Inheritance tax planning is rarely addressed through a single decision.
An estate may comprise property, investments, business interests, pensions and other assets, while the individuals involved may have different priorities around liquidity, gifting, succession and preserving wealth for future generations.
This is why effective estate planning is a team exercise.
Tax advisers, solicitors, wealth managers, protection advisers and lending specialists may each have a distinct role to play. What matters is that these conversations do not take place entirely in isolation.
A decision made in one area can have implications elsewhere.
The Tax Liability Is Only Part Of The Conversation
Understanding a potential inheritance tax liability is naturally fundamental. That assessment sits with appropriately qualified tax and legal advisers.
But once a potential liability has been identified, another practical question follows:
How will it be funded?
An estate can be substantial in value while holding relatively little immediately available cash.
Wealth may be concentrated in property, investments or business interests. Without sufficient liquidity, executors or beneficiaries could face difficult decisions when a liability becomes payable, including whether assets need to be sold and, importantly, when.
This is where the funding conversation becomes an important part of the wider planning process.
Protection Can Form Part Of The Planning
Life insurance can potentially provide a source of liquidity when an inheritance tax liability arises.
However, having life cover does not necessarily mean an estate has appropriate protection for its intended objective.
The purpose of the policy, level and duration of cover, and how the arrangement is structured all require careful consideration. Existing protection may also need to be reviewed as the value and composition of the estate, family circumstances and wider plans evolve.
Where trusts, beneficiaries or other estate structures are involved, these considerations should be coordinated with the client’s legal and tax advisers.
Protection should not sit separately from the wider estate strategy. It should complement it.
Lending Can Address A Different Liquidity Challenge
Borrowing may also have a role to play.
There may be circumstances where an estate has sufficient underlying value to meet its obligations, but insufficient cash available at the point it is required.
Property is an obvious example.
A sale may ultimately form part of the estate strategy. However, being required to sell an asset primarily because immediate liquidity is needed can place unnecessary pressure on timing.
In appropriate circumstances, structured lending may provide an alternative source of liquidity against property, giving executors or beneficiaries greater flexibility while the wider estate strategy is implemented.
This is not about using debt to solve a tax problem.
It is about considering whether borrowing can provide useful liquidity while an estate is being administered.
The Right Answer May Involve More Than One Solution
Protection and lending should not necessarily be viewed as competing approaches. They address different requirements.
Insurance can be considered in advance as part of planning for a future liability. Lending may become relevant where liquidity is required against existing assets, whether anticipated within the strategy or needed following a death.
Depending on the circumstances, both could form part of the wider plan.
The important point is that neither should be considered without understanding what the client’s legal, tax and wealth advisers are seeking to achieve.
Good Advice Requires Coordination
Consider an estate containing a substantial property portfolio.
A tax adviser may be assessing the potential inheritance tax position. A solicitor may be reviewing wills, ownership structures and estate arrangements. A wealth manager may be considering investments and intergenerational planning.
The protection adviser needs to understand the liability the client intends to provide for.
The lending adviser needs to understand where liquidity could come from, which assets could potentially support borrowing and how any facility would fit within the wider estate strategy.
Each adviser has a distinct responsibility, but the decisions are interconnected.
That is why communication between professional advisers can be so valuable.
Knowing Where Our Role Begins And Ends
At Henry Dannell, our role is not to provide tax or legal advice.
Our role is to bring lending and protection expertise into the wider conversation.
That may mean reviewing whether existing protection remains appropriate for its intended purpose, exploring insurance where provision for a future liability is required, or considering whether property-backed lending could create liquidity when it is needed.
Any recommendation should sit alongside the work undertaken by the client’s other professional advisers.
Because effective estate planning is not about one adviser having every answer.
It is about bringing the right expertise together early enough to ask the right questions.
And where an estate includes significant property or other illiquid wealth, one of those questions should always be:
Where will the liquidity come from when it is needed?
Inheritance tax and estate planning should be considered with appropriately qualified legal and tax advisers. Protection is subject to eligibility, underwriting and provider terms. Lending is subject to individual circumstances, property acceptability and lender criteria. Where borrowing is secured against property, the property may be at risk if repayments or other terms of the facility are not maintained.
