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Wills

Everyone knows what, broadly, a Will is, but how many people know how it works and what it can do?

Whilst definitions can be dull, the usual one for a Will does sum up the subject well. It is:

‘A legal declaration of an individual’s intentions as to how he or she wishes to dispose of their property after death’

Thus, a Will only takes effect on death and can be cancelled or altered at any time before death, provided the person making the Will is of sound mind.

If a valid Will is not in place, when someone dies, their Estate (money, property and other belongings) will pass under the Intestacy laws which state which of the deceased’s living relatives should inherit and in what quantities. If there are no living relatives, the Treasury may take the Estate.

Immediately, you can see one of the principal reasons for making a Will. The deceased may have had living relatives but he may:

• not have wanted the person(s) chosen by law to inherit his estate
• not have wanted any of his relatives to benefit
• have wanted certain relatives to have inherited different sums of money

In making a Will you need, in particular, to:

• decide to whom you want to leave your Estate and in what proportion
• consider whom you would wish to appoint as a reserve beneficiary if your first choice were to pre-decease you. All Wills should make provision for reserve beneficiaries
• choose who will be the executors of your Will. An executor is responsible for administering your Estate in accordance with the terms of your Will
• think about who will be their legal guardian, if you have young children
• determine what will happen if you die first or you and your partner, spouse etc. die at the same time
• have given thought to whether you may be liable to inheritance tax

Here are some alarming statistics

• more than 4 in 5 co-habiting couples have not made a Will*
• 79% of households with dependant children have not made a Will*
• over 16,000 people between the ages of 20 and 44 died in 2006, a ratio of 1 in every 1000 in that age group^
• 58% of people in the West Midlands did not know if they had a valid Will or not.~

*National Consumer Council
^www.statistics.gov.uk
~Law Society

MAKE YOUR WILL…..IT'S NEVER TOO EARLY BUT OFTEN ……TOO LATE

Trusts

There are occasions where it might be advisable to include a trust either within or outside a Will but, in essence, trusts are usually introduced to protect or preserve assets so that:

• beneficiaries are appropriately provided for 
• inheritance tax may be mitigated
• assets are protected for family members 
  

Trusts are an extremely wide ranging topic but in order to give an indication of their possible scope, here are some examples of how they can help:

i) Children's Trust -This type of trust is set up to provide funds for children who have lost one or both parents. The funds are invested by the trustees appointed in the Will.  The trustees have access to the trust fund for the maintenance, benefit and education of the children.  The Will specifies at what age the children should inherit, which may be between 18 and 25.

ii) Life Interest Trust -This type of trust gives a beneficiary a right over an asset (usually property), or an enjoyment of that asset or property during their lifetime.  They do not own the asset and upon their death it passes to another beneficiary named in the Will.  This is a useful means of providing for a spouse, partner or other person (e.g. dependant relative) during their lifetime but retaining ultimate control over who actually inherits the asset (often used to ensure that children do not lose their inheritance if the surviving partner becomes involved in a new relationship or if the children are from a previous relationship).

iii) Discretionary Trust -This type of trust is most commonly used in inheritance tax planning.  However there may be circumstances when a person drawing up a Will is uncertain how much money a beneficiary is going to need and/or when it is going to be needed.  This is particularly relevant in the case of children and other dependant relatives who cannot manage money for themselves.  A discretionary trust gives flexibility to the chosen trustees who are, in addition, responsible for the investment of the capital.  An advantage of this type of trust is that it does not form part of the estate of the beneficiary.

iv) Disabled trust -This trust enables trustees to look after the needs of a disabled beneficiary.  This type of trust does not affect disability benefits.

Trusts require careful thought.  InHeriTance Matters is well placed to help you with sound advice to make the right decision for your circumstances.

Protective Property Trust Wills

Most couples own their home jointly, known as a joint tenancy.  This means that they both own the whole property.  On the death of a joint tenant, the home AUTOMATICALLY becomes the sole property of the survivor - who is then free to do what they wish with it.  However this may not be in the best interests of the deceased's family:

If the survivor then remarries, it is possible that the whole of the house will then pass to their new spouse on their death, thus disinheriting the children of the first marriage.

or

If the survivor has to go into a Nursing or Residential Home, as the sole owner of the property, the Local Authority has powers to charge the cost of care against the value of the whole house, again disinheriting the children.

or

The value of the house is such that the survivor’s estate will be liable for Inheritance Tax on their estate.

or

If the couple have children from a previous relationship and have made Wills leaving everything to each other on first death and then to the children they have between them on second death, there is nothing to prevent the survivor redrafting their Will and disinheriting the children from their deceased partner's first relationship

The answer to all of these problems, is to change the way the home is owned from Joint Tenants to Tenants in Common - a straightforward process that doesn't involve the mortgage company even if the property is mortgaged.

As Tenants in Common each owner owns a share of the property (usually, but not always, 50%) and the Will is drafted to enable them on their death to leave their share of the property to whomever they wish including:

• leaving it to their (own) children so that should the surviving spouse remarry or change the Will they will only own their own half of the property and can only give their own share to their new spouse or their own children.  Provisions can be made in the Will, through a trust, to delay the gift.  Such a trust prevents the surviving spouse being forced out of the home and also ensures that the spouse can have access to the capital and/or income if the house is sold.

• leaving it to their (own) children so that if a surviving spouse needs care, the Local Authority can only charge the cost of care against the half of the house that they own - ensuring in either case that their children inherit at least half of the value of their home.  In fact recent case law indicates that the value of half a house (providing the owners of the other half do not want to sell their share) is effectively nil and in these circumstances the Local Authority cannot charge any of the cost of care against the value of the house.

InHeriTance Matters can help you ensure that YOUR home is protected for YOUR beneficiaries

Inheritance Tax (IHT) Planning Wills

"It is, broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue", Roy Jenkins (former Chancellor of the Exchequer)

It is an inescapable fact that more and more people have become liable to this ‘death' tax than ever before. It may be a shock to know that your children could receive an inheritance far smaller than you intend because of this tax becoming due on part of your estate when you die.

In the current tax year, it is estimated that inheritance tax will yield some £4 billion and that up to 10 million people could be affected by this tax when they die.

So what can be done? Briefly, you can...

• Do nothing
• Spend (to reduce the value of your estate)
• Insure (to cover the tax likely to be payable)
• Make lifetime gifts
• Trust Planning

This article looks at the possibility of Trust Planning

Everyone has an IHT allowance (also known as the Nil Rate Band) which is reviewed annually.  For the current tax year to 4th April 2010, it is set at £325,000.  This may seem, on the face of it, a rather generous figure.  However when all your assets are taken into account including, for example, the value of the family home and perhaps life policies / death in service benefits from a recently deceased spouse, it is surprising how many people find themselves in a situation where IHT could potentially be payable.

The Government in October 2007 changed the rules with regard to the transfer of the IHT allowance between married couples or those in a civil partnership.

Transfers between spouses / civil partners on death do not attract IHT.  Prior to the changes in 2007, unless provision was made in a Will for a trust to be set up at the time of a first death, the IHT allowance of the deceased was lost if they had bequeathed their assets to the survivor.  Now, the unused IHT allowance from a deceased spouse / civil partner may, on application, be transferred to the survivor.  Based on the current allowance, the surviving spouse / civil partner would then have an allowance of £650,000 (£325,000 x 2). Superficially, this change would appear to be generous, but it could be storing up a problem if, on second death, the value of the survivor's estate is greater than the combined allowance.

The difficulty is that, traditionally, the Government fails to increase the IHT allowance in line with the monetary appreciation of people's assets, in particular property values.  As the surviving spouse / civil partner generally inherits the deceased's estate which is likely to grow more rapidly in value than the IHT allowance, then on second death there could be a higher tax bill to pay than need be the case.

Something can be done about this...

InHeriTance Matters can draw up Wills for couples with IHT saving clauses which allow for the creation of an IHT saving trust on first death.  Once the assets have been placed in the trust, they can continue to grow in value free of IHT thus significantly reducing the surviving spouse / civil partner's IHT liability on second death.

Unmarried couples can also prepare their Wills to mitigate IHT.  On first death any assets above the Nil Rate Band will attract tax at 40%. If they leave the net amount to their partner, then on second death those assets (already taxed) will form part of the survivor's estate.  If that estate is above the Nil Rate Band, it will again be subject to 40% inheritance tax.  A more tax effective method is to set up a trust on first death, as any assets in that trust will not form part of the partner's estate.

InHeriTance Matters would be pleased to show you illustrated examples of how these Will trusts can work to your advantage.

Lasting Power of Attorney (LPA)

Most people acknowledge that it is important to organise their affairs in the event of their death which is the purpose of a Will.  However, many fail to make similar provisions to deal with their affairs, should they become unable to look after themselves during their lifetime, through physical and/or mental incapacity, an increasing possibility given the continuing advances in medical care.

It is a myth to believe that one’s next of kin is able to assume immediate responsibility for one’s affairs.  The Data Protection Act forbids, for example, a telephone provider speaking with any person other than the account holder.  In fact an application through the Office of the Public Guardian to the Court of Protection has to be made; this typically takes several months to have approved and costs many hundreds of pounds in the process.

This lengthy procedure can be readily avoided by creating a Lasting Power of Attorney (LPA).  This is a legally binding document that enables you to appoint a  trusted person or persons to look after your affairs should incapacity strike perhaps due to illness, accident or infirmity in old age.

It is essential that such arrangements are made whilst you are fit and healthy since the law does not permit arrangements to be made after the event.  This can leave families with a multitude of practical problems.

There are two forms of a LPA.  One covers the management of financial affairs, the other deals with personal welfare such as medical care.

Whilst the LPA is a powerful document, there are numerous safeguards to prevent its abuse.  For example, you can include restrictions on what the attorneys you appoint can and cannot do under the authority of the documents.  You can also include advice or guidance on how you would like them to act.

An LPA can be updated or cancelled at any time should your circumstances change. 

Resembling an insurance policy:

It is better to have one and not need it than to need one and not have it.

For more information, please contact InHeriTance Matters who will be pleased to discuss the subject with you in more detail.

Advance Directives (also known as Living Wills)

Today there are many treatments given to patients who are terminally ill.  Treatments may include being kept alive on a life support machine.  Whilst such actions may prolong life, they may also offer little or no chance of recovery.

Would you want your life support machine switched off in such circumstances?

Would you want your grieving relatives to have to make that decision?

An Advance Directive enables you to state which treatments you would or would not want if you became seriously ill and were unable to participate in decisions about your medical care.  An Advance Directive is recognised by the British Medical Association and is legally enforceable provided that two doctors have certified that they are of the opinion that you are unlikely to recover from your condition.

An Advance Directive enables you to:

1. make choices about the level of medical treatment that you would want should you be suffering from a life threatening illness
2. appoint someone to take part in medical decisions on your behalf should you be unable to do so
3. make statements to be considered by those dispensing treatment about the treatment you want, or do not want, to be given

AND

gives peace of mind as your family are not left to make difficult and emotional decisions.

Advance Directives cannot be used to refuse basic nursing care or ask that staff do not offer you food and drink by mouth.

For more information on drafting an Advance Directive, please contact InHeriTance Matters who will be pleased to help you.

Funeral Plans

What is a Funeral Plan and how does it work?

Such a Plan allows for a cremation funeral (either your own or that of a friend or relative for whom you will have responsibility) to be prepaid in full at today’s prices, no matter the age of the person for whom it is being arranged; thus avoiding rising funeral costs over the years ahead.

None of us know how long we are going to live, so even if you have put aside money to pay for your funeral it may not be sufficient and your family could be left to make up the shortfall.

In 2007 (the latest period for which there are statistics available), the average cost of a funeral was £2,390. Alarmingly, this figure is predicted to increase to £3,350 by 2012.

There are many benefits to setting up a Funeral Plan:

• Straightforward to understand and simple to buy
• Choice of Plan to suit your own circumstances and wishes
• Family is free from the financial obligation of paying for your funeral
• Purchasing a Plan may assist in reducing the amount of inheritance tax payable on your estate
• Payment can be made in full immediately or by instalments over a maximum of three years
• Funeral Service planning is organised in advance because your wishes are detailed in the Plan, thus saving your next of kin having to decide how you might have set the arrangements
• Your payment(s) is securely held in an independent trust fund and thus safeguarded until the Plan is needed.

What next?

InHeriTance Matters has linked up with a long established and major provider of Funeral Plans and would be pleased to discuss with you how best to take the next step.

Probate

Whether or not you have a valid Will your executors, if you have one (or the next of kin or principal beneficiary should you die intestate) have to apply to the Probate Registry – which has offices in cities and major towns – for what is called 'Probate of the Will'.
 
This document authorises the personal representative(s) of the deceased to administer the estate in accordance with the wishes as expressed in the Will or, if a valid Will cannot be found, through the Rules of Intestacy (as an administrator).  This document has to be obtained within six months of the date of death and is usually only granted when any inheritance tax due on the estate has been paid.

However, if a deceased's estate consists of assets, typically bank / building society / national savings accounts which total less than £5,000 then applying for probate can be avoided.  However an account is still required by Her Majesty’s Revenue and Customs if the value of all property including jointly held assets exceeds the prevailing inheritance tax allowance (currently £325,000).

The role and responsibilities of an executor to a Will should not be underestimated by a lay person.  When the time comes, it can be complicated, time consuming and carries considerable obligations, not the least being a legal liability.  Executors can, of course, instruct a solicitor or other professional adviser such as InHeriTance Matters to undertake specific duties, even if they do not use that advisor to make the probate application.

It can happen that a Will has been made but the executors are not able or are unwilling to act.  What can the next of kin / close family do, at what is probably a highly emotional and stressful time, to sort out the affairs of the person who has just died?  Sometimes the principal beneficiary will step into the breach but, more likely than not, will require professional guidance which is where InHeriTance Matters can help.

Similarly, if a person has died without a valid Will, InHeriTance Matters is well placed to help the family sort out whatever needs to be done in order to comply with the Intestacy Rules.

The principal duties of an executor or an administrator are as follows:

• Locate the Will (executor)
• Register the death
• Gather the assets, keep them safe and insure as appropriate
• Value the estate
• Pay any inheritance tax due
• Apply for and obtain probate
• Pay any creditors
• Distribute the estate in accordance with the Will (or Intestacy Rules)
• Prepare an income tax return to the date of death
• Complete a final statement of account obtaining receipts as appropriate
• Deal with any issues / problems / disputes that can arise

A daunting list especially for the inexperienced executor / administrator.

What are some of the benefits of appointing InHeriTance Matters?

• Experience in a professional and efficient manner
• Release from dealing with considerable and time consuming paperwork
• Transfer of responsibility for complying with the law and keeping meticulous records
• InHeriTance Matters can deal with as little or as much of the process as is required
• Competitive Fees

Please do call us for an exploratory chat on how we may be able to help you.

Document Storage

Every year, thousands of Wills cannot be found when they are needed.  Not being able to locate a Will is equivalent to dying intestate.  The State then decides how your estate is handled which will, in all probability, not be as you would have wished.

The original signed copy of your Will is your ONLY Will and therefore needs to be kept safely.

Do not take the risk of your Will going missing; store your Wills and other associated documents in a secure fireproof facility through InHeriTance Matters.

It is advisable for all clients, but in particular where there is trust work to be carried out on death.  InHeriTance Matters can then help immediate family on the best way forward and arrange to have put in place whatever trusts are appropriate. 

The advantages of the service can be summarised as follows:

• Your Will and other documents in safe storage with National Will Safe Limited (www.nationalwillsafe.co.uk)
• Your Will is kept in a waterproof wallet in a specialist document archive facility
• While stored it is fully insured
• Personal Will storage ID card supplied
• Bound set of copy documents provided for your reference
• Your executors will receive a copy ID storage card for ease of retrieval
• You can access your documents at any time – free of charge. 
• The location of your documents will be registered free of charge on the National Wills Register (www.nationalwillsregister.org.uk)
• Annual contact to ensure your circumstances have not changed which impact on your Will etc.
• FREE update of your Will every five years (as recommended by the Law Society) on a like for like basis

When needed, documents can either be posted within twenty four hours by the ‘Royal Mail Signed For’ service or hand delivered by InHeriTance Matters.

We can provide your executor(s) with guidance should it be required.

InHeriTance Matters is always happy to discuss changes;  remember that not making those changes could result in the wrong people inheriting your money.

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