Once it is clear that a person is terminally ill, there is scope for carrying out some deathbed estate planning, if they wish to do so. This could include, for example:
- Reducing their estate to the £2M threshold, to enable their estate to benefit from the ‘residential nil rate band’. If a person dies owning assets worth more than £2M currently, their inheritance tax free residential nil rate band of £150,000 will be tapered away or even reduced to nil. Subject to any possibly capital gains tax consequences, a person in this situation could consider making a gift to reduce his or her estate to below £2M to retain the residential nil rate band.
- Using up any unused lifetime exemptions much as the £3,000 annual exemption and small gifts exemption.
- A terminally ill person with young children can make substantial gifts for their children’s ‘maintenance, education or training’ free of inheritance tax, under s.11 Inheritance Tax Act 1984.
- If the dying person’s spouse or civil partner owns assets which are pregnant with gains, those assets could be transferred to the dying person free of capital gains tax, and then left back to their spouse or civil partner in their Will. This would wipe out the latent capital gain.
- If there is a realistic prospect of avoiding the need to obtain probate, converting bank accounts in the person’s sole name into joint accounts and transferring property held in their sole name into joint names held as joint tenants would assist with this. It will also help to fund any inheritance tax liability.