Wills and Inheritance Tax planning
Why Make a Will?
We all know we should make a Will but it is one of those things that we never seem to get to round to doing. What’s more, it is vitally important, especially if you have the responsibility of a family or home. By not writing a Will, there can be great upset and your belongings and assets may not go to those people you intended. Having a Will in place will not take away the sense of loss or the grief of losing a loved one but a Will can significantly help the bereaved on a practical level and can minimise the inheritance tax payable. To find out more about wills - see our Wills FAQs.
What can you expect from us?
Dawson Hart offers a cost-effective, efficient and friendly Will-Writing service . At our initial meeting we will discuss all aspects of the Will including the appointment of Executors and Guardians for your children (if applicable) and your wishes as to the passing of your assets. In addition we offer inheritance tax advice if this is required. We know that discussing your Will is a sensitive matter and we pride ourselves on the personal approach to Will writing that we provide to our clients. We welcome the opportunity of working with your accountant and financial adviser when discussing your will and inheritance tax planning. It is tempting to avoid having to go and see a Solicitor to make a Will. For some writing their own Will can be very straightforward. However even a simple Will that has been prepared correctly will be invalid if not signed and witnessed correctly . So do take care.
How can we help?
There are many ways in which we can help. In particular if:
- you have been married before or have children from a previous relationship
- your circumstances and/or assets are complicated
- you wish to mitigation inheritance tax
- you have someone who is financially dependent on you
then you should seek our advice. To discuss your requirements, please contact a member of our Private Client team.
Inheritance Tax
If the value of your estate exceeds the threshold (see below) applicable at the date of your death then inheritance tax may be payable. The inheritance tax thresholds:
- £300,000 in the current tax year 2007/8
- £312,000 in the tax year 2008/9
- £325,000 in the tax year 2009/10
Inheritance tax is presently charged at 40% on the value of your estate that exceeds the threshold, otherwise called the nil rate band (with some exceptions, in particular relating to agricultural and business property). There is no inheritance tax payable on assets passing to a surviving spouse or to a civil partner (unmarried couples do not benefit from such an exemption) or on assets passing to a charity. If you are unmarried or do not have a registered civil partnership then you need to consider the implications of inheritance tax on death and whether there is a need to equalise assets between you and possibly consider the use of trusts to take full advantage of both allowances. Prior to 9th October 2007 we advised married couples and civil partners to consider tax-efficient wills to mitigate the inheritance tax payable on the second death. Where assets pass to the surviving spouse or civil partner there is no inheritance tax payable on them at this time. But on the death of the surviving spouse or civil partner, their estate would have the benefit of their own nil rate band (currently £300,000) but the remainder of their estate is normally taxed at 40%. In effect the nil rate band of the first to die was wasted. Tax-efficient wills, otherwise known as nil rate band discretionary trust wills, had the effect of ring-fencing the allowance of the first to die, saving up to £120,000 of inheritance tax on the second death.
The Pre-Budget Report 2007
On the 9th October the pre-Budget report announced that it will be possible to allow a claim to be made on the death of a surviving spouse to transfer any unused nil rate band relating to the first deceased spouse. This means that there is the potential to double the amount of nil rate band deducted on the death of the surviving spouse. Therefore even if only simple wills are in place, on the death of the surviving spouse the estate of the surviving spouse will have the benefit of inheritance tax relief on assets with a value of up £600,000 (based on current tax allowances). However, this legislation will not come into effect until the 2008 Finance Bill has been enacted next year, although it has been announced that it will apply to all cases where the surviving spouse or civil partner dies from 9th October 2007 onwards. If you have already put in place a nil rate band discretionary trust will, then we would recommend you wait until the proposals have become law before considering any changes, as the proposals could be subject to change before they reach the statute book. In addition there are many other reasons for retaining the nil rate band discretionary trust wills that you have in place or for considering the inclusion and such time in your will in future. These include preserving the assets for the children and grandchildren in the event that the surviving spouse should remarry, need nursing home care or have financial difficulties. Such trusts can also protect the interests of children who have some kind of disability or are in receipt of state benefits, when giving them the fund outright might not be in their best interest or it might affect their benefits. There is flexibility given to the Trustees of these Wills so that they have absolute discretion as to what payments are made out of the trust and to whom. If a beneficiary of the trust is having matrimonial difficulties for example, the Trustees may decide not to make any payments to them at that time. Whatever you decide to do, it is important that you consider all your options, so please contact us if you wish to discuss matters further. It is important to ensure that proper records are retained on the death of the first spouse or civil partner to enable the Personal Representatives on the second death to establish the combined allowance available at that time. We can advise you on what information and documentation will be relevant.
Please contact our Private Client team on:
tel: 01825 762281
email: pclient@dawson-hart.co.uk
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Glossary
A person appointed when either no Will can be found or there is no executor to carry out the intentions of the Will
Granted by the Probate Registry to administrators (usually the next of kin) where there is no Will, to give them the authority they need to act and to administer/distribute the estate.
There are allowances for Income Tax, Capital Gains Tax and Inheritance Tax and these are reviewed annually by the Government.
A person appointed by you to deal with your affairs in your lifetime.
Someone who receives a gift under a Will, a trust or inherits under the intestacy laws.
A gift on which Inheritance Tax may be payable.
A change or addition made to an existing Will.
Abbreviation for Capital Gains Tax.
The Court that has power to make decisions in relation to the property and affairs and healthcare and personal welfare of adults (and children in a few cases) who lack capacity.
A document that declares how and for whom assets are held.
Is the new name for Receivership and means the appointment by the Court of a person where someone is unable to manage their affairs themselves.
A trust where the Trustees decide at their discretion who benefits from a trust and to what extent and when.
Country in which a person is deemed to have his permanent home
The old style power of attorney prior to 1st October 2007
Has two meanings in contract law. The first is where a party refuses to comply with a contract and this amounts to a breach of contract. The second is where a contract was made by a minor (person under the age of 18) who then repudiates it at or shortly after the age of 18. Then the repudiation voids the contract rather than causing a breach of contract.
Abbreviation for Enduring Power of Attorney.
An arrangement to release cash from the value of your home by way of lump sum, income or both.
The person or persons appointed to administer the estate and to make sure the wishes expressed in a Will are carried out.
Someone appointed to look after the interests of a child under the age of 18.
A form of Equity Release to provide you with an income
Abbreviation for Inheritance Tax
Tax payable on the value of a person’s estate at the date of death and in some cases on gifts made during lifetime and in relation to some ongoing trusts.
If you die without having made a valid will, the Law declares you to be intestate and decides how your possessions should be shared out. Intestacy is the name for this situation.
Children, grandchildren and remoter descendants
Where two or more persons may be liable or may be able to act jointly or individually
Two or more persons own land together each of whose interest passes on death automatically to the other not under their wills.
Where Beneficiary dies before the Testator so gift fails – it lapses
A specific item or property or sum of money left in a Will.
Legal document that you (the Donor) make using a special form. It allows you to choose someone that you trust to make decisions on your behalf about things such as your property and affairs or personal welfare at a time in the future when you no longer wish to make those decisions or you may lack the mental capacity to make those decisions yourself.
Abbreviation for a Lasting Power of Attorney
A pair of Wills in which the terms are almost identical. Many husbands/wives/partners have mirror wills where they have decided on the same beneficiaries
Person under 18 years
Amount of inheritance tax threshold
An organisation that was established in October 2007 and that supports the Public Guardian in registering Enduring Powers of Attorney(EPA), Lasting Powers of Attorney (LPA) and supervising the Court of Protection
Abbreviation for the Office of the Public Guardian
A gift of money under a Will
Personal effects and belongings
A general term meaning either an Executor or an Administrator.
A gift made during a person’s lifetime that is exempt from Inheritance Tax if that person lives for seven years after making the gift.
Deed by which one person appoints another to act on his behalf
Proportionately
Land and anything fixed to it e.g. a building; also called real property
Is the old name for Deputyship and means the appointment by the Court of a person where someone is unable to manage their financial affairs themselves.
Where an asset has been given away but where the donor stills retains some benefit then this is called a Reservation of Benefit and can have significant tax implications.
Person entitled to the Deceased’s estate after payment of all debts funeral and testamentary expenses
What is left of the estate after the payment of all debts, taxes, administration expenses, legacies, and bequests under the Will.
Husband or wife
Two or more persons who own land in shares which pass under the terms of their wills or intestacy.
To die leaving a valid Will.
The person (male/female) who makes the Will.
An arrangement by which property is held by trustees to be applied for the benefit of other people known as beneficiaries (and who might include one or more of the Trustees).
The person who holds property on behalf of another person or persons (of whom they may be one) and is responsible for administering the trust assets.
An arrangement whereby certain provisions under a Will may be varied by consent of the beneficiaries after the death of the Testator. Also known as a Deed of Family Arrangement.
A document satisfying the legal requirements for its execution directing who should administer and who should benefit from a person’s estate.