When inheritance tax planning is discussed, there is understandably a great deal of focus on establishing the potential liability.
What is the estate worth? Which allowances may apply? What could ultimately become payable?
Those are questions for the client’s appropriately qualified tax and legal advisers.
But in the conversations I have with clients and professional connections, I think there is another question that deserves just as much attention:
If the liability is known, where is the liquidity going to come from to meet it?
For families with significant wealth, the answer is not always as straightforward as the size of the estate might suggest.
A Valuable Estate Is Not Necessarily A Liquid Estate
A client may have substantial net wealth, but much of that wealth can be tied up.
There may be a valuable family home, an investment property portfolio, business interests or long-term investments that the family has no intention of selling.
That distinction between wealth and liquidity becomes particularly important when capital is required following death.
The family may inherit significant assets while having relatively limited cash available to meet the financial obligations that arise alongside them.
Without a liquidity strategy, beneficiaries can find themselves having to make decisions about those assets at precisely the point when they would benefit from having more time and flexibility.
The Question Is Not Simply Whether Assets Can Be Sold
It is easy to look at a valuable estate and assume there will always be sufficient assets available to meet a future liability.
Technically, that may be true.
But I think the more useful conversation is about which assets the family would actually want to realise, and when.
Would they want to sell the family home?
Would selling part of a property portfolio affect the income it produces?
Would the family want to dispose of a business interest?
Could investments need to be realised at an unsuitable time?
The purpose of liquidity planning is not necessarily to avoid selling assets altogether. It is to give the family greater control over those decisions rather than having circumstances dictate them.
Protection Can Provide One Source Of Liquidity
For some clients, life insurance can form part of that planning.
Where suitable, protection may provide a defined source of capital following death rather than leaving beneficiaries entirely reliant on the assets within the estate.
Depending on the client’s circumstances and appropriate advice, a policy may also be written in trust. This can influence how proceeds are directed and, depending on the arrangement, may help make funds available without waiting for the wider estate administration process.
The important point is that protection should not be considered simply as a policy designed to match an estimated tax number.
It should be considered in the context of the liquidity the family may require and the assets they are trying to preserve.
Borrowing May Form Another Part Of The Conversation
Protection will not be appropriate in every situation, and it may not provide the entire answer.
There may also be circumstances where property-backed borrowing forms part of the wider liquidity strategy.
That could involve considering existing mortgage capacity or, for older clients, looking across mainstream and later life borrowing options where appropriate.
But this needs careful thought.
Borrowing introduces its own costs and risks, and later life borrowing in particular can have implications for the value ultimately left within an estate.
Our role at Henry Dannell is specifically to advise on the borrowing and protection considerations. We do not determine the client’s inheritance tax strategy.
That distinction matters.
The Best Conversations Happen Before Liquidity Becomes Urgent
This is the part I think is particularly important.
The time to consider how a future liability might be funded is not necessarily when the family suddenly needs the capital.
At that point, the available options may be narrower.
A client’s age, income, health, property position and wider circumstances can all influence what protection or borrowing options may be available.
Considering those questions earlier does not mean committing to a particular solution immediately.
It means understanding what the options could be while there is time to plan properly.
This Is Where Joined-Up Advice Becomes Valuable
Inheritance tax planning can involve several different professional disciplines.
A tax adviser may establish the potential liability and advise on the tax strategy. A solicitor may advise on wills, trusts and the legal structure of the estate. Wealth managers may be involved in the investment position.
Protection and lending advisers have a different role.
We can help answer the practical funding question that sits alongside that wider advice:
If capital is required, what options are available to provide it?
For me, that is where the strongest conversations happen — when each adviser understands their role, protects the client relationship and contributes their expertise to the wider strategy.
At Henry Dannell, we increasingly work alongside professional advisers in exactly this way. We are not there to replace the tax, legal or investment advice already surrounding the client. We are there to bring the protection and lending perspective to the table.
Because knowing the potential inheritance tax liability is important.
Knowing how the family could meet it, without being forced into decisions they would rather avoid, is an equally important part of the planning.
Protection policies are subject to eligibility, underwriting, terms and conditions. A mortgage or other property-backed borrowing is secured against property, which may be repossessed if repayments are not maintained. Later life borrowing can affect the value of an estate and entitlement to means-tested benefits.
