Devotees of the Archers were devastated earlier this year when well loved character Nigel Pargetter died after falling off the roof of his house. His death prompted controversy because he left the Lower Loxley Estate in trust for his son Freddie leaving his widow Elizabeth understandably in some anxiety about her future.
The property had been in the Pargetter family for many generations and it appears that Nigel took care to leave the estate in what is known as an immediate post death interest trust.
The estate will ultimately pass to Freddie but in the meantime it is to be held by the trustees on trust for Elizabeth for life. This means that she has the right to live in the property during her lifetime.
In addition to giving his widow the right to occupy the property, Nigel has also avoided inheritance tax because Elizabeth's life interest is treated for inheritance tax (IHT) purposes as a transfer of the property to her and is thus free of IHT, due to the surviving spouse exemption.
This may appear to be an old-fashioned approach to estate planning but the Pargetter family and many others like them, have used this strategy to preserve the estate and to avoid it being split up between different branches of the family over generations. Needless to say, most testators who take this approach would wish to compensate other children and indeed in Nigel Pargetter's case, he made separate provision for Freddie's twin sister Lily by giving her other assets under the will.
It is not known whether or not Nigel did so, but clients in his situation would be advised to leave a letter of wishes for the trustees to consider transferring the property to Freddie as and when they judge him to be old enough. Such a transfer would be treated as a potentially exempt transfer by Elizabeth and therefore it will escape tax if she survives the transfer by seven years, provided that Elizabeth is excluded from any further benefit from the estate after the transfer has been made.
Any clients who wish to consider Nigel Pargetter's IHT strategy, or indeed any other ways of mitigating their family's exposure to the tax, should contact Michael Tunbridge, or any other member of the Private Client team, on 0114 266 6660.
