How ill health helped avoid financial catastrophe
Putting your financial affairs in order is often overlooked. This was certainly the case for 64 year old Dr Tudor, a GP from Cheshire, and his 52 year old physiotherapist wife, Jane. The catalyst for Dr Tudor was when he was forced to undergo a double lung transplant, an event which brought sharply into focus the need to tidy up his finances. Maximising what he could leave his wife and three daughters suddenly became the all consuming priority. The operation was thankfully a success.
Fate had another cruel trick up its sleeve for Dr Tudor's family. Two and a half years later, his wife Jane was diagnosed with breast cancer. On the recommendation of close friends, Dr Tudor sought help from Xentum.
Inadequate savings
When managing director of Xentum, Dominic Baldwin, first met the Tudors, they were all unaware of the news awaiting Jane. Consequently, Dominic and his in-house team worked on the premise that it was only Dr Tudor's life expectancy which was severley limited and planned accordingly for his family. What the team of experts found was that over the years Dr Tudor had acquired around 20 policies, many of which were providing an inadequate return in terms of financial growth or tax efficiency. In short, it was a portfolio that was not fit for purpose.
The news came as a shock to Dr Tudor who felt he had adopted a realistic approach to financial planning. Over the years he had diligently saved a nest egg for his family. In reality he had built up a "pick and mix" of policies that through neglect were no longer effective in delivering his financial objectives.
Dr Tudor had tried to keep an eye on his investments but like many people, he found much of the financial jargon confusing and off putting. Like so many investors, he now realises he had fallen into the trap of mistaking salemen's patter for independent financial advice. When he received the news from Xentum that his portfoliio would in no way meet his expectations, it was a significant setback.
Dr Tudor's one regret is that he didn't hand over the management of his financial affairs earlier. When he did take the plunge five years ago Xentum immediately moved to consolidate the Tudors' policies into a discretionary fund portfolio and made maximum use of both ISA and capital gains annual exemptions. Over the next couple of years, poorly performing policies were discarded as and when penalties no longer applied.
More challenges
Sadly, having got the family portfolio back on track, it was all but derailed by Jane's life threatening diagnosis. This then meant that the prognosis for both Dr Tudor and Jane was poor. This turn of events had significant ramifications for Inheritance Tax (IHT) which, for a married couple is normally payable on second death. As it stood HM Revenue & Customs could potentially swallow up £500,000 - a significant chunk of the assets planned to pass to their daughters.
Solution
Reducing the substantial IHT liability was now a priority. As a result, the discretionary managed portfolio was surrendered in favour of an IHT solution which falls outside the estate for tax purposes after two years. At the same time, stakeholder pensions and ISAs were established for all three daughters and funded by the Tudors as a gift out of normal expenditure. On Xentum's advice the Tudor family has also taken up an Enterprise Investment Scheme which also falls outside the estate after two years and offers immediate income tax relief of 20%. As long as either Dr Tudor or Jane survive for two years - the family's current IHT liability will be slashed from £155,000 to just £8,000. Overall there will have been a tax saving of £151,692 for a fee of just £7,500.
On reflection
"I always wanted to be a family GP" says Dr Tudor "and yet no family was more important than my own. That's why when first my life appeared to have come to a full stop, then the same thing happened to Jane, it finally brought home to me just how important expert financial planning really is. For people who fail to tidy up their financial affairs with the help of professionals, the prognosis, I would suggest, is not good..."
Please note that whilst the above case study relates to one of our clients, the names have been changed on this occasion.
