Poppycock. Balderdash. And hogwash.
Some people think that, once they’ve made a Will, that’s the end of the matter.
We say, “Poppycock.”
Take Sara. She’s forever changing her Will as people come into her life and go out of it.
She has never been married or had children, but she has got a Will. When she bought a house with her boyfriend, Tony, she drew up a Will to leave everything to him.
Seven years later, they broke up, so she changed her Will to leave everything to her siblings. She also nominated some friends and charities as beneficiaries. Five years on, she checked her Will again.
By then, she’d fallen out with her executor, and one of her preferred charities had closed. So she updated her Will again.
Will-writers love Sara.
- When was the last time you looked at your Will?
- Are your executors and trustees still around?
- Have you changed your mind about who’s going to get what when you’re gone?
The only constant is change
It’s not just personal circumstances that change. New legislation might have an impact too.
- Have you left your home to a Trust?
If yes, your beneficiaries may not benefit from the Residential Nil Rate Band that’s being introduced in April 2017. Unfortunately, as with any legislation, it is not straightforward – check last year’s article about the Family Home Allowance: All is not what it seems.
Nil Rate Band Trust
Many solicitors and pundits suggest that the Transferable Nil Rate Band introduced in 2007 means you won’t need to use a Nil Rate Band Trust in your Will.
We say, “Balderdash.”
A Trust provides security for the surviving spouse and beneficiaries.
But you have to take professional advice, because whether you use one or not depends on your individual circumstances and whether you are asset-rich, cash-poor or asset-rich, cash-rich.
Unfortunately, it’s not straightforward, as your beneficiaries have to claim the Nil Rate Band on second death. Let’s say Dad dies and no Nil Rate Band has been set up. His entire estate passes to Mum, and that’s fine – there’s no IHT to pay. When Mum dies, the children have to go back and claim Dad’s Nil Rate Band as well as hers.
If you leave your assets (cash, investments or property) to your spouse in your Will, those assets will form part of their estate. If they remarry, then separate or divorce, your assets will be included in the total settlement. In this case, your spouse could suffer financial hardship and your children’s inheritance will be reduced.
Similarly, if your assets are passed on to beneficiaries when your spouse dies, they would be included in the financial settlement should the beneficiary get divorced or separate.
Do you own a business or shares that qualify for Business Property Relief (BPR) or Agricultural Property Relief (APR)? These assets are valuable because they are exempt from Inheritance Tax. On death, they would normally be transferred to your spouse. However, your spouse may decide to exchange them for cash or other assets which would not qualify for BPR/APR. When your spouse dies, tax would then be payable on the full value. The tax benefits of BPR/APR can be carried forward even if the assets are sold, so if this applies to you, please ask us how.
Some people think Trusts are complicated and only for rich people.
We say, “Hogwash.” Trusts can and should be used to protect your assets.
- What if your daughter gets divorced and you don’t want her ex to get his hands on the inheritance you’re leaving her?
- Or your son goes bankrupt, and his creditors get your life savings instead of him?
- Or Inheritance Tax laws change again in future, so the taxman benefits more than your beneficiaries?
You can put assets such as property, investments, land, bank accounts, antiques and jewellery into a Family Trust up to the value of £325,000 without paying any tax. This exempts the assets from IHT (assuming you live for seven years) and means your beneficiaries won’t have to wait for probate to access, pass on or sell them.
Note that probate applies to any size of estate, and can take six months when you have a Will or up to two years without one.
If circumstances or tax rules change while probate is being sorted out, the Trustees have the right to gift assets direct to the beneficiaries within two years.
Inheritance Tax (IHT)
When your beneficiaries inherit your estate, they have to pay 40% IHT on anything over £325,000 (or over £650,000 for the inheritance from both you and your spouse). They might have to sell the family home to meet the bill.
- Have you done whatever you can to reduce the liability for them?
Former Chancellor George Osborne forecast a rise to 45% IHT due to the Brexit vote, although that is yet to be confirmed.
According to Unbiased, 58% of UK adults haven’t written a Will, and needless IHT payments are expected to total £595m in 2016.
Of course you can give away as much as you like during your lifetime – however, IHT will be due if you die within seven years of making a cash gift.
You can give away certain amounts without your beneficiaries having to pay IHT (even if you don’t survive seven years afterwards):
- Up to £3,000 in gifts or assets every tax year (the limit can be carried over one year but not two)
- Cash or gifts worth up to £5,000 as wedding presents for your children
- Up to £2,500 to your grandchildren every tax year
- Up to £250 to anyone, as often as you like
You may think your Will is in order, but things change, so it may be time to dig it out and have another look at it.
We can advise Trustees how to maximise IHT allowances, including the new Residential Nil Rate Band.
Get in touch now, to make sure everything is Tickety-boo for the new year.
P.S. If you haven’t got a Will, get one – make it one of your New Year’s Resolutions