Tax advice of the week: Add an 'IPDI' to your will

If you leave assets worth over £325,000 directly to your children in your will, inheritance tax will be payable. But there is a way to avoid it.

When drawing up a will you have to consider worst-case scenarios, says Tax Tips & Advice. If, say, you left your estate to your spouse and their business fails and soaks up the money, or they remarry and their new partner argues that they have a claim, your children may be in trouble. But money left directly to children means inheritance tax (IHT) of 40% will be payable on anything over the nil-rate band (£325,000 till 2015).

The solution may be an 'immediate post-death interest' (IPDI). Although IHT will be payable on assets you leave to children in an IPDI that exceed £325,000, there is a way to avoid it. Set up an IPDI trust for your spouse in your will that states they have a right to receive the income it produces, but not the capital ("because it's a transfer to a spouse it's IHT-exempt").

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