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").
Include a clause that says the trustees can end it any time after two years and pass the money to new beneficiaries. "Add a letter of wishes saying you want the trustees to pass the money from the trust to your children. As long as your spouse survives another seven years, the gift may escape IHT altogether."
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