Report states Sir Bruce Forsyth’s will left all his estate to his wife to dodge inheritance tax (IHT). On the assumption he had access to the best tax advice, should you be following his example?
His will
It didn’t take long after Sir Bruce Forsyth’s death for the press to get details of his will and start bandying about the inheritance tax (IHT) planning he used. He left his whole estate to his wife, but apparently with the proviso that she then give a large part of it away to his children.
Exempt transfer
You probably already know that transfers from one spouse or civil partner to the other are exempt from IHT. There’s nothing special about Sir Bruce’s will in that respect. The suggestion in some parts of the press that this is a tax dodge is both wide of the mark and illogical.
Why is the exemption needed?
The so-called spousal exemption is a necessary part of the IHT rules. Without it, if an estate was in excess of the limit at which IHT becomes payable (£325,000 until 2020 at least) it could, for example, force the surviving spouse to have to sell their home simply to pay the IHT bill.
Part two of the plan
The papers also suggest that Sir Bruce’s plan includes an arrangement for his widow, Wilnelia (W), to give away a large part of his estate to his children. This isn’t quite correct. An arrangement that required W to transfer some of it to other beneficiaries would be caught for IHT. Instead what he probably did was leave a “letter of wishes” which, while not part of the will, would have been handed to W.
Letter of wishes
A letter of wishes sets out what the deceased wants to happen with their estate after their death. But importantly it’s neither an instruction nor a binding document. So in Sir Bruce’s case it might well have expressed his wish for his children to receive a certain amount. However, it would be within W’s power to ignore the letter entirely or modify his wishes.
Tip. The key to a letter of wishes is that the requests it makes must not be binding. It’s usual to discuss the arrangement at length before it’s drawn up, and for those who potentially benefit to be made aware of its contents. This ensures there’s no misunderstanding, which is very important in this sort of situation.
Tax consequences
A gift in accordance with a letter of wishes is treated for IHT purposes as made by the person the letter is addressed to; in this case W. The same rules apply to her as to anyone else who makes a gift during their lifetime. Namely, the gift will count as part of her estate for calculating IHT if she dies within the following seven years. If she survives this period the gifts will become exempt.
Tip. A letter of wishes is not a guarantee that your estate will go where you want it to, but it can be a useful tool where you want to make gifts to others apart from your spouse/civil partner and there’s a reasonable chance you won’t survive a further seven years. We recommend contacting a solicitor for advice if you’re considering a letter of wishes.