Never too late

My sister, Dr Jessica Simon, is a palliative care physician at Alberta Health Services. She says: "Although 100 per cent of us will die, most of us don't live with that awareness every day. What a life-threatening condition does is take death from the abstract to reality."

Her experience in palliative care is reinforced by my own experience in estate planning. Some individuals are well advised and well prepared so that should something unexpected happen to them, their estates will pass as planned. Some individuals are not as well prepared and it may be hard for them to think about estate planning when dealing with many other matters and emotions, if they have been given a terminal diagnosis.

Others may think that they have left it too late, but there are a number of things that an individual can do to ensure their affairs are in order. Many clients seek the peace of mind that comes with ensuring their family and friends will be looked after. The tax planning that a client may successfully engage in will depend upon their likely life expectancy.

Two weeks to live

The primary concern is ensuring a client has a tax-efficient will in place. This could be a will that makes use of the spouse exemption on the entire estate, leaves tax efficient trusts where a client has young children and enables assets to pass to younger generations without suffering any inheritance tax (IHT).

If the client has a very short life expectancy, their spouse can transfer assets that are standing at a gain to the dying spouse, who bequeaths the assets back to the surviving spouse with the benefit of a capital gains tax uplift at the date of death. This will reduce capital gains tax on a future disposal.

Although the annual IHT exemption is only 3,000, it is useful and can only be used during an individual's lifetime. You can carry forward one year's worth of annual exemption if it is unused, so an individual can gift up to 6,000 free of IHT.

Gifts to charity are exempt from IHT whether made during the individual's lifetime or on death. Lifetime gifts can benefit from income tax relief. However, if an individual is considering making a large gift to charity, they may want to make the gift on death to use a lower rate of IHT (36 per cent), which is available where a testator leaves 10 per cent or more of their net estate to charity.

Two months to live

A non-UK domiciled individual could dispose of UK situate assets and invest in non-UK situate assets. This will ensure that such property is excluded property for the purposes of IHT and will not be subject to an IHT charge on their death.

Transfers to spouses are exempt from IHT. An individual may consider getting married to be able to leave their estate to their partner free of IHT, although any such planning would need careful consideration.

Two years to live

If the individual is likely to live for at least two years, it would be possible to invest in property that qualifies for business property relief, the value of which can benefit from full relief from IHT. It may also be possible to convert an investment company (which would not qualify for business property relief) to a trading company.

Borrowing

Borrowing to acquire excluded property or qualifying business property used to be an effective tax planning technique. However, since the Budget 2013, its effectiveness has been curtailed and detailed advice would need to be taken.

Similarly, HMRC has recently changed its view on specialty debts, which used to ensure that the debt is an offshore asset (and therefore excluded property), so again detailed advice would need to be taken.

Daniel Simon is a partner at Collyer Bristow. Associate Alison Kempenaar is co-author