Probate – Finances on the First Death of a Married Couple
On death it is the immediate income and cash position of the surviving spouse that is the most pressing personal concern. The spouse is often worried about their own financial security and what income and assets he/she will actually be left with.
In conjunction with an independent financial adviser the Probate Practitioner can add great value by reviewing the assets that will remain and establishing the ongoing incomes that these will produce. The surviving spouse is often the wife. She may not have had a close involvement with the financial assets such as pensions, share portfolios, and investment properties, and will often be worried at the prospect of making ends meet. Once the surviving spouse is made aware of the potential of these assets to produce income they are then greatly reassured.
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Before any tax planning measures can be considered sufficient assets must be available for the immediate and future care needs of the surviving spouse. A review of the joint finances acts as an important technical check, as well as providing valuable reassurance to the spouse.
Income & Cash First — Gifts and Capital Tax Planning Second
Once a client’s income objective has been met, and the client reassured that they have sufficient assets in hand, the Probate Practitioner is then well placed to explore the Inheritance Tax planning options. After all, a client should not be advised to gift large amounts of assets when these assets will be needed to produce an income. Likewise, one cannot know what extra income may be required until one has thoroughly explored all of the current sources of income, and the spouse’s future expenditure needs.
As well as outright gifts, where all income potential will be lost, a Probate Practitioner can explore with the financial adviser the use of discounted gifts. These enable gifts to be made while maintaining a source of regular capital withdrawal to the donor.
Using a discounted gift has the advantage of raising the capital available for the client’s monthly expenditure in an income tax efficient manner, whilst also reducing the Inheritance Tax burden on the estate. This would not be possible with an outright gift. Therefore, one is able to advance the primary income objective, and then also meet the Inheritance Tax planning objectives of your client.
In practice, it is an income and expenditure analysis that is always the starting point in reviewing the surviving spouse’s financial options. Once the Probate Practitioner has a complete list of all of the assets and income, this can begin.
Probate Practitioners know that gathering information is the most time consuming part of the process. It is much more time consuming than explaining the outcomes and options to the client.
Initial sources of information, received directly from the client, will only take the adviser so far. This is because a client’s records will often be incomplete and out-of-date, with new investments having been set up and others sold over time. Furthermore, the records that they hold are often too voluminous and contain statements dating back over many years. These are no longer up-to-date and relevant.
In order to obtain clarity, by far the most efficient course of action is to retain a financial adviser to write to the asset providers with the client’s authority.
A financial adviser may be better placed to obtain a complete up-to-date picture. A good financial adviser will have much experience in gathering information from providers, as well as knowledge of the different tax treatments of different policies and assets.
The Letter of Authority
While still a time consuming exercise, a financial adviser will be able to confirm all of the up-to-date information regarding a client’s finances when authorised to do so by a signed letter of authority.
A financial adviser has the advantage that they are able to call directly to the back office of the providers and discuss the policies and their various terms with an experienced manager at the provider head office. This is particularly useful as it is not sufficient to rely simply on their immediate written responses. It is of continued frustration to financial advisers that these are often incomplete. However, they are well placed to get to the bottom of a client’s holdings, and work with Probate Practitioners, in a timely manner.
Furthermore, a financial adviser is qualified to understand the cost and tax implications of the various financial products, as well as being regulated by the FSA to provide a comprehensive range of advice. The Probate Practitioner is able to give some guidance to a surviving spouse, but is not best placed to gather the information efficiently nor understand all of the options available from the many different types of financial asset.
Working with a Financial Adviser
The Probate Practitioner can obtain the best value for their clients by working with the financial adviser who can provide information to the Probate Practitioner which can then be used to advise further e.g. on matters such as Variations to the Will and care fees planning and the administration of the estate.
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