would be her money she was spending...but that’s not going to happen with the current prognosis
. So, is there a mechanism for me to pay for her travels as a ‘loan’ against the estate? If it’s clear that it’s really ‘her’ cash that’s being spent and I’m just facilitating it’s release I think she may be more amenable for me paying – especially if it’s a loan against a portion of the estate that might fall prey to inheritance tax.
Again, this isn’t her gifting me anything out the estate to save a future tax bill – it’s a mechanism of her consuming some of the value of her own estate with me acting as the ‘bank loan’. I think if she accepts that if she doesn’t spend ‘my’ money right now, then the tax man’s potentially going to have a chunk of it, she would be happier about spending the cash.
So, it is possible – but more importantly would it stand up to scrutiny with HMRC or whoever as a pre-tax creditor against her estate?
Thanks
OK, not strictly a business query, but I guess this is where the legal and accounting cognoscenti hang out
My mother has terminal cancer, but for the time being is fit and healthy. I’ve told her she should be doing ‘all the things she wanted to do’ while she can. I know she fancies seeing Rome & Venice for example. Problem is she has no spare cash for such ventures, and won’t let me pay either! I could, of course, just book something up as a surprise, but I know that she’d feel guilty that I’d paid for it and that would tarnish the whole experience. Daft I know, but she’s never taken ‘assistance’ and won’t start now.
However, I’ve just had an idea that I think could be the solution. She does own her house, although she has already released some of the equity just to live on after my father died. It’s touch and go whether her estate will hit the inheritance tax limits, and in the current climate probably more go that touch!
If she had the money in cash, then clearly she could spend it – no problems there. And if she went through a further equity release exercise with the bank, then again that would be her money she was spending...but that’s not going to happen with the current prognosis
. So, is there a mechanism for me to pay for her travels as a ‘loan’ against the estate? If it’s clear that it’s really ‘her’ cash that’s being spent and I’m just facilitating it’s release I think she may be more amenable for me paying – especially if it’s a loan against a portion of the estate that might fall prey to inheritance tax.Again, this isn’t her gifting me anything out the estate to save a future tax bill – it’s a mechanism of her consuming some of the value of her own estate with me acting as the ‘bank loan’. I think if she accepts that if she doesn’t spend ‘my’ money right now, then the tax man’s potentially going to have a chunk of it, she would be happier about spending the cash.
So, it is possible – but more importantly would it stand up to scrutiny with HMRC or whoever as a pre-tax creditor against her estate?
Thanks
tvrolet,
Sorry to hear about your bad news, I hope you and your mum can get things sorted. Firstly, most life insurance policies now written in the UK include terminal illness cover, paying out the full amount if death is expected in a 12-month period. This isn't included on older policies, so does your mum have any new poicies, or policies which might help you? I'll assume too, that she has no policies which offer benefit under critical or terminal illness, or stand alone critical illness cover.
Secondly, have you heard of viatical settlements? People like your mum who are terminally ill and who want money may use a 'viatical settlement'. Its a transaction in which an independent financial company buys an existing life insurance or endowment policy from your mum (I'm assuming she has one) and then, all future benefits from the policy are assigned to the financial company. But the ill person can have access to a percentage of the policy value immediately (known as a living benefit) and your mum will receive a percentage of its value (usually 70–80% or so, but a smuch as 95% if the policy holder doesn't have too long to live) as an immediate cash lump sum. In effect, its a traded life policy, but done with sensitivity (usually) and on better terms than normal.
The finance company then becomes responsible for all further payments of premiums, and receives all money paid by the insurance company when the policyholder dies. They're only usually available only to people who are expected to live less than three years. Sometimes money can be recovered from life insurance policies in other ways, such as surrendering the whole policy to the insurance company, but seek professional advice. A lot of things regarding suitability will depend on how long your mum has left and what her quality of life is going to be, ie; will she be able to enjoy the money and can she get a good deal, and is the need strong enough to potentially forego 25% or so. VSs have had a bad reputation in the past, but they're legit and legal over here and they are essentialy a fair device.. if they're used by the right person with the right requirements.
2 companies that spring to mind are Life Benefit Resources and The Policy Register.
All the best,
Al.
Sorry to hear about your bad news, I hope you and your mum can get things sorted. Firstly, most life insurance policies now written in the UK include terminal illness cover, paying out the full amount if death is expected in a 12-month period. This isn't included on older policies, so does your mum have any new poicies, or policies which might help you? I'll assume too, that she has no policies which offer benefit under critical or terminal illness, or stand alone critical illness cover.
Secondly, have you heard of viatical settlements? People like your mum who are terminally ill and who want money may use a 'viatical settlement'. Its a transaction in which an independent financial company buys an existing life insurance or endowment policy from your mum (I'm assuming she has one) and then, all future benefits from the policy are assigned to the financial company. But the ill person can have access to a percentage of the policy value immediately (known as a living benefit) and your mum will receive a percentage of its value (usually 70–80% or so, but a smuch as 95% if the policy holder doesn't have too long to live) as an immediate cash lump sum. In effect, its a traded life policy, but done with sensitivity (usually) and on better terms than normal.
The finance company then becomes responsible for all further payments of premiums, and receives all money paid by the insurance company when the policyholder dies. They're only usually available only to people who are expected to live less than three years. Sometimes money can be recovered from life insurance policies in other ways, such as surrendering the whole policy to the insurance company, but seek professional advice. A lot of things regarding suitability will depend on how long your mum has left and what her quality of life is going to be, ie; will she be able to enjoy the money and can she get a good deal, and is the need strong enough to potentially forego 25% or so. VSs have had a bad reputation in the past, but they're legit and legal over here and they are essentialy a fair device.. if they're used by the right person with the right requirements.
2 companies that spring to mind are Life Benefit Resources and The Policy Register.
All the best,
Al.
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