Wills & Estate Planning

Estate Planning & Inheritance Tax

If you die without a Will, numerous delays and problems can arise regarding the distribution of your assets. Without a Will, the statutory Intestacy rules apply and determine who will inherit your wealth – which can seriously affect the position of a spouse or unmarried partner. Even if you do not believe you will have an Inheritance Tax problem, Estate Planning is still a sensible process to go through. At the very least, it ensures that the correct people receive the assets that you eventually want to pass on.

The rules regarding Inheritance Tax were changed in October 2006 and so if you have not had your existing Will reviewed since that time, is advised that you do so. Bluebond Tax Planning Advisers will do this for you free of charge at an initial meeting with us.

What is Estate Planning?

  • Estate Planning is the process of arranging your affairs in order for you to pass your assets on to your selected beneficiaries: usually your children and grandchildren.  Ideally, it should incorporate plans to reduce or eliminate any potential Inheritance Tax payable.
  • The methods used should also ensure that assets left to children are not lost to the family due to future events such as divorce or becoming bankrupt.  If you are in the millionaire asset group and haven’t already done so, you should strongly consider Estate Planning.

Main aspects of Estate Planning through a Will

Setting out your wishes regarding the distribution of your estate.

Tax Planning in a way that avoids payment of unnecessary tax and helps ensure your beneficiaries retain your assets after your death.

What is a Will Trust?

  • A Will Trust is usually used as part of your Estate Planning to create a Lifetime Family Trust (or Discretionary Trust) on your death into which a Nil Rate Band (the value of your estate that is not subject to Inheritance Tax), can be passed.  Additional assets can be passed into the trust but the Inheritance Tax will be payable.
  • When writing a Will, clauses can be added to create both a Lifetime Family Trust on death, as well as the legal instruments to pass assets to it.  This means that no action apart from drafting a Will is taken prior to death.  The clauses are simply written into the Will.

Wills and Trusts Planning Stages

Creating a Trust in a Will

Wills and Trusts Planning Stage 1:

  • You should ensure that a correct Will is made out, ideally by the same lawyers that draw up any trusts. As Inheritance Tax advisers, our standard business practice is to discuss your requirements for the Will in detail and then instruct the Will writers to draft it on that basis.

A well drafted Will ensures that the other areas of your finances and in particularly your Inheritance Tax planning will work effectively.

Wills and Trusts Planning Stage 2:

  • You should put plans in place so that your assets pass to a trust, or better still, a number of trusts. These should be set-up during your lifetime, preferably now as tax rules may change.

Wills and Trusts Planning Stage 3:

  • Make sure that any of your assets that potentially exceed the Inheritance Tax allowance are passed into a trust at least seven years before the death of either you or your surviving spouse.

This should also take into account your own financial position and ensure that your lifestyle needs are met before any tax advice and Estate Planning proposals are put in place.

Using a Will to avoid your beneficiaries paying unnecessary tax

A Trust Fund to avoid Inheritance Tax

  • Important Inheritance Tax planning opportunities arise through Wills. Currently, a ‘deed of variation’ can be used to alter the bequests made in a Will after death, providing the relevant beneficiaries agree to the changes. However, we believe it is unwise to rely on this tool as it is seen as an obvious ‘target’ for any future adverse changes to Inheritance Tax law.
  • In addition, as the divorce rate currently exceeds 50%, it is probably prudent to ensure that your assets are passed into several trusts rather than directly to your children.

The use of a Trust should help avoid the assets leaving the family in the event of a divorce or potential bankruptcy of your children.

  • Should you wish to help anyone who you know has been unfortunate enough to have their spouse die within the last two years, the tax planning referred to on this website can still be enacted to save large amounts of tax. Please forward our details on to them and ask them to give us a call for some advice.

Wills FAQ

Is the Will Trust the right solution for me?

It is unlikely.  A Will Trust may only be worthwhile if you think that your total assets will be under one nil rate band (currently £325,000 – 2010/2011) on the death of the second person if you are married or in a civil partnership.

If you are wealthy retired, a small business owner, or part of the millionaire asset group with an asset base currently in excess of £1 million, we believe that you should seek professional experienced Inheritance Tax advice before proceeding with this option to see if it’s really right for you.  A simple Will can be limiting, for both you, your surviving spouse and your children, and will not make use of some large potential tax savings.

Why should I make a Will?

No one likes either talking or thinking about death. However, it is an inevitability that we all face and we would all like to make our passing easier for our surviving loved ones. To this end, everyone over the age of 18 years should make a Will and check periodically that it remains up to date and reflects their current situation.

I’ve already got a Will Trust written, do I need to do anything?

Yes.  You probably need to relook at your Will as laws around Will Trusts have altered.  If you made your Will prior to April 2007, then you definitely need to reassess it, ideally with the help of an experienced Adviser.

Please also take a look at your expected assets for the future.  If you think that when you (or both of you if you are married) die that your assets will be valued in excess of the current nil rate band, or indeed, in excess of £1 million, then you really should consider alternative Lifetime Family Trusts. Good Inheritance Tax advice and tax advice as part of an overall financial plan are well worth looking into. An experienced Inheritance Tax Adviser is essential for this.

Why can’t I just write my own Will and do my Estate Planning myself?

You can if you choose to.  The question is, ‘is this sensible practice?’ – even if you are not part of the wealthy retired.  If your Estate is likely to be valued (at a minimum), in excess of £50,000, then the relatively small amount it would cost to correctly write your Will is worthwhile to avoid any possible challenges by other people in the future.

What is an Executor?

Any person over 18 can be the Executor of the Will. When a person dies, the Executor is obliged to deal with their Estate ensuring that their Will, assuming they had one, is adhered to.

It is the Executor’s responsibility to make sure the deceased’s Estate is correctly valued for Inheritance Tax purposes and that any outstanding tax bill is paid.  If there’s no will, or those named are unwilling or unable to fulfil the role,  a court may appoint an administrator in their place.

In England and Wales, an Executor can be held personally financially liable for any loss that a breach of their duty incurs, regardless of whether the error was inadvertent or intentional.

Executors are obliged to disclose all known information about the Estate of the deceased, typically income from bank accounts, liabilities from credit cards, utility bills and other outstanding debts.

What is Probate?

Probate is the term used when talking about applying for the right to deal with a deceased person’s affairs.  A grant of probate is almost always needed when the person who dies leaves one or more of the following:

  • £5,000
  • Stocks or shares
  • Certain insurance policies
  • Property or land

Probate won’t be granted until some or all of any Inheritance Tax that is due on the Estate has been paid.

Instead of appointing a Solicitor as an Executor or Trustee, a charging clause would allow your executors to employ a professional Solicitor or company to undertake those parts of the probate process that they do not want to deal with, or have insufficient knowledge to deal with.  A charging clause will allow the executors to take the charges of the solicitor or company from the estate rather than paying the fees themselves.

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