Didn’t he do well?
Jessica Jamieson, a partner at Cripps Pemberton Greenish, considers the inheritance tax planning undertaken by Bruce Forsyth, and the importance of life interest trusts for those who have children from a previous relationship. This article first appeared in the September edition of Kent Life.
The legend that was Bruce Forsyth died recently, aged 89, having entertained the nation for decades. He left behind his wife Wilnelia Merced, aged 59, children (from his three marriages) and grandchildren.
Since his death, there have been a number of articles and commentaries on Bruce’s inheritance tax planning. His estate is worth an estimated £17m.
Bruce had previously been quoted saying that inheritance tax is “a bit over the top”. And so he had reportedly found a way to pay no inheritance tax at all.
The reaction to this news has not been overwhelmingly positive, some commentary stating that Bruce “selfishly gave all his monies to a chosen few” and that this is “a perfect example of an uncaring capitalist society to dodge an inheritance tax bill”.
So what was Bruce’s plan? Well, it was a simple one – to leave his entire estate to his wife. Everything which passes to your spouse or civil partner is completely free of inheritance tax, and has been since an unlimited spouse exemption was introduced in 1974.
Reports say ‘It is expected Wilnelia will distribute the money between Bruce’s six children, nine grandchildren and three great-grandchildren’. So, the spouse exemption will be combined with another innocuous tax planning measure – the ability to make unlimited outright gifts, which fall outside your estate if you survive them by seven years.
All of which is very common inheritance tax planning, particularly as in Bruce’s case his wife is rather younger than him giving a higher likelihood of her surviving by seven years.
It is not clear whether Bruce left his assets to Wilnelia outright, or on trust. Obviously, Bruce trusted Wilnelia to do the right thing by all of his children. They had been happily married for 34 years. It is worth considering matters from his children’s point of view, however.
If assets were left absolutely to Wilnelia, it is up to her to choose how she spends the money. She may decide to gift it to Bruce’s family, but equally, she could decide to keep some (or all) of it for herself. If as a result the children received less than they hoped, they may bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 that they had not received reasonable financial provision.
A better option in this case would be for Bruce to leave his assets in a “life interest trust” for Wilnelia. This means that the estate would be held for Wilnelia’s benefit; she would be entitled to live in any property which Bruce owned, and to the income generated by the assets, but she would not be entitled to the capital, which would pass to Bruce’s descendants after her death. Crucially, the trust would need to have built in flexibility giving the trustees the power to transfer assets out of the trust to specified beneficiaries during Wilnelia’s lifetime. Bruce would have been able to state in what’s called a “letter of wishes” how he would like the trustees to exercise their powers.
Bruce would also have needed to specify the trustees in his will. If Wilnelia was not appointed as a trustee, then she would not need to agree or even be consulted about the option of paying the trust assets to Bruce’s descendants during her lifetime, although the trustees may do so, particularly if Bruce requested this.
For inheritance tax these would be treated as gifts made by Wilnelia (even if she did not agree to them). If she survived them by seven years, they would be outside her estate for inheritance tax. This option ensures the tax planning benefits of an outright gift to spouse, whilst ensuring that the assets ultimately end up with your beneficiaries.
Once Bruce’s will becomes a public document we will be able to see which option he chose. For now though, there are lessons that can be learnt by those who have children from a previous relationship and want them to benefit from their estate when they die.
It is challenging to get the balance right between provision for your spouse and provision for children from previous relationships so we would advise seeking professional advice if you are in this position. For more information on this or on other inheritance tax planning issues, please contact Jessica at Jessica.firstname.lastname@example.org or on 01892 506 019.