Making a Will
There are some things that can’t – or shouldn’t – be included when making a will. There are various reasons for this, some of which are legal ones, some a common sense ones, and some are simply because you cannot instruct someone to do something that is against their will (and/or against the law).
Although your last will and testament is your own personal document, allowing you to decide who will receive what from your estate, when making a will it should not necessarily be used as a way to send final messages. There are other ways to do this, including letters and notes for your solicitor.
In your will, you cannot leave a property that is in joint tenancy to someone not named on the lease. This is because when you die, the person who shares the joint tenancy with you will automatically receive your share of the property (even if your will says otherwise). The same is true for a trust, or for life insurance that has a named beneficiary – these are legal items and your will does not take precedence over them if you name someone different.
It is also a good idea not to put funeral instructions in your will. (Information on pre-paid funeral plans). Although this might seem like the perfect place to write them down, often wills are not read until after the funeral, which is the first item to organise once a person has died. Because of this, important last wishes could be missed. Therefore, it is better to discuss with your family and friends exactly what you want at your funeral, and perhaps to leave a note with your executor so that your final goodbye will be exactly as you hoped.
Although it is possible to put conditions on bequests, if they are illegal, or if they mean that the beneficiary must marry a particular person (or divorce their current spouse), or change their religion will not be enforced. And you must bear in mind that, although you might have put these provisions on a gift (ie that the money must be used for a specific use), no one is able to ensure that this actually happens.
Arranging special care for someone when making a will is not ideal. The best way to do this is through a trust, which means that the required money will be specifically set aside.
Finally, you cannot leave gifts to a pet in your will, as they are not legally able to own anything. Instead, you can ensure that you leave the care of the pet (and possibly some money with which to do it) to a specific person. A trust fund including a discretionary trust could also be used for this purpose.
If you are interested in making a will then please call us on 0800 612 6105 or 020 8150 2010
The importance of wording in a will
The importance of wording in a will was highlighted beautifully in the press a few days ago, when it came to light that a woman who died in 2010, had left her car to her partner of almost 40 years – a wonderful gesture you may think, and so it was – except that at the time of death, the woman owned two cars.
The cars in question were an old Volvo – and a superb 1920s Bentley, worth in the region of £200,000. It was not made clear in the will, which car she meant to leave to her partner. Sadly yet perhaps predictably, the woman's son believed it to be the former of course, as he had been looking after the Bentley for his mother for many years, a claim which has subsequently led to years of court battles between the two men.
It is not clear whether the will was drawn up by a professional or whether the woman wrote it herself, but it does explain precisely the amount of detail and specific wording required as to avoid any ambiguity whatsoever which can lead, as in this instance, to bitterness and legal wrangling. Beneficiaries should be named, along with clear descriptions of the assets which should be left to them. Remember too, that your will should be updated regularly to reflect any personal or financial changes.
IHT band for trusts creates demand for financial advice
With HMRC cracking down on individuals using trusts as a means of reducing inheritance tax liability, estate planners are experiencing an increase in demand for their services, as reassurance and advice regarding future plans are sought.
The consultation paper, entitled: "Inheritance Tax: a fairer way of calculating trust charges", highlights instances whereby an individual has set up multiple trusts on different days, each one with its own nil rate band below the formal IHT limit – an often used technique in the past, for distributing the wealth of an estate.
To combat this tactic, HMRC has suggested introducing a single nil rate band to be applied to all new trusts set up by one individual after 6 June 2014. Existing trusts will continue to be taxed under the old regime, although if any further assets are added to them or they become a relevant property trust after 6 June 2014, they will then automatically be transferred over to the single nil rate band scheme.
All this means that for many, their trust arrangements will need to be reviewed to ensure that taxation will definitely continue as before and that they will not be affected by these proposed changes to legislation which, if passed, are likely to take effect from 6 April 2015.
One in ten will pay inheritance tax by 2018
Figures released by the Office for Budget Responsibility have revealed that over 26,000 estates were deemed liable to pay inheritance tax during the last financial year, a figure which is otherwise calculated as just under one in 20 deaths.
Forecasts predict that by 2018 however, these figures will rise to one in ten deaths, rising to 35,600 this year and 43,800 in 2015-16. By 2019, it is thought that we will see last year's numbers double.
Despite promises made by the shadow chancellor seven years ago to increase the nil rate band to £1 million, it has instead been frozen for some considerable time, and is set to remain fixed at £325,000 (or £650,000 for married couples) at least for the next three years. This, coupled with soaring house prices – particularly in London, will see many more of us being scooped up in the inheritance tax net. This means that in general, any assets we leave behind which take the value of our estate over this figure, will be charged tax at a rate of 40% of the overall value of the estate.
Little wonder then, why individuals are racing to protect their money whilst they are still alive, by planning their estate now and ensuring that their loved ones will receive as much of their hard earned cash as possible, after they've gone.
Over half of adults have no funeral plan
Despite our recent post which revealed that funerals can lead to credit card debt, recent research has shown that over half of the adults in the UK have no funeral plan in place.
The research, carried out by Royal London, states that 59% of UK adults aged over 50 have no funeral plan to cover the cost of their funeral when the time comes, yet are not concerned about how their loved ones will find the money to pay.
Of course, it's easy to think along the lines of: "I don't care what happens to me after I'm gone". But when you consider that the average cost of a funeral now runs into thousands of pounds and that there may not be enough money in your estate to cover the fees, then you need to think about the stress and financial difficulty you could be inflicting upon the family or friends you love the most – hardly a great parting gift.
Around 64% of respondents did not in fact realise how much their funeral would cost, despite the many media reports about rising funeral expenses. Perhaps even more surprisingly, over a whopping third of those surveyed aged over 70, were not saving any money at all to pay for their funeral.
Do you think as adults, we have a right not to have to worry about finding money for other people in order to arrange a funeral? We say that we don't care about what happens to us after we're gone, but certainly, we wouldn't want to cause further grief and suffering to those we love. Given this information, are you intending to look at ways to support your loved ones financially after your death?
Funerals main culprit of credit card debt
It came as no surprise to read recently that funerals are thought to be the main culprit of credit card debt.
Annual spending on both credit and debit cards in the UK has now passed £0.5 trillion, with funeral costs clearly forming the largest credit card transactions.
According to research carried out by the UK Cards Association, spending using debit and credit cards rose by 6.7% between 2012 and 2013, with consumers spending around £520 billion on UK goods and services alone in 2013. Three quarters of all retail spending is now carried out using cards, of which there are thought to be just over 175 million within the UK.
Three of the highest value retail purchases and services were paying a tax bill (£838), "vehicle sales" (£359)and floor coverings (£353). However, the biggest spend by far was on funerals. Many of us choose to pay this expense on our debit or credit card, with the average amount shown to be around £1,114 – about a quarter of the normal cost of an entire funeral.
Although of course most of us now prefer to use cards on a daily basis to pay for goods and services – after all, it is much safer and easier than ensuring we're carrying enough cash at any one time, it saddens me to think of those who are forced to pay over £1000 for a loved one's funeral which they know they are unable to afford at that time. By adding the cost onto a credit card, they are of course simply adding to the interest and deferring the need to pay; but for some, this could be their only option in ensuring their friend or relative has a decent farewell.
A funeral plan can avoid causing unnecessary debt for those you leave behind. For further information on what funeral plans can do and how much they cost, simply contact a member of the IWC team.
Tax advantages of woodland
If you own a piece of woodland, it could work even harder for you by helping to reduce the amount of inheritance tax finally paid from your estate.
Although the benefits associated with tax implications and woodland have been reduced in recent years, it is worth familiarising yourself with how you can gain most advantage.
Firstly, the government is very much geared towards rewarding those who manage woodland effectively. This means that any income you receive from selling timber is generally tax-free and that the woodland will not form part of the value of your final estate for inheritance tax purposes, provided you have owned it for at least two years before the date of your death. The land can then be passed down to your next of kin, allowing them to also benefit from it, free from any tax.
Should you choose to sell your woodland rather than passing it onto your children, you will only then pay Capital Gains Tax on any increase in the value of the land since the time you purchased it, rather than on the increase in the value of timber.
Remember too, that unlike other forms of business investment, business rates generally do not apply on a woodland management business – whether personally or as a company.
Investing in woodland then offers many tax breaks and can potentially be a valuable source of income, both for you personally and for your next of kin.
What are single settlor trusts?
A single settlor trust is a popular means of reducing potential inheritance tax liability on an estate.
It simply means that you are setting up a trust as an individual rather than as part of a couple. You may for example be widowed or have remarried and wish to keep your estate separate from that of your partner but would like to include your spouse as a potential beneficiary.
Estate planners will normally advise against making payments from this trust to a surviving partner whilst they are alive, as proof must then be given that they did not benefit from the money which is often difficult and may well result in IHT liability subsequently being applied. Instead, if a loan is granted to the person which is then repaid on their death, inheritance tax liability can validly be reduced.
Beware that if you and your husband, wife or civil partner set up your own single settlor trust, each nominating your spouse as a potential beneficiary, this is classed as an "associated operation" and gift with reservation rules may then apply. This means that you are still gaining benefit from the gift of your assets and so the value of that gift would still form part of the estate and will still be included within the inheritance tax liability calculations.
Looking for ways in which to minimise any inheritance tax which must eventually be paid from your final estate can be a minefield. For further advice and guidance, contact the IWC Ltd team.
Voluntary Watchdog introduced for heir hunting companies
A number of heir hunters organisations have sprung up in recent years, claiming to be able to identify lost relatives who may be in line to receive an inheritance from a deceased member of their family. In many instances, the individuals have lost touch and some next of kin are not even aware of the individual's demise.
Most of the organisations providing these services are perfectly legitimate, experienced and knowledgeable. However, there are those who seek to take advantage of people, charging excessive fees in the form of a high percentage of any money secured from the deceased's estate.
In addition to the above, a number of scams are also now in operation. These scams notify individuals that they have been left money as part of an inheritance and the organisation concerned needs their bank details in order to deposit the money. Of course, there never was any such inheritance but now the bogus organisation has your bank details, it has free rein to withdraw large sums of money.
It is as a result of these unscrupulous and sometimes criminal activities, that the head of the Heir Hunters Association worked to establish the Federation Probate and Asset Researchers (FPAR). It aims to help consumers and organisations and enforce a code of practice for its member organisations.
Please be aware that IWC is fully registered with the Heir Hunters Association and regularly works alongside executors and solicitors in tracing long lost relatives and making claims to the treasury solicitor. In addition we fully support the FPAR having also found issues when dealing with one or two unscrupulous heir hunting companies.
Disclaimer: This article in no way suggests or implies that heir hunting companies who are not members of the Heir Hunting Association are not legitimate companies charging legitimate fees. We strongly recommend you do your own research before choosing to engage any company.