Are you missing the opportunity for a win-win situation?

With ever-increasing competition within the legal sector,
it’s surprising that some solicitors are still missing
out on opportunities to work with IFAs and help their clients – while boosting their own fee income at the same time.

Earlier this year, a potential client told me that he had updated his will, and that his solicitor had mentioned there may be tax benefits if he married his long-term partner. However,
he was left unsure what those benefits would be exactly.

He had net assets (property and savings) of £200,000, so at first glance there were inheritance tax (IHT) issues. But that wasn’t the whole story. The client had £250,000 in pension funds, and had taken out a £120,000 life assurance policy only a few weeks before.

The policy hadn’t been written in trust by either the original financial adviser or the solicitor. Similarly, neither of them had ensured that the client had left expressions of wishes to guide the trustees of his pension funds, which are therefore likely to be paid straight to his estate.

As a result of these oversights, it’s probable that on death the client would have a taxable estate of £570,000, and his partner would be left with an unnecessary IHT bill of £98,000.

Who is responsible for IHT planning? It’s an area that can straddle financial, legal and even accountancy advice. But when I explained the situation to the client, he was surprised that his solicitor hadn’t fully covered this when reviewing his will.

While the suggestion of getting married was technically correct, it’s a big step (and not without its own pitfalls) in
terms of simply avoiding an
IHT bill, which in any event
could be sidestepped far more easily by taking standard estate-planning measures.

I was able to set out two cost-effective steps to avoid
the liability and give the partner access to about £370,000 without having to wait
for probate:

• Write the existing life assurance policy under a discretionary trust for the principal benefit of his partner (but for extra flexibility, with his children from a previous relationship also made potential beneficiaries).
• Put in place an expression of wishes for the existing pension funds requesting the pension scheme trusts pay any death benefits to the life assurance trust or the long-term partner.

At this point, it’s worth noting that some pension schemes will not follow expressions of wishes and insist on paying the proceeds to the estate. Others will not pay to trusts. Where that’s the case, it may be worthwhile transferring his benefits to a more flexible pension scheme.

Everyday planning

My recommendations meant that the client could save his partner almost £100,000, and the costs of sorting this out
were considerably cheaper
that the £22,000 average
cost of a wedding.

Despite the client’s welcome appreciation, I admit that my recommendations weren’t particularly inspired or clever, just standard, everyday planning measures. So why were they missed in the first place?

It could be that the previous advisers simply weren’t confident dealing with these points. In that case, of course, they should have involved someone who was.

The more probable reason, in my experience, is an approach that focuses on transactional services, i.e. just doing the job immediately in hand without looking into the wider context.

The financial adviser will have been paid for establishing the life cover, and the solicitor for writing the will, but both were content to do no more. Perhaps they assumed that further discussions were a waste
of valuable time.

It’s true that, sometimes, digging deeper won’t come to anything. However, very often,
as in this case, asking the right questions would have revealed a situation of benefit to both parties: an opportunity to provide better professional advice to the client, and better fee income to the adviser.

Surely that must be good practice for all professionals. SJ

 Scott Gallacher is a director at Rowley Turton (IFA)