Can my wife change my portfolio when I die to provide income?
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I have a substantial investment portfolio which is currently worth £1.5 million plus our home which is worth another £500,000. I plan to leave everything to my wife when I die. We currently live on my pension income but there is no provision for my wife in that, so she’ll have to draw from our investments to cover her living costs. She’s nervous about this. Can she change my portfolio when I die to provide a regular income rather than having to keep selling investments?
Richard Barker of Smith & Pinching responds:
The short answer to your question is yes, an investment portfolio can be adjusted to provide income instead of – or as well as – capital growth. Income can be produced via dividends from funds invested in companies or via interest on savings or bonds, for example.
I think that you and your wife would benefit from some independent advice from a Chartered Financial Planner to manage your planning for your future income and the disposal of your estates. At the moment you are clearly likely to see an Inheritance Tax (IHT) liability on your estate on the death of you or your wife, depending on who dies last. Anything you leave to your wife (or she leaves to you), will be exempt from IHT.
In these circumstances, we have a really useful way of demonstrating how different scenarios will affect your ongoing financial position. Lifetime cashflow planning would allow us to map your finances under different circumstances to see how different levels of income taken from your investment portfolio might impact its eventual value when the surviving partner dies.
There are lots of options to consider to manage a future IHT liability alongside securing income for your wife after your death. It may make sense, for example, to move some of your investment assets into a family trust – but trusts are complex and it’s important to understand the tax implications before going down that route.
Your wife could even sell inherited investments to purchase a guaranteed income for life – an annuity – although that might not be the best use of the wealth she has inherited, particularly if you want to optimise your combined estate for your heirs.
I strongly recommend that you take independent advice to ensure that you can deliver a secure income for your wife in a way that’s right for her and to manage any future IHT liabilities on your combined estate.
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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk