What is the difference between Mutual Wills and Mirror Wills?

The concept of having Wills that mirror each other, for spouses is not something new, however there is a BIG difference between ‘Mirror Wills’ and ‘Mutual Wills’ and this could have consequences later down the line.

Mirror Wills is a term that many are familiar with but this is often used interchangeably with Mutual Wills, and they are VERY different.

So, first things first…

Mirror Wills

Mirror Wills, as you would expect, allow spouses to mirror each other’s wishes, passing their assets to the surviving spouse upon the first death and following the second death, the assets will be passed to those as agreed by both parties when the Wills were drafted.

However, unlike Mutual Wills, the surviving spouse is able to make changes to their Will, or make a new Will, following the death of their spouse, should they choose to do so.

This does however mean that, should the surviving spouse remarry, they could leave their entire Estate (including that inherited from their deceased spouse) to their new spouse and this could mean that the children of the spouse that passed first could be left with NOTHING!

Mutual Wills

Mutual Wills are not as common as they once were and are not usually recommended by Will writing professionals, for the simple reason that once one spouse has passed, the Wills become binding on the surviving spouse and they are unable to change their Will. Whilst both spouses are alive, the Wills can be amended as much as they both wish, however, following the first death no changes can be made, and if any are made they will not be legally binding or valid.

That being said, Mutual Wills may be preferred by those that want to protect their Estate and inheritance for their children if their surviving spouse remarries. Mutual Wills, unlike Mirror Wills, are not revoked by marriage and thus even if the surviving spouse does remarry, their Will will remain in place and the same as when it was made with their deceased spouse.

Typically, Mutual Wills will clearly state on them that they are in fact Mutual Wills, to save any disagreement or confusion in the future.

If you would like to have a free chat about your existing Will or making a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

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25th November 202125th November 2021

Will my family pay Inheritance Tax on any Life Insurance Payout?

Will my family pay Inheritance Tax on any Life Insurance Payout?

Inheritance Tax is payable at a rate of 40% on the value of your Estate over the Inheritance Tax Threshold. The Inheritance Tax Threshold is currently set at £325,000 per person and an additional £175,000 can be claimed if you are passing your residential property to a direct descendent (children / grandchildren), this is termed the Residential Nil Rate Band. Thus, an individual, passing their main residence to a direct descendant, could pass a total of £500,000 before being liable for any Inheritance Tax. This sum is transferable between spouses and civil partners, meaning that, for married couples, the Estate can total £1million before any Inheritance Tax is payable.

For more information on Inheritance Tax, check out our article, What is Inheritance Tax and how can I reduce it?

To calculate the value of your Estate, all of the assets are gathered in and their value totalled. A similar exercise is done with any debts and liabilities (credit cards, loans, funeral expenses etc.) and the total value of the liabilities is subtracted from the total value of assets and this final figure is what is considered when deciding whether Inheritance Tax is payable.

In this article, we will be focussing specifically on Life Insurance Policies and whether any payout from such a policy will need to be included when calculating the Estate assets…

Whether a Life Insurance Policy will form part of the Estate, will depend on how the policy was written. Usually, the policy is written so that the payout is made directly to the beneficiary (or beneficiaries) and so the money never enters the Estate and thus not subject to Inheritance Tax.

However, that does not mean that Life Insurance is not relevant in relation to the Estate and Probate.

Where a Life Insurance Policy has been taken out to cover a mortgage (often being a condition of the Lender before any mortgage is agreed) the Life Insurance Policy will repay the mortgage, upon death, and thus the debts and liabilities of the Estate will be reduced and this may in turn increase the value of the Estate to above the Inheritance Tax Threshold.

Alternatively, Life Insurance Policies can be written into Trust…

When a Life Insurance Policy is written in to Trust, it means that upon your death the lump sum payout (or regular payments, depending on how the policy has been set up) is paid from the Trust and not your Estate and as such it is usually exempt from any taxes (including Inheritance Tax), although this is subject to the approval of HMRC. This is usually the way in which pension plans, through an Employer, are written.

It is important that you know exactly what will form part of your Estate when you pass, whether your Life Insurance and Pensions are written into Trust (or will add to your Estate value) in order that you can make the necessary plans and put provisions in place to protect your loved ones.

If you would like to have a free chat about your options, an existing Will or in relation to making a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

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29th September 202129th September 2021

Can I claim Business Relief to reduce my Inheritance Tax liability?

Can I claim Business Relief to reduce my Inheritance Tax liability?

Many of our clients ask us about Inheritance Tax, how much they will have to pay and if there is any way for them to reduce their Inheritance Tax liability.

There are a number of reliefs and mechanisms that can be used upon death, and before through Wills and Trusts, to reduce an Inheritance Tax liability and one of these is Business Relief.

As the name suggests, to be eligible for Business Relief the assets must have some link to Business of the deceased but let’s have a look at this in more detail…

What is Business Relief?

Business Relief can reduce the value of a business or the business assets when valuing it for Inheritance Tax purposes and calculating the amount of Inheritance Tax that is payable.

Any business owned, or part-owned, by the deceased, and any shares in a business are included in an Estate when valuing it for Inheritance Tax purposes but the Executor (or Administrator) of the Estate may be able to claim Business Relief of 100% or 50% depending on the nature of the business assets that were held by the deceased.

*It is important to note that in most cases, the business assets will need to be held for at least two-years prior to death to qualify for Business Relief.

What is eligible for Business Relief?

As mentioned, some Estates will qualify for Business Relief at 100%, this would include where the deceased owned a business, or part of a business, and any shares that are owned in an unlisted company.

*NOTE: this does not include shares owned in listed companies (on the London Stock Exchange, for example).

Where 100% Business Relief is not available, the Estate may qualify for Business Relief at 50% and this would be on business assets such as:

shares which control more than 50% of the voting rights in a listed company;
land, buildings and machinery owned by the deceased and that were used in a business that the deceased owned or controlled;
land, buildings and machinery that were used in a business and held in Trust that it has the right to benefit from

Remember, that the Business Relief is only available on assets that were owned by the deceased for at least two-years prior to their death.

When Business Relief will not apply

An Estate will not qualify for Business Relief if the business owned by the deceased was a not-for-profit organisation, mainly dealt with securities, stocks or shares land and buildings or in making and holding investments, was being sold or is being wound up.

In addition, a business asset (land, building and machinery) will not qualify for Business Relief if it also qualifies for Agricultural Relief (see our blog in a couple of weeks on this!), was not used mainly for the business in the two-years prior to the deceased’s death or if it is not required for the future use of the business.

If you think that your Estate may qualify for Business Relief, or want to find out, it is important to seek specialist advice as this can make a huge difference when sorting out Inheritance Tax and the relevant forms that are required.

Alternatively, if you are an Executor (or Administrator) then you will know that you are under an obligation to maximise the Estate for the beneficiaries and therefore take advantage of all reliefs that are available to you. If you are unsure whether Business Relief applies (or indeed any other Reliefs) please seek the help of a specialist as this could be extremely beneficial to the beneficiaries and reduce the Inheritance Tax liability of an Estate enormously.

If you would like to have a free chat about your options, the Reliefs available, on your existing Will or in relation to making a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

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29th October 202011th November 2020

Wills: The Basics

Wills:
The Basics

We thought we would go back to the basics and answer some of the questions we get asked:

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What is a Will?

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Why do I need a Will?

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What happens if I don’t have a Will? OR
What happens if I die without a Will?

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I don’t have anything, do I still need a Will?

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Why is a Will important?

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How long does it take to make a Will?

So, let’s get going…

What is a Will?

A Will is a legal document that sets out what should happen to all of your belongings (money, property, cars, possessions etc.) when you pass away.

Your Will can also appoint Guardians for your children (should they be left with neither parent). A Will is the only way (in the UK) of appointing guardians for your children.

Your Will appoints Executors, the people that you trust to be responsible in administering your instructions.

Your Will can also include any funeral wishes that you may have (although this is optional).

Why do I need a Will?

We often get asked ‘Why do I need a Will?’ or ‘What happens if I don’t have a Will?’ or even ‘What happens if I die without a Will?’.

Ultimately it is the same question…with the same answer, just asked in different ways.

So, you need a Will because if you do not have a Will, or (to put it another way) die without a Will, then you will die INTESTATE.

If you die intestate, this means that the Rules of Intestacy apply and you, and your family, lose control of where your money, property and possessions go and this is decided by the Rules of Intestacy.

Having a Will in place allows you the control to decide who benefits and inherits upon your death.

I do not have anything, do I still need a Will?

YES!

Even if you perceive that you have ‘nothing’ this can mean very different things from one person to another.

As we have said above, a Will is the only way to determine that only the people that you decide can benefit and inherit upon your death, rather than it being left to the Rules of Intestacy.

Why is a Will important?

For fear of repeating ourselves (although it is important!), your Will is important as it allows you control and allows you to decide where your estate (all your money, property and assets) go.

It’s not just about your money though, you can also choose guardians for your children, name your executors and even make provision for any pets that you have.

A will can also allow you to create Trusts that may help with reducing your Inheritance Tax liability.

How long does it take to make a Will?

Usually, we just need about an hour of your time to explain everything to you, take down all your requirements, answer all your questions and then we’ll do all the work in the background.

We then return to you with your Will for signing, we provide both independent witnesses, to make it legally binding and then your Will is complete.

From the initial call to you having your signed Will in your hand with all your wishes, legally compliant and complete can take as little as a few days, we like to make it as simple for you as possible for you. Having said that, we never rush you to finalise your Will until you are 100% happy with the Will and that it covers all of your wishes.

If you would like to have a free chat about your existing Will, or creating a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

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15th October 202015th October 2020

How much does a Will cost?

How much does
a Will cost?

It’s always tricky to work out how much something costs, or is worth, before you get a quote. To guess how much anything will cost we need to look at the value of it first. ‘Value’ is described as “the regard that something is held to deserve; the importance, worth, or usefulness of something”.

If we break those 4 areas down for a Will then we can start to understand the value:

The regard that something is held to deserve

Writing a will is not as simple as putting pen to paper (or finger to keyboard). The process, when followed properly, should include an initial meeting where the Will Writer or Solicitor will take time finding out what the clients needs are, taking down all the relevant information and answering any questions the client may have. There may be a requirement to plan for inheritance tax, or to plan for vulnerable or disabled beneficiaries, and workout the best solution to meet all the clients needs.

Once this has happened the Will can then be drafted and a draft version sent to the client and explained fully to them.

If all is in order the Will can be finalised, printed and signed. The Will Writer or Solicitor will have additional paperwork to complete to be fully compliant and complete their due diligence.

There is a fair amount of work to complete in order to put a valid Will in place and it should take around 4-6 hours for an efficient Will Writer or Solicitor to complete, even with what is considered a ‘simple Will’.

The importance

The next part to discuss is the Importance of a Will, this should be self-explanatory but put simply, without a Will in place you don’t get to decide where your assets end up. Having a simple Will in place removes additional stress that your family and loved ones will have to endure without having a Will in place in dealing with the Rules of Intestacy. A Will not only dictates where your money will go, it also covers a variety of other important decisions, such as, guardians for children (if under the age of 18 years) your funeral wishes, your executors and any Trusts that you may wish to put in place to protect your loved ones.

Worth

If you ask anyone who has had to deal with the Administration of an Estate without a Will then they are sure to explain how much easier it would have been with a Will. It’s also more costly to go through the legal procedure when there is no Will (several times the amount it would cost to put a Will in place). If you put a Will in place you could save your loved ones time, expense and hassle – which must be worth it, right?

Usefulness

Having explained the previous areas, how useful is a Will?

Your Will lists clearly your instructions and what you want. It is the only way (in the UK) to ensure guardians are put in place, for your children, if required, explains your funeral wishes to your executors and directs your executors on how you would like your Estate to be distributed. Your Will can ensure people are protected in the event of your death and Trusts can be included to plan for inheritance tax amongst other important issues such as vulnerable or disabled beneficiaries.

So, how much should a Will cost?

It will vary on what you require and where you get it from. You can pick up a Will Pack from WH Smiths for under £20 and do it yourself. Although a word of warning…completing a Will yourself comes with risks, you’ll need to ensure it is correctly completed and legally valid, you may not realise this until it is too late.

If you go to a professional, you will be expecting to pay anywhere between £200-£500 for a simple Will. If you need Trusts in place or there is additional work then you can expect to pay more. Many companies offer an initial consultation free of charge and all prices should be quoted up front before work commences

We are always happy to have a chat with you about putting a Will in place or answer any questions you may have.

If you would like to have a free chat about your options or making a Will, please contact us on info@TotalLegacyCare.co.uk
or 01727 865 121

Neil Barras-Smith

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1st October 20201st October 2020

What is the role of an Executor?

What is the role of an Executor?

Being appointed as an Executor is a blessing but can also be a burden, but worse of all is when it comes as a surprise!

If you are asked to be an Executor, you may have a few questions:

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What is an Executor?

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What does an Executor do and is there a specific process to follow?

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Does being an Executor cost me anything?

So, let’s have a look at some of those questions…

What is an Executor?

An Executor is appointed by someone in a Will, so that when that person passes away the Executor can collect and protect the estate, property and assets of the deceased and carry out the distribution of such items in accordance with the Will and the deceased’s wishes.

Being an Executor can involve a considerable amount of work, but it is a privilege to be asked. The person that has appointed you as an Executor, has put their ultimate trust in you to carry out their final wishes, to collect in and distribute their estate and possessions as they wanted on the basis that they trust you to do so.

Some of the initial steps to take upon becoming an Executor are:

Ensuring that a Death Certificate is obtained

As the Executor you will be responsible for notifying certain people, companies and authorities of the death and so the Death Certificate will be required. It is possible to obtain more than one copy of this and so it may be wise to do so.

Finding the Will

As the Executor you will need the Will in order to apply for Probate.

Consider whether you need help

As the Executor you do not have to carry out all of the administration of the estate by yourself, you can ask for professional help from solicitors, probate specialists and/or tax advisers.

If the estate is relatively small and doesn’t have any complexities, the Executor may well decide that they can carry out the process by themselves and this is also fine.

Applying for the Grant of Probate

This is the official document giving you authority to administer the estate of the deceased, collect in and deal with their assets and then distribute them accordingly.

Collecting in the Assets

The Will and any accompanying documents that the deceased may have left may well give specific instructions as to what the deceased has and, importantly, where it can be located, however such specifics may not be given.

As the Executor you will need to ensure that you collect in and account for all of the deceased’s assets including property, stocks, shares, bank accounts, ISAs, personal items etc. The Executor will also be responsible for ensuring that relevant insurance is in place for the assets until they can be distributed in accordance with the Will.

Paying the estate debts and any taxes

The estate is responsible for paying the funeral costs and any taxes due in relation to the deceased and the estate. The Executor is not responsible for paying these personally however, the Executor is responsible for ensuring that these are paid from the estate. The Executor should also put a notice to debtors in the London Gazette.

Distribution

The Executor will then be responsible for distributing the estate assets, following the payment of all debts and taxes, in accordance with the deceased wishes as set out in their Will. A detailed record of this, and all the steps taken by the Executor, should be kept throughout the process.

Remember, if you are putting your Will in place, have a chat with your proposed Executors and let them know that you trust them implicitly and so that is why you would love them to be an Executor. Having the conversation may well be difficult but it will save what can be a shocking, surprise should anything happen to you and they are required to act.

An Executor has the right to refuse to act, if they are unwilling to do so at the time they are needed, and so discussions at the time that a Will is put in place are important to overcome this.

An Executor may be unable to act, through incapacity or if their death occurs before yours, however having conversations with your proposed Executors, when putting your Will in place, should prevent any surprises and limit the risk of them renouncing their obligations when the time comes.

We are always happy to have a chat with you about who you may want to appoint as your Executors and even help with the discussion with Executors and answer any questions that they may have.

If you would like to have a free chat about your options or making a Will, please contact us on info@TotalLegacyCare.co.uk
or 01727 865 121

Leah Waller

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want to book a
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17th September 202017th September 2020

What is the role of a Trustee?

What is the role of a Trustee?

You may have been appointed as a Trustee in someone’s Will or thinking about appointing someone you trust as a Trustee within your own Will, BUT what does it actually mean and what does the Trustee do?

Let’s take a look…

A Trustee is someone appointed to look after and manage the assets within a Trust and administer/distribute the Trust in accordance with the instructions set out.

A Trustee must always act in the best interests of the beneficiary, act honestly and fairly towards the beneficiaries of the Trust, whilst ensuring that they follow the terms of the Trust.

When appointing Trustees within your Will (perhaps for a Trust where your children, grandchildren or great-grandchildren, will be the beneficiaries, whilst under the age of 18), you can appoint a maximum of four Trustees, although you can appoint reserve Trustees if you wish. In the majority of cases people will choose the same executors and Trustees however, this is not always the case and you can appoint different Trustees and Executors.

Who to choose as a Trustee…

If you are placing property or land into a Trust, then you will need a minimum of two Trustees.

After knowing how many Trustees you need, you need to have a think about WHO would be the best Trustees.

Trustees must be at least 18 years of age and able to take on the role. Now, this may sound obvious but taking on the role and responsibility as a Trustee can be more suited to some than others and just because someone has reached the age of 18 does not necessarily mean they are able to take on such a responsibility.

Another consideration to think about is; your Trustees MUST be able to work together. Where you have more than one Trustee they must be able to make a UNANIMOUS decision before an action is taken and thus being able to work together is imperative.

It may go without saying, BUT your Trustees must have capacity, be of sound mind and be trustworthy.

Trustees can be your family or close friends, whilst others opt for appointing professionals (especially where the Estate may be quite complex). However, even if a professional is not appointed, a family or friend that is appointed as a Trustee can always seek professional help as and when required if they think it is necessary.

So, what is the role of the Trustee?

As we have said, the Trustee must act in accordance with the terms of the trust and always act in the beneficiaries best interests, but additional responsibilities include:

Act fairly (this is important where there is more than one beneficiary);
Protect the assets that are within the Trust;
Insure the assets of the Trust if necessary;
Distribute the income of the Trust to the beneficiaries;
Distribute the capital to the beneficiaries;
Keep accounts and an accounting history of all transactions;
Complete Tax Returns and pay any tax that may be due to HMRC;
Declare all income and Capital Gains Tax that is payable;
If Inheritance Tax become payable, notify HMRC;
Keep a record of any income and expenses from the Trust;
Take reasonable care when making any investments;
Register the Trust;
Act in accordance with the Trustee Act 2000.

Remember, ALL Trustees must act UNANIMOUSLY.

Trustees must not personally benefit from the Trust.

All this may seem a large burden to place on your Trustees but professional help is always available to Trustees to support with managing trusts if required.

If you would like to have a free chat about your options or making a Will, please contact us on info@TotalLegacyCare.co.uk
or 01727 865 121

Leah Waller

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want to book a
FREE Consultation?

3rd September 20203rd September 2020

Nil rate Band Discretionary Trusts: Are they still useful?

Nil rate Band Discretionary Trusts: Are they still useful?

Nil Rate Band Discretionary Trusts were popular, and VERY useful, prior to 9 October 2007 when the Transferable Nil Rate Band was introduced.

Before 9 October 2007, the Nil Rate Band could not be transferred between spouses and so if it was not used on first death (and everything passed to the surviving spouse) this Nil Rate Band was lost unless a deceased spouse had a Nil Rate Band Discretionary Trust within their Will.

The Nil Rate Band Discretionary Trust allowed for the spouse that passed first to leave assets up to the available Nil Rate Band to beneficiaries (usually their spouse and children) in a Trust, this would use their Nil Rate Band upon their death and those assets would remain outside the surviving spouse’s Estate (whilst in the Trust) and so no Inheritance Tax would be incurred on those assets upon the death of the second spouse.

If there was no Nil Rate Band Discretionary Trust is place and the deceased spouse simply left all their assets to the surviving spouse then this would accumulate with their existing Estate and could mean that Inheritance Tax would be payable as only one Nil Rate Band would be available to take advantage of upon the death of the surviving spouse.

The advantage of a Nil Rate Band Discretionary Trust, was that guidance could be given to the Trustees, to treat the main beneficiary as the surviving spouse during their lifetime with the other beneficiaries (children or grandchildren) only benefiting following the death of the surviving spouse. This would mean that the surviving spouse would still be provided for, and have access to those assets, during their lifetime although they would not form part of their Estate.

Now that the Nil Rate Band is transferable between spouses, is the Nil Rate Band Discretionary Trust redundant?

Not quite! There are still some advantages to using a Nil Rate Band Discretionary Trust and these are briefly set out below:

For UNMARRIED couples

The Transferable Nil Rate Band is only available to couples that are married or that have entered into a Civil Partnership, and so for those couples that choose not to marry or enter into a Civil Partnership they are unable to take advantage of the Transferable Nil Rate Band. This is where the Nil Rate Band Discretionary Trust can come in very useful.

To make use of an Additional Transferable Nil Rate Band where a previous marriage ended in the death of a spouse

If a previous marriage ends in death then the surviving spouse can use the Nil Rate Band of their deceased spouse, this is not limited to just one spouse and so you could benefit from multiple Nil Rate Bands should you have multiple marriages end in the death of a spouse.

However, these cannot be transferred by you, should you die and leave your estate to a surviving spouse and so all of those Nil Rate Bands (save for your own) will have been lost.

This is where a Nil Rate Band Discretionary Trust can be used to take advantage of the accumulated Nil Rate Bands from the marriages that have ended in the death of a spouse.

An example:

Frank and Sylvia are married. Both Frank and Sylvia are widowed with each of their deceased spouses leaving their entire estate to them.

If Frank and Sylvia both include a Nil Rate Band Discretionary Trust within their Will (to benefit each other and their children) to use both their own Nil Rate Band as well as any Transferable Nil Rate Band that is available to them then, upon Frank’s death assets to the value of his Nil Rate Band, plus that of his first wife’s Nil Rate Band, will pass into the Nil Rate Band Discretionary Trust, with the remainder passing to Sylvia.

Upon Sylvia’s passing, her estate can benefit from her own Nil Rand Band as well as that from her first husband and the combined estate will have benefited from FOUR Nil rate Bands.

To benefit children following the surviving spouse’s needs being looked after

This approach is beneficial where it is not certain what the needs of a surviving spouse will be upon the first death.

Having a Nil Rate Band Discretionary Trust to include the surviving spouse and children allows the needs of the surviving spouse to be taken care of first before deciding how to distribute the income and capital in relation to the remaining trust assets.

Reducing the Inheritance Tax liability on second death

By having a Nil Rate Band Discretionary Trust in place, this can mean that no Inheritance Tax is payable on the first death, as the Nil Rate Band will pass into a Trust and the remainder to the surviving spouse. When the surviving spouse passes there will only be Inheritance Tax payable on the value of their Estate minus their Nil Rate Band. However, the property/assets put into the original Nil Rate Band Discretionary Trust will not accumulate with the surviving spouse’s Estate as these are in Trust and so if the value has increased then this will not impact the Inheritance Tax liability upon second death.

Preventing the loss of the Residential Nil Rate Band through the Taper Threshold

Using a Nil Rate Band Discretionary Trust can direct assets away from the surviving spouse so that their Estate does not exceed the Taper Threshold (currently £2million) for the Residential Nil Rate Band.

Currently, if an Estate exceeds a value of £2million, then the Residential Nil Rate Band is reduced by £1 for every £2 over the £2million.

If an Estate value exceeds £2.7million then there will be no Residential Nil Rate Band available.

Using a Nil Rate Band Discretionary Trust to keep the Estate value below £2.7million (or, ideally, below £2million) can mean that the Residential Nil Rate Band can still be taken advantage of, to its full extent, upon second death.

These matters can be quite complex and we are happy to discuss any of your own circumstances in more detail if you think that this may be useful.

If you would like to have a free chat about your existing Will or making a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

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23rd July 202023rd July 2020

How to increase your Inheritance Tax Allowance to £1million

How to increase your Inheritance Tax Allowance to £1million

We work hard for most of our lives to provide an inheritance for our loved ones and so wanting to increase our Inheritance Tax Allowance (reducing the amount paid in Inheritance Tax) is a considerable concern for many.

Inheritance Tax is payable at 40% upon death where an estate exceeds the Inheritance Tax Allowance, this is legally termed the Nil Rate Band (a personal allowance, that each individual is able to gift, upon death, without attracting any Inheritance Tax – for 2020/21 this is £325,000 per person).

So, how do we increase £325,000 to £1million?

So, as we now know, each person is entitled to pass £325,000 (2020/21) to their beneficiaries without paying any Inheritance Tax AND…

Where you are passing your residential property to a direct descendent (children, grandchildren, great-grandchildren, step-children, adopted children or foster children), you can claim an additional allowance, called the RESIDENTIAL NIL RATE BAND, giving you an extra £175,000 (2020/21) to pass to your beneficiaries (if they are direct descendants), without paying any Inheritance Tax.

Thus increasing your Inheritance Tax Allowance to £500,000.

So, where does the other £500,000 come from?

Your NIL RATE BAND (£325,000) and RESIDENTIAL NIL RATE BAND (£175,000) is transferable between spouses and civil partners.

This means that if your partner passes before you and leaves their entire estate to you, then upon your death you will have the benefit of their Nil Rate Band and, if they had a Residential Property in their Estate, their Residential Nil Rate Band.

Thus, increasing your Inheritance Tax Allowance to £1million.

It is worth bearing in mind that if your estate is worth more than £2million then you lose the right to claim all of the Residential Nil Rate Band; for every £2 over the £2million valuation, you will lose £1 of the Residential Nil Rate Band.

If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on 01727 865121 or drop us an email Info@TotalLegacyCare.co.uk

Leah Waller

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9th July 20209th July 2020

What to consider when including a Discretionary Trust within your Will

What to consider when including a Discretionary Trust within your Will

You may have decided to include a Discretionary Trust within your Will (or you may be wondering what Discretionary trust is!), so first things first…What is a Discretionary Trust?

A Discretionary Trust is set up giving the Trustees (appointed by you) the discretion and control to make decisions about how (and to who) the income and capital is distributed. The Trustees will have the power to make decisions about whether to pay income, capital or both to the beneficiaries, who to make payments to (from the named beneficiaries or class of beneficiaries named by you) and how often payments are made.

The main issue that we have highlighted when reviewing our clients’ existing Wills and Discretionary Trusts is:

BENEFICIARIES

A Discretionary Trust allows your Trustees the discretion and choice to make payments (distributions) to the potential beneficiaries (or category of beneficiaries) named within the Discretionary Trust.

If you have only named one beneficiary, then this is NOT a Discretionary Trust. This could have tax implications (as well as other implications!) for the beneficiary of the Trust.

So, how do we resolve this?

We would recommend considering allowing the Trustees the ability to add further beneficiaries and naming a category or class of beneficiaries (this could be as simple as; children, grandchildren, nieces and nephews etc.) so that the scope of the beneficiaries is wide and there is no risk of a Bare Trust or Interest in Possession being created, rather than a Discretionary Trust.

Having a wider pool of beneficiaries can also assist if the Trust lasts for a prolonged period after your death and the original beneficiaries that you have named predecease you or die shortly after your death and prior to the full Trust being distributed.

So, why are we telling you?

Discretionary Trusts can be useful but as you can see, there are some common mistakes.

Before you decide on including a Discretionary Trust within your Will, make sure that you have considered the above points and that those drafting errors aren’t present in your Will!

If you have any questions, would like to consider putting a Will in place or a FREE review of your existing Will, please call us on 01727 865121 or drop us an email Info@TotalLegacyCare.co.uk

Leah Waller

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