Cash inheritance - with a difference - what to do?

[tgr]

Hi all,

I'm hoping to draw on the experience and collective wisdom of the group.

My mum is downsizing and will disperse the proceeds of selling the family home among three siblings, plus enough for her to live on for her dotage.

As it's a large house this translates into about £450k per sibling and £450k for her living allowance.

I have been appointed banker by my brothers, meaning I will be in charge of how things are arranged for her to draw down her living allowance from the £450k, plus I need to invest my £450k. I'm a higher rate taxpayer.

I own my flat outright, no mortgage. My mum owns a flat outright, into which she will move following the sale of her house.

My first thought is that if possible I would want to invest £900k in a way that would provide income, net of tax, in a tax-efficient way. Equally, I realise returns are at an all-time low, and I don't want to take risks with my mum's living allowance.

What should I be thinking about? Thanks a lot for your reactions!

[robbieduncan]

Not an expert but the first question I’d be asking is what income level is required? Next question would be does that have to rise in line with inflation?

Let’s say you can get 5% safely (this is just a guess!) you can have 45k a year without eroding the capital. Great! But if inflation is 2% you need to invest that back to keep track so you are only going to get 27k income. Is that enough? Without wanting to assume I’d say no based on the sale price of the house!

[greygoose]

How old is your mother? She could have decades left to live and need a care home at some point which will be pretty costly.

[tgr]

Good questions:

1) income level: she says she needs £1600 a month
2) how long she has to live: she is 76. Our planning assumption is that she lives another 20 years

[anonymous-user]

need to take account of what else, if anything, she has and, as others have said, to keep at least half an eye on potential care costs

in your position I would line up to see three wealth manager type firms and present them with the facts & the same question

you may, or may not, choose to follow the recommendation of one of them, or you might just use their input to help you think about it yourself

£1600 a month from £450k needs a 4.3% return to avoid dipping into the capital

a bit more is needed really to cover inflation

the answer will likely be some mix of a broad spread of equities, bonds and maybe some insurance type product

but don't ignore the fact that just taking £1600 a month after tax from the £450k sat in the bank will last for a decent chunk of 20 years anyway if she isn't bothered about leaving any

[robbieduncan]

JPJPJP said:

£1600 a month from £450k needs a 4.3% return to avoid dipping into the capital

Indeed but the initial question states investing £900k (450k of the Mother’s and 450k of the posters). I assume with the end goal of inheriting some of the 450k that the mother is keeping in the end. £1600 a month seems easily doable, even allowing for inflation, from £900k. In fact you would probably hope that you would see capital accumulation at that sort of level

[GR_TVR]

greygoose said:

How old is your mother? She could have decades left to live and need a care home at some point which will be pretty costly.

Decent care homes are very expensive. My grandmother's costs £80k a year.

[Far Cough]

Seriously look at putting some sort of "Trust" wrapper round your "gift" as for the next 7 years it can be considered part of the estate if the unfortunate happens to your mother. Once it is in trust it is considered outside of the estate thus exempt for IHT.

Medium risk stocks and shares portfolios are returning excellent gains currently but no idea if you want easy access to your money or not. I would highly recommend a meeting with a financial advisor who can run through all the various scenarios with you including IHT mitigation.

[Mr Pointy]

tgr said:

Good questions:

1) income level: she says she needs £1600 a month
2) how long she has to live: she is 76. Our planning assumption is that she lives another 20 years

Read the IM sticky at the top of this forum & arrange a call with Nik. It's free, without obligation & you'll end up much better informed about the alternatives & issues you may face.

[JulianPH]

Mr Pointy said:

Read the IM sticky at the top of this forum & arrange a call with Nik. It's free, without obligation & you'll end up much better informed about the alternatives & issues you may face.

Thanks for the mention Mr Pointy.

OP - Nik is in Dubai this week, ahead of the launch of our International Private Clients service, but is still available to go over all of your options, just with some time difference delay!

[Caddyshack]

Far Cough said:

Seriously look at putting some sort of "Trust" wrapper round your "gift" as for the next 7 years it can be considered part of the estate if the unfortunate happens to your mother. Once it is in trust it is considered outside of the estate thus exempt for IHT.

Medium risk stocks and shares portfolios are returning excellent gains currently but no idea if you want easy access to your money or not. I would highly recommend a meeting with a financial advisor who can run through all the various scenarios with you including IHT mitigation.

You can only put the nil rate band in to trust which would be exempt from iht, anything extra wrapped in a trust would trigger a 20% tax charge as chargeable lifetime transfer. Trusts are exempt from iht for 125 yrs but you can’t just wrap up any amount now.

If dad had died within 2 yrs ago you could do a deed of variation and wrap that money up.

Rules of deprivation should be observed. A good financial advisor is vital but also a step qualified trust advisor (I know on if you want to Pm me) many financial advisors will be interested in the funds under management but they might not have an eye on the trusts in the same way.

You need to sort out Mums death planning and life planning and then the wealth management.

[chip*]

JPJPJP said:

I would line up to see three wealth manager type firms and present them with the facts & the same question

you may, or may not, choose to follow the recommendation of one of them, or you might just use their input to help you think about it yourself

Definitely speak to a few advisors to see what options they can bring on the table for you and your mother. To quote an IFA on how to find an IFA:

"If you decide you do need the services of an IFA, speak to a few, find one that really cares about you, your fears, goals and objectives and creates a plan that allows you to lead the lifestyle you want without fears of running out of money in retirement (or leaving behind too much!). Ignore those that spend too much time waffling on about managing your money

Regarding fees, it's a complex one, but main thing is to ensure transparency and that you are happy you are getting value for money."

Be aware of the various advisor types too. Some (IFA) provide advice with full access to the whole of the market, some (FA) provide advice with restriction on products/platforms, and some provide guidance/info only with restriction on products/platforms (last type is non-regulated).

From my recent advisor search to undertake a sizeable transaction, I am pretty confident you won’t be short of new best friends from the financial / investment industry! I eventually signed up with an IFA / financial planner who specialised in the (pre & post) retirement space, and I will be happy to share his details if you are interested.

Edited by chip* on Tuesday 18th February 20:10

[Simpo Two]

Far Cough said:

Seriously look at putting some sort of "Trust" wrapper round your "gift" as for the next 7 years it can be considered part of the estate if the unfortunate happens to your mother. Once it is in trust it is considered outside of the estate thus exempt for IHT.

Medium risk stocks and shares portfolios are returning excellent gains currently but no idea if you want easy access to your money or not. I would highly recommend a meeting with a financial advisor who can run through all the various scenarios with you including IHT mitigation.

Though if I connect para 1 to para 2 I won't need an IFA to 'mitigate IHT' because it will be in a Trust...

A Trust was the first thing that came to my mind, but if it was that easy everybody would do it and inheritance tax would be extinct. When will the Authorities (HMRC/Councils) start crowbarring open Trusts to get at the goodies inside?

chip* said:

Definitely speak to a few advisors to see what options they can bring on the table for you and your mother. To quote an IFA on how to find an IFA: "If you decide you do need the services of an IFA, speak to a few, find one that really cares about you, your fears, goals and objectives and creates a plan that allows you to lead the lifestyle you want without fears of running out of money in retirement (or leaving behind too much!). Ignore those that spend too much time waffling on about managing your money

They say all sorts of things!

[tgr]

Thanks all for setting out your thoughts - much to consider.

I will try to set up conversations with IFAs but I have very little experience with them except one whose advice I couldn't really understand, so frankly I'm a little bit scared I'll be a sitting duck for poor advice!

A legal structure that minimises tax would be great - provided it does in fact do that and doesn't get me pursued by HMRC. That would really finish mum off!

[LeoSayer]

Caddyshack said:

You can only put the nil rate band in to trust which would be exempt from iht, anything extra wrapped in a trust would trigger a 20% tax charge as chargeable lifetime transfer. Trusts are exempt from iht for 125 yrs but you can’t just wrap up any amount now.

If dad had died within 2 yrs ago you could do a deed of variation and wrap that money up.

Rules of deprivation should be observed. A good financial advisor is vital but also a step qualified trust advisor (I know on if you want to Pm me) many financial advisors will be interested in the funds under management but they might not have an eye on the trusts in the same way.

Slightly OT, but can you recommend a good site that describes the different types of trust, why they are used and how to set them up?

[JulianPH]

anonymous said:

[redacted]

He has his missus in tow mate, so probably not everything it has to offer!

[stuthemong]

Just think carefully about what would happen if she went into a care home in 15years.

Assume her 450 is depleted, and she has to sell her flat to cover fees in the nice care home, not the mank council one.

Shes there for 5 years, now the equity in her flat is depleted. Out of cash.

Are you:
A) going to put her in a bad/nasty home
B) continue to keep her in the nice one, using the 450k she gave you?

The problem is whilst you may vote B, your siblings may vote A. They may not have access to the liquid 450anyway.

So you're now in a situation of look after your mum, by spending all your inheritance, whilst you're angry and resentful of your siblings for thinking that, "you're being silly, the other home was fine. I won't stop you from keeping mum in her current home, but it's your decision to spend your money. I'm keeping my inheritance, it's mine".

So as part of wonderful estate planning you end up with zero and a broken relationship with siblings.

Tread carefully. Have these discussions as a family if you do this in advance. It could hit the fan, 460 won't go far with nice care homes.

But awesome mumming! She sounds great and very kind/generous, just make sure you all reserve enough provision for her. Mum's have a habit of giving too much to their children

Edited by stuthe on Wednesday 19th February 08:50

[tgr]

Sobering thought Stu, thank you

[Mr Pointy]

tgr said:

I will try to set up conversations with IFAs but I have very little experience with them except one whose advice I couldn't really understand, so frankly I'm a little bit scared I'll be a sitting duck for poor advice!

Make an appointment to speak to Nik at IM - you have literally nothing to lose by doing so. There's no cost other than an hour on the phone & if you do talk to other IFAs then at least you'll be better informed. Be wary as they will all be desperate to get their hands on £450k/900k to "manage" for you.

[Sheepshanks]

stuthe said:

Just think carefully about what would happen if she went into a care home in 15years.

Assume her 450 is depleted, and she has to sell her flat to cover fees in the nice care home, not the mank council one.

Shes there for 5 years, now the equity in her flat is depleted. Out of cash.

Are you:
A) going to put her in a bad/nasty home
B) continue to keep her in the nice one, using the 450k she gave you?

The problem is whilst you may vote B, your siblings may vote A. They may not have access to the liquid 450anyway.

So you're now in a situation of look after your mum, by spending all your inheritance, whilst you're angry and resentful of your siblings for thinking that, "you're being silly, the other home was fine. I won't stop you from keeping mum in her current home, but it's your decision to spend your money. I'm keeping my inheritance, it's mine".

So as part of wonderful estate planning you end up with zero and a broken relationship with siblings.

Tread carefully. Have these discussions as a family if you do this in advance. It could hit the fan, 460 won't go far with nice care homes.

But awesome mumming! She sounds great and very kind/generous, just make sure you all reserve enough provision for her. Mum's have a habit of giving too much to their children

What you suggest is possible, but you can worry too much. If the OP is married, there's much more chance of him getting divorced with all the financial impact that entails, than his mum going into a care home.

One of the issues with care homes now is people go into them later - ie in a more decrepit state - than they used to, and the average stay is less than 2yrs. His mum is going into a flat and as long as there's good access - ie it's on the ground floor or it has a lift, then likely she could stay there longer than in a house. She may have to pay for carers to come in while still owning flat, but it shouldn't be ruinously expensive.