Some people are pleased to receive an inheritance (despite the fact that it means someone they loved, or who at least loved them, died), and some would prefer not to for various reasons. But no matter what, some inheritances which, from the outside, might not look like much, or might not be overly welcome, could actually be worth a lot more than even the testator realised.
This was the case recently in France when a man inherited a house from a deceased relative and soon found that he had a lot more than he bargained for in terms of what he had been given. Because, hidden in strange places throughout the entire house were gold bars and coins. Not just a few, not just a handful, but around 5,000 coins, two 12kg gold bars, and 37 1kg ingots. They weight over 100kg in total, and they are all worth millions – around £3 million in all.
The treasure trove was apparently extremely well hidden, and it is unclear whether the beneficiary of the house was meant to find it at all. But find it he did when he began to move the old furniture out. The first thing he found was a tin of coins which had been screwed in place under a sofa. Once he discovered this and more, he called a solicitor as he wasn’t sure what he should do with the stash.
After further investigation, it was discovered that there were certificates of authenticity also hidden within the house, and the gold had been bought in the 1950s and 1960s. It has now all been sold.
But what about inheritance tax? The haul could well be liable for a 45 percent inheritance tax, as well as three years’ worth of back taxes if the original owner failed to declare the gold in the first place. And considering how well he had hidden the treasure, it’s unlikely that he did.
Inheritance tax planning sounds like something that only the rich and famous need to really think about, but is it actually something that everyone should consider? Although it may seem as though it’s only something that affects other people, inheritance tax can actually affect anyone and everyone, so ensuring that your estate won’t fall foul of the laws is an important part of creating your inheritance plan.
Inheritance can affect more people than you might think because once you add up your estate – savings, belongings, life insurance proceeds, your pension, and your property, it could well be over the threshold for having to pay inheritance tax. When property involved this is even more likely since house prices are rising.
There is an inheritance tax allowance of £325,000 on any estate. If the estate is worth more than that then tax will be owed on the ‘extra’ amount, and it is payable at 40 percent. However, if you have a spouse or a business interest (or both) then it is possible to carry out inheritance tax planning through your will. It could be that inheritance tax won’t be due at all since there is a spousal exemption from the tax, and also business tax relief.
If you are single, living with a partner but unmarried, or you have no business then your will may not be able to help you reduce inheritance tax. But there are other things you can do. For example, everyone has an annual inheritance tax exemption of £3,000 which can be used to give gifts. If you give more than £3,000 the rule is that you must ‘outlive’ the gift by a further seven years (otherwise it could still be subject to inheritance tax).
The best thing to do is to contact an expert who will be able to talk you through your options and reduce your liability for inheritance tax as much as possible.
Inheritance tax can, at first, be an inexact science. Although it may seem as though it is something that can be calculated exactly, there are various factors that mean it is sometimes overpaid. Equally, your inheritance tax payment can be underpaid too. Why is this?
When someone dies the estate will often have to pay inheritance tax (IHT), assuming the estate is worth enough for the government to charge IHT on it. The executor will need to fill in a tax return and pay the money calculated to HMRC. Only after this will they be able to obtain probate and distribute the assets.
The difference in the figures comes when an asset – for example a property – is sold for more or less than the valuation. With properties this is very common, and they do often sell for less than the asking price. However, the tax returns and the payment will already have been made at this point, and therefore the overpayment will need to be recovered. Equally, if the property (or other asset) sold for more, an additional payment will have to be made.
If an overpayment has been made then you will need to contact the Capital Taxes Office (CTO) which is part of HMRC. Unfortunately the process of recovering money like this can take many months, even in the most straight forward of cases. This can cause a major impact on the distribution of the rest of the estate, as everyone has to wait until the money is returned.
Intestacy problems on the rise
The BBC reported yesterday that according to Citizens Advice, the number of enquiries it receives about intestacy problems has more than doubled over the last five years.
Despite attempting to drive home the message that dying without a will can cause immense stress and financial pressure on those left behind, Citizens Advice still received 3,747 intestacy enquiries last year, compared to 1,522 in 2011.
These figures appear to contradict the findings of a survey carried out by YouGov last year, which indicated that 38 percent of people in England and Wales had made out a will – a rise of three percent from the previous year.
Failing to make out a will does not only mean that the funds from an estate may not be distributed in the way that the deceased would wish. It also means that any charities could potentially miss out on vital income. Also, effective estate planning will not have taken place and so the next of kin could lose thousands of pounds unnecessarily, by way of inheritance tax.
The BBC report for example, cites the case of a man who left around £700,000 but no will. His cousin administered the estate but this process took around two years and £240,000 was given to the tax man. The rest was split among 17 people, a number of whom had never even met the deceased.
Interestingly, the number of enquiries received from executors of a will also rose last year to 11,137 from 8,160 in 2011. This shows how estates are becoming increasingly more complex, making the role of executor more difficult, particularly for those who attempt to distribute an estate without taking specialist advice from a probate expert.
What is the "Residential Nil Rate Band" and will it affect me?
Have you heard about the impending Residential Nil Rate Band? Last year, the government announced that starting from April 2017, some homeowners with estates valued at less than £2 million will benefit not only from the current Nil Rate Band of £325,000 per person, but an additional Residence Nil Rate Band of £100,000 per person, (rising to £175,000 by April 2020), on their death. For a married couple or those in a civil partnership, this means that up to £1 million of their estate can be passed on, without attracting any inheritance tax fees.
There are conditions, however. For the Residence Nil Rate Band to take effect, the property in question must be passed on to either a child or a grandchild of the deceased. In addition, the property must also have actually been the deceased's main residence at some point, even if they subsequently moved to a smaller house or into a care home.
As with the existing Nil Rate Band, the Residence Nil Rate Band can be passed to the surviving partner if not used on the death of the first, making a possible maximum total of £1 million.
Where estates are valued over £2 million, the Residence Nil Rate Band will decrease by £1 for every £2 over this value.
Although this is great news for most of us, those who have set up a discretionary trust in the past should be careful. A discretionary trust was initially a useful way of passing on a person's Nil Rate Band to their children or grandchildren, before the law changed in 2007. For those with estates valued under £2 million, this clause could interfere with the application of the new Residence Nil Rate Band. However, for those with estates valued over this amount, a discretionary trust may remain the sensible financial option.
How to ensure your grandchildren receive their inheritance
A recent survey by insurance company Sunlife has revealed that a large number of grandparents intend to leave part of their estate to their grandchildren, but surprisingly, don't trust their own children to ensure that these instructions are carried out.
The results of the survey showed that seven in ten grandparents plan to leave their grandchildren an inheritance. 55 percent of those grandparents are looking for ways in which they can protect this aspect of their legacy, without having to rely on their children to pass it on, according to their final wishes.
In some instances, such a legacy is not as straightforward as simply leaving a sum of money in a will. It may be that the grandparents wish to leave a property such as the family home instead – the problem being that children under the age of 18 are not legally able to own property.
One way to get around this problem is to leave assets in trust for the grandchildren. When doing so, it is vital to consider an appropriate age for the child to receive the inheritance, so that they are mature enough to use it wisely. An age contingent trust such as this is normally written into the will.
It is worth remembering however, that any assets left in a trust may incur an inheritance tax charge every ten years, of up to six percent of the value of the trust, above the IHT threshold.
The key to ensuring that your grandchildren will benefit from your estate as you would want, is to take control now and have a will and trust drafted, which both reflect your wishes and family circumstances. Through effective estate planning, it may also be possible to identify ways to reduce any inheritance tax payable on your assets.
#iwcprobate #bereaved #probate
Not everyone is happy to receive an inheritance. They may not need the property or money. It may be more trouble than it’s worth (due to tax or the cost of maintenance), or there could be issues between the deceased and the beneficiary that mean the latter is not happy to receive anything from the former, no matter what it is. Whatever the reason, is it possible to say no when a will is executed?
The answer is that if you inherit something, you can’t simply say you don’t want it and walk away. But there are other things you can do to ensure the money, property, or possessions don’t reach you.
One way to get around the problem is for the beneficiary to gift their inheritance to someone else – another family member. This could, however, still cause problems when it comes to inheritance tax or capital gains tax, so it may not be the perfect solution.
Another option would be for the beneficiary to completed a deed of variation, which would then alter the will so that another person receives the inheritance, or it is put into a trust if that makes more sense. Certain conditions must be met in order to do this, but it is possible.
Things become slightly more difficult when the will has provided for a minor, or even an unborn baby. This is because those who are affected by the will have to be the ones to request the variation. A minor can’t do that and neither, obviously, can an unborn child.
A deed of variation can significantly reduce your tax bill, and it can, if worked out correctly, allow for a large inheritance to be passed to the next generation without it needing to be a gift for which there must be a wait of seven years.
It is best to speak to an expert if you are considering this course of action.
"Government increasing taxes on death" says probate expert
Government proposals to alter fixed rate probate fees to a banding system has been called "inheritance tax by the back door" by probate specialist, Tony Crocker of IWC.
The fixed fee for probate applications rose recently – a move, said the government, which was deemed necessary to fund additional administrative work carried out by the Probate Service.
These new proposals however, which are out for consultation until 1 April, would see probate fees being charged on estates valued in excess of £50,000 according to a banding system. Fees would then start at £300 for estates valued between £50,001 and £300,000; up to £20,000 for estates valued above £2 million.
Currently, estates under £5000 are not subject to probate legislation and the government plans to raise this threshold to £50,000, meaning that according to its figures, over half of estates would pay no probate fee at all.
IWC questions the validity of this view however, with the average London house price now standing at over £500,000. It is these house prices, the company claims, which will cause problems for executors faced with paying money up front for probate fees, funeral fees and inheritance tax at 40% – and not enough money in the deceased's bank account to cover them. These executors will be forced to offer up the remaining funds themselves or, as the government suggests, to take out a short term bank loan, until the property sells and they can recoup the funds – which of course will attract interest rates and affect their credit rating.
Although packaged as a move to assist those dealing with smaller estates, IWC's Tony Crocker says that, in its bid to raise £250 million for the Exchequer, the government is actually "giving with one hand and taking with the other".
For anyone who suspects that their next of kin may find themselves struggling financially with these new proposed changes, they may be able to avoid probate altogether, by placing their property into trust, now.
In our next blog post, we'll outline how trusts can be a means of avoiding probate, how to create a trust and what happens to it after your death.
#iwcprobate #bereaved #probate
Sometimes it’s the little things that can cause someone to decide to make a will. It’s one of those things that has been put off and put off, down on the to do list for another day. But every now and then something will happen that will bring writing a will right back to the forefront of the mind once more, only this time it’s followed by the determination to actually do something about it.
And it doesn’t have to be anything life changing that prompts this sudden need either.
A recent survey says that for one in five under 40 years olds it was the first grey hair that did it – that first grey hair sent them into a panic, made them think of their own mortality, and got them to finally write a will. It may seem strange, even a little silly, possibly somewhat vain, but however you feel (and maybe you even agree), the fact that they then went on to write a will is good enough. Wills are essential.
But it’s not just the greys that have forced people to realise just how necessary writing a will really is. Wrinkles do a similar job, as do unexplained pains in the back, knees, hips – anywhere associated with movement problems in the elderly. In fact, anything that makes us feel old, any reminder of how many years have passed (looking at childhood photographs, re-visiting old houses – even if we don’t go inside but simply drive by – and realising that the children of friends and relatives are children no more for example) can all have the same effect.
Apart from those things that make us feel old, big life changes can also prompt the need to write a will, and that’s as it should be. Marriage, having children and buying a house are three of the main happy ones, and the death of a friend or family member of around the same age is the big sad one. but even smaller things such as learning about inheritance tax and the problems it can cause can make people start to think. Will writing triggers are all around us.
When asked why they hadn’t made a will up to that point, most people responded with either that they hadn’t thought about it, or that they hadn’t had time. Others said it was because they had nothing to leave (were they sure about that?) or because they were simply too young to die. None of these are good reasons not to have written a will.