We all sleep better when we feel confident that our affairs are in order, and as we get older we think more about the legacy we will leave to future generations; specifically, how and to whom our assets will pass on our death.
Increasingly, estate planning is a major concern for our clients. You have worked hard to build up your wealth and want to pass it on to your children and grandchildren to help them as they make their way through life. However, you want to ensure the money is used wisely and at the time your heirs need it most. But how can you have control over what happens after you are gone? You may also have many years left in retirement yourself, and so need to continue to receive income or take capital in the meantime.
Here are some situations we often come across, which may resonate with you.
You want to leave money to your children but are concerned about how they will handle it at this stage in their life. Perhaps you also have concerns about whether their marriage will last. You would prefer it if they received their inheritance as they reach the end of their working life, and so can use the funds to ensure they have a comfortable retirement and do not have to worry about medical costs as they get older.
You want your grandchildren to receive a good education, without being saddled with debt, and would like to contribute to their university (or other course) fees. You would like them to have access to a certain amount of capital while they are at university, then receive the balance of their inheritance around the time they would be looking to buy their first property.
You may be able to set capital aside now to plan for the above situations, but need to leave other funds available for your and your spouse’s use through your retirement years – however long that may end up being. So you need to have full ownership of these funds now, with full withdrawal and income rights, but set up in such a way that they can easily pass to your chosen beneficiaries when you die. Ideally you want certainty of succession without the need for probate.
And then there is the significant issue of tax. As much as possible you would like all of your hard earned wealth to pass to your chosen heirs, rather than a large part of it going to the taxman.
British expatriates living in Portugal generally remain caught in the UK inheritance tax net, since it is based on domicile not residence. And while your children and grandchildren escape Portugal stamp duty (inheritance tax) we cannot be certain this favourable regime will continue for much longer.
The solutions you use for your estate planning should therefore be tax favoured ones. And not just for inheritance tax purposes, but also during your lifetime, so that you can enjoy a tax efficient income today.
Wills are an essential part of estate planning, but are limited as to what they can achieve. If you want control and certainty, as outlined above, you need careful planning and tailor-made solutions.
In our experience, it is possible to structure your affairs, for both Portugal and the UK, so that the right money passes to the right hands at the right time, at the same time as reducing tax during your lifetime and after it. And this does not need to involve complicated administration either.
It is however very important to use robust arrangements which are compliant in Portugal and the UK. As an expatriate you are likely to live in one country, have heirs in another and possibly assets in other countries. Cross-border tax and estate planning has become more complex over recent years, and you need to ensure your arrangements would stand up to scrutiny by the taxman.
Creating and maintaining a good ‘estate plan’ is primarily about ensuring your wishes are carried out in the way you wish, but taking account of relevant legal and tax considerations. The plan needs to be flexible to accommodate events like more grandchildren, or divorce, re-marriage within the family. It is vital that you review it on a regular basis, so if you set up your plan years ago it will be time for a review.
Estate planning is a very specialist area and professional advice from an experienced wealth manager is essential.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com
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