• | Making or amending a Will at any time |
• | Handling the estate (the property and assets) of another person after death |
• | Inheritance Tax Planning |
• | Explaining Powers of Attorney & Enduring Powers |
• | Advice on retirement and savings |
To many people, the thought of making a Will at a young age is just being pessimistic, as the concept of death, and the responsibilities it entails are not urgent issues, but this is a very important matter which should be addressed as soon as possible.
Making a Will is about providing for your loved ones in the event of your death, by arranging for executors, (people whom you trust to ensure that the terms of your will are carried out after the date of your death) to identify and value all of your assets and debts, make an application, if required, for a grant of probate, to settle your income tax affairs and pay any debts, pay any inheritance tax due on your death, and to carry out your instructions as set out in your will.
In some cases, because of their age or mental incapacity, beneficiaries may not be able to properly look after assets themselves. A trust would therefore be created under such circumstances in order to protect their interests.
Trusts can also be created for tax-planning reasons. The most usual types of trusts which can be created are:
Bare Trust
This type of trust is not, strictly speaking, a trust at all.
An asset is held in the names of trustees, but the trustees only nominally own the assets within the trust. The real owners are the beneficiaries. Such trusts arise commonly when children are entitled to assets but they are not old enough to have legal authority to deal with those assets.
Discretionary Trusts
The trustees of a discretionary trust have discretion as to how they treat the assets within the trust, and this applies to both capital and income in the trust.
The trustees will not normally have absolute discretion, as the creator of the trust ("the settlor") will stipulate the people or charities in respect of which discretion can be exercised. If a settlor is concerned about the way in which trustees can exercise their discretion then, in the case of a lifetime settlement the settlor can be a trustee himself. In all settlements the settlor can also sign a letter of wishes, which gives non-binding instructions to trustees as to how the settlor would wish their discretion to be exercised in the future.
Interest in Possession Trust
This is a trust whereby a person (normally known as a tenant for life) is entitled to income from the trust but is not entitled to the capital.
As an example, such a trust would be established when, say, one spouse dies and wishes to leave sufficient funds to the surviving spouse for the rest of his or her life, but at the same time wishes to ensure that he or she cannot dispose of the capital assets.
Accumulation and Maintenance Trust
This type of trust is a special type of discretionary trust. The beneficiaries must all be grandchildren of a common grandparent (not necessarily all children of the same parent), and a beneficiary must receive part or all of the income on or before his or her twenty-fifth birthday. Until then, the income must either be used for his or her maintenance, education, or benefit, or be accumulated.
The provisions of the Trustee Act 2000 are now in force and can affect any trusts, even those established well before the Act was made.
There is a duty on trustees to invest funds in their care, with a view to gaining a financial return for the trust. In performing this duty they must exercise proper care, which requires more than just good faith and honesty. Trustees have to be sufficiently proficient so as to observe some standard investment criteria, including:-
• | Suitability to the trust of the kind of investments which may be made |
• | The need for diversification and investment so far as is appropriate to the circumstances of the trust. |
Trustees have to exercise their duties honestly and fairly, and the circumstances of each trust must be taken into account on an individual basis.
Executors appointed under a will, would usually have to obtain a grant of probate before they have authority to deal with the assets in an estate. The procedure for obtaining a grant of probate will vary depending upon the nature of the assets and their value.
If an estate is “excepted” (i.e. the value of the assets and relevant lifetime gifts is under a certain figure) then executors will need to complete a Return of Estate Information for the Inland Revenue and sign an Oath before forwarding the return, the Will and the Oath to the Probate Registry. A fee will be payable to the Probate Registry (currently £40) and a grant of probate should follow within three to four weeks. Once a grant of probate is received then the executors have authority to deal with assets within the estate and can proceed with the administration.
If the estate is not “excepted”, then the executors will need to complete a detailed Inland Revenue Account and pay any tax that may be payable on the death before forwarding the Will and Oath to the Probate Registry. There are stringent penalties imposed upon executors by the Inland Revenue if the executors fail to include in the Inland Revenue Account full details of all assets.
If you die without having made a will then you are said to have died "intestate". If this happens then the laws of intestacy govern who is to inherit your estate and this can lead to unexpected and undesired results. For example, if you do not leave a will then:-
• | If you are married your spouse will not automatically inherit all of your estate. |
• | If you are not married your partner will not inherit your estate. |
• | You will not have made any provision for who should be appointed as guardians for your young children. |
• | You have not appointed anyone to act as your executor. |
• | The administration of your estate is likely to take significantly longer to complete than if you had left a will. |
Until October 2007, it was possible for married couples and civil partners to shelter the Inheritance Tax (IHT) Nil Rate Band (NRB) available to the Estate of the first to die from IHT which would fall due on the survivor’s death. This was typically done by creating a discretionary trust of the NRB by Will, which then took effect after the first death.
However, in October 2007, the Chancellor announced that the NRB for married couples and civil partners would be transferable in so far as the assets of the first to die passed to the survivor.
This means that if one of a couple dies, and leaves all the Estate to the survivor, the survivor’s Estate can then claim 2 full NRB’s at the rate applicable on the survivor’s death.
The first death can have been at any time, but the second death must have been after October 2007. There is no longer any IHT advantage in setting up an NRB discretionary trust in your Will, as it may reduce the NRB available on the second death, although there are other advantages to be gained, for example sheltering assets from residential care fees, or vulnerable beneficiaries, or step families. However, please note, that the assets you put into your NRB discretionary trust could theoretically increase in value faster than the NRB itself increases, for example, building land, so there may be a use for the NRB will trust in such cases.
The NRB is currently £300,000.00 and will rise to £312,000.00 in April 2008 and £325,000.00 in April 2009.
Signing a Power of Attorney gives someone else the power to deal with your property and investments if you cannot, due to infirmity, illness, or absence abroad. If the Power is a Lasting Power of Attorney it can be used after you become mentally incapacitated as well as before. Failure to appoint an Attorney may mean someone else has to apply to the Court of Protection for authority to look after your affairs. This can be a lengthy and costly business.
We are not ourselves authorised to give financial advice. However, we have close links with reputable Independent Financial Advisors to whom we can refer you to discuss all of your financial needs such as pensions, investments and mortgages.