Effective Way to Safeguard a Surviving Spouse

04 August 2007

A Kent lawyer is urging couples to build more protection into their wills to safeguard the surviving spouse, advocating a nil-rate band discretionary trust.

Despite the recent headline-grabbing Phizackerley case involving a discretionary trust where the inheritance tax saving was lost, Sarah Bogard – specialist in wills and personal tax issues at leading south east law firm Furley Page - says such trusts are very effective if they are set up in the correct way.

“You should consider a trust if historically – as in the Phizackerley case – only one of you has been the breadwinner in the family and if you envisage that within about two years of the first death the survivor might decide to move house.”

The Phizackerley ruling turned on very specific facts. Mrs Phizackerley hadn’t worked during her married life and left her nil-rate sum to the trustees of her will. Her interest in the house went to her husband in exchange for his IOU to the trustees. After his death, HMRC Capital Taxes claimed the IOU was non-deductable because of certain anti-avoidance legislation.

But Sarah adds: “If you have completed tax efficient wills in the last few years the provisions of the trust should be wide enough to satisfy the cash legacy to the trustees by a charge where there are insufficient cash assets.

“The charge is different from an IOU in that the surviving spouse isn’t personally liable for the debt. This should prevent the anti-avoidance legislation from applying.”

For more information contact Sarah Bogard

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