Guide to Wills and Trusts

Transcription

1 and Trusts

2 2 1. What is a Will? 2. Don t I Need A Solicitor? 3. Can a Will be contested? 4. Can I make my own will? 5. What information do you need to make my will? 6. Why should I have a will? 7. What happens if I die without a Will? 8. I'm not married but live with a partner - what happens to my estate? 9. Doesn't my spouse get everything when I die anyway? 10. Who can witness my will? 11. What should I do with my Will after I have signed it? 12. Do I need to worry about taxes on my death? 13. I already have a Will. How often should it be reviewed? 14. My wife and I have separated - do I need to change my will? 15. What does my estate include? 16. Should I appoint Guardians? 17. Can I change my Will? 18. Does marriage, divorce or a civil partnership affect my Will? 19. What are Executors? 20. What do Executors do? 21. How many Executors can I appoint? 22. Do Executors get paid? 23. How do I cancel my Will? 24. What are Trustees? 25. What are trusts and how do they work? 26. What happens to property in joint names? 27. Should my property be held as Joint Tenants or Tenants in Common? 28. Which am I Joint Tenants or Tenants in Common? 29. How do I change between Joint Tenants and Tenants in Common? 30. What about Inheritance Tax? 31. What a gift is made "free of tax" what does this mean? 32. What does it mean if I give someone a "life interest"? 33. What's the best way to provide for my disabled child? 34. How can I avoid the council selling my home if I'm taken into care?

3 3 1. What is a Will? A Will is simply document in which you state what you would like to happen to your estate. Your estate consists of your house, savings, car, household and personal effects, proceeds from any life assurance policies and pensions where there isn't a named beneficiary or the plans are not written in trust less any outstanding loans, credit card balances, mortgages and expenses (bills/funeral etc). If the gross value of the total estate is less than 5,000 it is called a "small estate" and can be distributed without a Grant of Probate or Confirmation of the Estate. However, it does not matter how little you think you are worth, it is vitally important that you make a Will as without your relatives and friends may face severe difficulties. Although you may not like it, without a will the government will decide what happens and who benefits when you die - which may not be what you would have wished. You must sign and date your Will in the presence of two witnesses and must appoint an executor in your Will to ensure the terms of your Will are carried out (Explained in more detail later). In summery your Will allows you to clearly let your intentions be known relating to: Who you wish to deal with your estate when you die Who you wish to look after your children/dependants How and when you want your children to have their inheritance How you would like your funeral conducted How you wish to provide for your children's upkeep Whether you wish to donate your organs/body for medical research Inheritance taxes falling due Making a charitable donation Your estate (Property, Savings etc.) Many people choose to keep their Will relatively simple and gift all their estate as one lump called the "residue" rather than try to break it down into individual amounts or items. However if you wish to you can break it down into more specific gifts to any number of different people. Fundamentally your Will is a record of your wishes in terms of how you want your estate to be distributed. 2. Don t I Need A Solicitor? You do not have to use a solicitor to draft a will as to be valid legally provided that it is correctly worded; who actually wrote your Will is irrelevant. Moreover, to be legally binding a Solicitor does not have to witness the will either. Your will can be witnessed by two competent people who are not beneficiaries or directly related to a beneficiary. Important Note: The above applies to Lasting Powers of Attorney as well. However we would recommend that you seek independent advice if one or more of the following apply: If you have agricultural holdings. If you are not a British citizen and your permanent home is not in the UK. If you wish to leave instructions as to the ongoing management of your business (Sole traders) Finally, if you have immovable assets (e.g. property) anywhere other than in England or Wales, then

4 4 you should make a will disposing of your assets in England and Wales and then make another in the country(s) in which your other assets are situated. 3. Can I make my own will? In England and Wales you can write your own will, however there are many pitfalls for the unsuspecting person which may result in estate assets passing to persons not intended to receive them, either because key will provisions are invalid, or because the person's choice of words runs foul of legal rules or principles of which the writer was unaware. The best advice is to rely on a professional will writer to take your instructions and translate them into a legally effective and binding will, without the experience a professional will writer brings your will may not have any legal standing meaning the provisions for your family fail to take effect. 4. What information do you need to make my will? Before we can draft your will of course we require identification and basic personal details we will ask many questions about your wishes more importantly before we visit there are several considerations you should make in order to better decide what should be included in your will: Who you want to benefit from your will. To make a list of all the people to whom you wish to leave money or possessions is advisable. These people are known as beneficiaries. You may also want to consider whether you wish to leave any money to charity. Who should look after any children/dependants under the age of 18. How much money, what property, valuables and possessions you have, for example, property, savings, shares occupational and personal pensions, insurance policies, bank accounts, jewellery etc. Who is going to value, realise and distribute the estate according to your wishes as set out in the will. These people are known as the executors. You can appoint an executor by naming them in your will. The courts can also appoint other people to be responsible for doing this job. 5. Why should I have a will? Regardless of our wealth and assets everybody has a responsibility to make a will as dieing without means our loved ones are left with the headache of sorting out our estate. More importantly it is then the government who decide what happens to our belongings, property and money, they would even decide who would care for our children. There are many reasons to make a will ultimately it is all about controlling how your estate is distributed upon your death. Where a person dies without making a will they are said to have died intestate. Meaning your estate is distributed according to the rules of intestacy. This can cause many problems, for example, the rules of intestacy make no provision for un-married couples or stepchildren. Crucially even if you are married your spouse or civil partner may not inherit the whole of your estate (see Laws of Intestacy ) Other reasons to make a will include ensuring your estate is left as tax efficient as possible helping to ensure you loved ones don t end up having to pay more tax than is necessary. Using a will as an opportunity to decide on a guardian to look after them in the event of your death. Have the opportunity to state how you would like your body to be disposed of after your death. Finally by making a will you also have the opportunity to leave specific gifts for friends and/or charities. Remember without a will: Your entire estate will go to the Taxman if you have no spouse or blood relatives, Your Inheritance Tax liability could be higher

5 5 You are not able to protect some or all of your estate against long term care fees If you have children under 18, and the other parent is also dead, you have effectively given up the right to decide who cares for them If you have a co-habiting partner, he/she will get none of your estate even if you have been together for many years as the Intestacy Laws do not recognise unmarried "Common Law" partners Your Estate will cost a lot more and take a lot longer to distribute You cannot decide who inherits what 6. What happens if I die without a Will? Without a valid will the rules of intestacy decide who inherits your assets, they will apply differently depending on your circumstance. The following rules are for deaths on or after 1 February 2009 in England and Wales, the thresholds that applied before that date are shown in brackets. If you're married (or in a civil partnership) with children The husband, wife or civil partner won't get everything however they will receive: 250,000 ( 125,000) tax free A life interest in half of the remaining estate (on his or her death this will pass to the children) Chattels (Belongings such as clothes, furniture, cars etc. but nothing used for business purposes) The rest of the estate will be shared amongst the children. If you're married (or in a civil partnership) without children The husband, wife or civil partner won't get everything however they will receive: 450,000 ( 200,000) tax free Chattels (Belongings such as clothes, furniture, cars etc. but nothing used for business purposes) Half of the remaining estate The other half of the remaining estate will be shared by the following: Any surviving parents If there are no surviving parents, any brothers and sisters (who shared the same two parents as the deceased) will get a share (or their children if they died while the deceased was still alive) If the deceased has none of the above, the husband, wife or registered civil partner will get everything) If you have an un-married partner (and are not in a civil partnership) You won't get a share of your partner's estate if they die without making a will. If they haven't provided for you in some other way, your only option is to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 'If you feel you've not received reasonable financial provision', this will take time and there are no guarantees. If you have no spouse or partner

6 6 The estate is distributed as follows: To surviving children in equal shares (or to their children if they died while the deceased was still alive) If there are no children, to parents (equally, if both alive) If there are no surviving parents, to brothers and sisters (who shared the same two parents as the deceased), or to their children if they died while the deceased was still alive If there are no brothers or sisters then to half brothers or sisters (or to their children if they died while the deceased was still alive) If none of the above then to grandparents (equally if more than one) If there are no grandparents to aunts and uncles (or their children if they died while the deceased was still alive) If none of the above, then to half uncles or aunts (or their children if they died while the deceased was still alive) To the Crown if there are none of the above 7. I'm not married but live with a partner - what happens to my estate? If you have an un-married partner (and are not in a civil partnership) you will NOT get a share of your partner's estate if they die without making a will. If they haven't provided for you in some other way, your only option is to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 'If you feel you've not received reasonable financial provision', this will take time and there are no guarantees. 8. Doesn't my spouse get everything when I die anyway? If you're married (or in a civil partnership) with children the husband, wife or civil partner won't get everything however they will receive: 250,000 tax free, A life interest in half of the remaining estate (on his or her death this will pass to the children), Chattels (Belongings such as clothes, furniture, cars etc. but nothing used for business purposes). The rest of the estate will be shared amongst the children. 9. Who can witness my will? Not anybody can be a witness to your will. A witness must be over 18 years of age, of sound mind and not blind. We often act as the 1st witness but in all cases you will need a second, both be present when you sign and date your Will. They don't need to see the contents of your Will; they are simply there to witness you signing it. NOTE: They must NOT be named as a beneficiary in your Will nor married to a beneficiary; as such they would forfeit their legacy. For example: if your son or sons wife signed as a witness (& either was named as a beneficiary of your will) they would not receive their inheritance! 10. What should I do with my Will after I have signed it? Your Will is a very important legal document. It ensures that your Estate can be distributed according to your wishes; and is vital it be kept safe. Documents kept at home are easily lost or misplaced, especially if you move house. Moreover, there is a considerable risk of accidental loss, burglary, destruction by fire, flood or tampering over the many years it is likely to be stored for, the result is that your efforts will have been in vain and that your estate will be subject to the rules of intestacy. So once completed, signed and witnessed to overcome this problem we provide a state of the art document storage facility. We also provide our clients with Membership Cards, enabling them to

7 7 notify their family where the Will is kept so your executors can get fast access to your Will when it is required - we are then on hand to help guide them through the legal maze of Probate. Our service gives clients the confidence to relax in the knowledge that one of the most important documents they are ever likely to sign is in safe hands. By using our Secure Document Storage Service, you will benefit from: FREE Updated for the rest of your lifetime (Usually 80 approx) Your documents being kept in their original condition ensuring your will remains valid and your assets are distributed in the way that you choose. Your Executors know of their location so your estate can be dealt with quickly and efficiently Receiving a copy of all your documents held in storage, to keep for your records so you know exactly what arrangements are in place. The option to update your will update ensuring your wishes are always reflected in the document. Receive a storage certificate and set of storage cards for your Executors (and/or Attorneys) detailing where you re Will (and/or LPA) is and how to retrieve it so there is no doubt as to your wills whereabouts. Help for your family with probate when the time comes to reduce any unnecessary stress. Competitive charges only 24pa for a single will and 34pa for mirror wills. The peace of mind that your Will (and/or LPA) is stored in a secure, fire proof storage facility and can be easily located if needed A significant saving on the per year that you could be charged by a bank or Solicitor 11. Do I need to worry about taxes on my death? The Finance Act (1986) introduced Inheritance Tax (IHT) as a replacement for Capital Transfer Tax. Fundamentally within England and Wales there is a nil rate band of 325,000 above which the tax is levied at 40% on the net estate of the deceased (having applied any other allowances). Most importantly this tax can be reduced if not eliminated with some straightforward planning. As will writers we do not offer in depth Inheritance Tax advice, however we can help with fundamental estate planning in many cases some simple changes can save many thousands in tax. There are many planning opportunities open to you, which we can discuss at the time of meeting and which should result in both families and businesses being protected. Below is a guide to some of the specifics of planning for IHT. 12. I already have a Will. How often should it be reviewed? Once drafted we recommend you review your will every five years and after any major life change; such as separating, getting married/divorced, having a child or moving house. Changes can be made by 'codicil' (an addition, amendment or supplement to a will) though in most cases we recommend making a new will. 13. My wife and I have separated - do I need to change my will? Making a Will is a matter that should be attended to immediately upon separation. However, your spouse may still have a claim against you under the relevant marital property laws. Even with a Separation Agreement in place (which provides that your spouse will have no claim against you under your will) it is best advice to make or amend your Will immediately after separating from your partner.

8 8 14. Can a Will be contested? Yes. Even when a Will has been properly executed and the testator (Person who made the Will) has died, there are circumstances in it can be rendered invalid (Either in full or in part). For example; Deed of Variation The beneficiaries of the Will may decide to enter into a Deed of Variation within two years of the date of death. While this is frequently carried out as a tax planning exercise, it can also be carried out by families who consider that one or other of the people in the life of the deceased was not properly provided for in the Will only where all the potential beneficiaries agree. Applications under the Inheritance Act 1975 (Provision for Family and Dependents) Where there is not a Deed of Variation, if you have not been fair to your wife, husband or civil partner (or even an ex-wife or ex-husband who has not remarried), the Court can alter your Will. In general if you have not properly provided for any of your dependants who are unable to maintain themselves, the court can alter your will. Traditionally such dependents have comprised of children or stepchildren and cohabitees, but all of these have until now had to show some financial dependence. In respect of death since I January 1996, cohabitees who have lived in the same household as the deceased 'as the husband or wife of the deceased' during a period of two years ending with the death can now claim automatically. If one or more of those who believe that the Will has not made proper provision to make an application under the Inheritance (Provision for Family and Dependents) Act 1975 to a Court for an adjustment in distribution of the assets. Applications must be made to Court within six months of the date of the grant of probate (The date that the Will is officially validated by the Probate Registry) if the Court agrees applications can be approved beyond this. The Court will look at various factors, including the age of the applicant, the relationship, the contribution made by the applicant to the welfare of the family, including any contribution made by looking after the home or caring for the family. There is no strict definition of family and it is quite clear that stepfamilies would be included. Such a cohabitee need not show financial dependence. He or she is still not in quite the same strong position as a spouse, since a cohabitee will only receive provision for maintenance, whereas spouses receive reasonable provision whether or not it is intended they should have maintenance. Your reasons for not having provided for someone should be given in your Will or in a separate letter, which can be referred to in your Will. The Court will consider these reasons but they will not bind them. If it is thought the will was made fraudulently, under duress, or the testator was not sound of mind It is important each will is properly executed and witnessed as if it cannot be proved a will was made with the full understanding and consent of the testator again a will can be invalidated. 15. What does my estate include? Your estate is the sum of everything owned in your sole name when you die less all your outstanding liabilities, including probate costs, inheritance tax (if applicable) and funeral expenses etc. Your estate won t include money in joint accounts or property or shares owned jointly. Also not included, life insurance policies in joint names and those where you have already nominated the beneficiary. From your employment, your death in service benefit and pension is also not normally included as these are held in trust for whomever you may have already nominated. It is, however, sometimes

9 9 recommended by trustees that you mention in your will who you would like to benefit - although trustees are not legally bound by your expressed wishes in your Will. 16. Should I appoint Guardians? When you have children/dependants under the age of 18 you should appoint a Guardian or Guardians. You could have them appointed to act on your death or only once you and your partner have both passed away. When you and your partner are unmarried and have joint children but the father is not on the children's birth certificate the mother of the children will need to appoint the father as her first choice of guardian as, under current law, he does not have parental responsibility for the children if she passes away first. 17. Can I change my Will? Yes your will can easily be amended by either writing a new Will or signing a document called a Codicil. A Codicil must also be prepared, signed and executed in a particular way (Like a will). If any changes are necessary please give us a call and we can have your amended will drafted, witnessed and executed. Depending on the extent of the changes a fee may apply. 18. Does marriage, divorce or a civil partnership affect my Will? If you get married (or enter into a civil partnership_ your Will is cancelled automatically - this doesn t apply in Scotland. However it is possible a will to contain a sentence stating otherwise, for example if it had been drawn up just prior to you getting married and specifically noted the will was to remain valid post marriage. If you get divorced (or your civil partnership in annulled) after you have made it, any gifts in favour of your wife/husband or partner become null and void (unless the Will states otherwise) and your Will would be read as if they had already died. Writing a new Will is crucial after are major changes to your circumstances as in many cases your old will wont accurately reflect your new situation. 19. What are Executors? Executors handle your affairs when you die. When you write a will you must appoint one or more this is normally a job for your adult children, relatives or a friend, someone you trust to administer your estate according to your wishes. Your executor can also be a beneficiary (unlike a witness). Examples of common choices for executors: Your husband, wife or partner Your son or daughter (if over 18 at the time of your death) Your brother or sister A close friend A beneficiary in your Will Professionals (Will writers / solicitors etc) We recommend you ask the person you wish to appoint to confirm they are willing to act as an Executor s duties are varied and can be very time consuming. As a result, in many cases the people chosen to be executors often appoint professionals to help. This can be costly (Especially when a bank

10 1 0 acts) although the expenses incurred, including the professional firm's fees, however, can be reimbursed from the estate. 20. What do Executors do? An executor (Whether a professional or layperson) has a legally obligation to: Find out what property, savings, investments and other assets the deceased had Listing them and their current value Ensure that the death is registered Making sure the funeral takes according to the deceased s wishes and arrange payment Establishing pension entitlements and other recover any other monies due Obtain details of all outstanding debts and bills Have any property and valuables professionally valued Determine Income and Inheritance Taxes liabilities due and file any necessary tax returns Complete and submitting all Probate Registry forms Negotiate valuations of all outstanding bills and any debts Pay off any debts to the estate Ensure beneficiaries receive their inheritance Run/arrange the running of any business until disposal (If necessary) Drawing up clear accounts to present to the main beneficiaries 21. How many Executors can I appoint? We always recommend you appoint least two but up to a maximum of four can be appointed. You are also able to appoint alternative Executors in the event that when you die your first choice decides not to take the position or has died before you. 22. Do Executors get paid? If family of friends are appointed in many cases they themselves are beneficiaries and thus happy to help, however in many cases a small cash gift or thank you will be left to compensate an Executor for his/her time and efforts. If an Executor incurs costs in administrating an estate these can usually be recovered from the estate. Professional executors weather individuals or organisations will usually charge a percentage of the estates value. A solicitor will often charge 1% to 4% whilst banks have been known to charge 4% to 6%+. Clauses are usually written into a Will to confirm that they be paid their normal fees from the assets of the deceased. Without these clauses it is unlikely a professional would be willing to act. Generally the costs of administrating an estate will be unknown until the administration has been completed, the total cost depending on the time taken to finalise matters. As a result it is usual for professionals to charge by the hour, with more complicated estates many hours of work will be involved. 23. How do I cancel my Will? You can cancel your Will by making a new Will, or simply by destroying the document, an instrument of revocation can also be drafted that will revoke the old will. NOTE: A will may automatically be revoked on marriage. 24. What are Trustees?

11 1 1 Trustees are similarly to Executors appointed in your Will. Executors and Trustees can be and in many cases are the same people. A Trustees role is to look after your property until a given time in the future, the most common example when a child is old enough to inherit or where there is a life interest. It is wise to appoint trustees if there is any possibility of a trust arising as without specific instruction the state may appoint people you may not have otherwise chosen. 25. What are trusts and how do they work? Trusts are used as tools in estate planning to provide control of assets and property after the owner's death. Common types of Trust include: Life Interest Trusts, Nil Rate Band Discretionary Trusts, Protective Property Trusts and Trusts for Disabled Persons. Trusts with the basic concept: Once assets are put into a Trust they belong to the Trust not the beneficiary. The beneficiary can get gifts or even payments from the Trust but will never own the assets themselves. Trusts simply hold and invest assets on a beneficiary s behalf. A Trust, which can be written as a stand alone document that is set up whilst still alive and comes into force immediately, or if written into your Will, is effected upon your death. Despite changes in Taxation policy in October 2007 when it comes to protecting assets and controlling the distribution of your Estate, Trusts are essential. We provide a variety of different solutions depending upon your objectives. Trusts are commonly used to: Ensure that your children are not disinherited through remarriage after your death, and ensure that they are protected from subsequent divorce settlements too. Protect funds from the Local Authority should a surviving partner become infirm and require long-term care. Help your children benefit from funds without running the risk of the fund creating an additional Inheritance Tax burden. Protect money for a minor until they reach a specified age, perhaps allowing income in the meanwhile. Protect a beneficiary's inheritance for a short period until a bankruptcy has been discharged. Make provision for a disabled child who is unlikely to be able to manage their own financial affairs. How They Work Specific assets (Money, property etc) are left by the settler leaves Trustees on Trust to hold on the terms of the Trust Deed. The money or property is left so that beneficiaries can have the income from the money or use of the property for a specified number of years or the rest of their life. You can determine specified payments to be made to the beneficiary or allow the Trustees discretion to determine how much and when. The Settler = the person who establishes the Trust. The Trustees = the person or persons charged with holding the trust property on behalf of the beneficiaries.

12 1 2 The Trust Deed = the written document, which sets out the terms of the Trust, set up by the Settler. 26. What happens to property in joint names? If you own a property it can be owned as either "joint-tenants" or as "tenants-in-common". Generally husbands and wives are joint-tenants by default, but not always as solicitors do give the option of a tenants-in-common arrangement when a house is purchased. This means that when one of them dies (the husband for example) the other one automatically becomes the owner of the whole of the property. It also means that a joint-tenant cannot make a gift in a Will of his or her share of the property, the property is left to a 3 rd party on the second death (when both husband and wife have died for example). Partners who have previously been married or have children from a prior relationship often prefer to own property as tenants-in-common. This means that when one of them dies his or her part of the property forms part of his or her Estate. This then means that they can gift in their Will their share of the property. Example: Mike has children with his x-partner Sharon. He is now married to Tracey and wants to ensure that if he died his part the new marital home would eventually pass to his children. Instead of joint-tenancy, the house is split 50/50 as tenants in common. This means when he dies he can leave his part of the house to his children from the previous relationship with Sharon. It could further be stated that Tracey (his new wife) could live in the property until she dies and only then would his children receive their part of the property as inheritance. Had the property been held as joint tenants when Mike dies the property passes absolutely to Tracey and his children would net receive a penny. The same principles also apply to other jointly owned assets such as bank and building society accounts and other investments. 27. Should my property be held as Joint Tenants or Tenants in Common? Well it depends what you are trying to achieve, if you wanted to protect a share of your property from being swallowed up in care fees or lost to your partner s new spouse when you die, you could leave your half of the property directly to your children for example, but you would have to be a 'Tenant in Common' to do this. In practice tenancy in common can have many varied applications and benefits, it s our job to look at your situation and advise accordingly. 28. Which am I Joint Tenants or Tenants in Common? When you acquired the property your solicitor would likely have given you the option of a Tenancy in Common/Joint Tenants but if you are unsure which was chosen you will need to check on your Title Register Document. If you have a mortgage your mortgage lender will likely hold this document, but for as small fee ( 4 at present) you can check your Title Register Document on the Land Registry website at: When you've got your Title Register Document it is worth printing it out as it also tells you your Land Registry Administration Area and your property's Title Number - both of which are needed to sever the Joint Tenancy. The Title Register Document will show the names of the people that own the property and, if you are tenants in common will also have wording similar to: "No disposition by a sole proprietor of the registered

13 1 3 estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court". If there is no such wording in the Title Register Document then you are almost certainly joint tenants. 29. How do I change between Joint Tenants and Tenants in Common? Changing the way property is owned - from Joint Tenancy to Tenants in Common - is a straightforward procedure and a service that we are happy to provide - we do not need your property deeds to do this. Furthermore changing the way you own your property does not affect a mortgage or your ability to sell the property. In fact you have all the same rights as a Joint Tenant but with a lot more flexibility. If you are sharing a property with a spouse or partner and only one of you has the property in their sole name, this can be easily transferred into the names of you both as Tenants in Common. This is a more in depth procedure and your property deeds will be required to make this change but we are happy to help you with this. 30. What about Inheritance Tax? The Finance Act (1986) introduced Inheritance Tax (IHT) as a replacement for Capital Transfer Tax. The rules uses to calculate IHT have become successively more complicated following several budget announcements. Fundamentally within England and Wales there is a nil rate band of 325,000 (See Below) above which the tax is levied at 40% on the net estate of the deceased (having applied any other allowances). These rules and allowances are reviewed regularly. In October 2007 the nil rate band became transferable between spouses/civil partners making the situation has more complicated still, this is covered in more detail below. Most importantly this tax can be reduced if not eliminated with some straightforward planning. As will writers we do not offer in depth Inheritance Tax advice, however we can help with fundamental estate planning in many cases some simple changes can save many thousands in tax. As the information we provided is more general in nature for more complex estates your best course of action would be to sit down with an independent financial adviser who can fully fact-find of your situation and having taken into account of all your current and likely future circumstances make a recommendation as to your best course of action. If we feel it would be of benefit we would be happy to refer you to one. In summery There are many planning opportunities open to you, which we can discuss at the time of meeting and which should result in both families and businesses being protected. Below is a guide to some of the specifics of planning for IHT. 31. What a gift is made "free of tax" what does this mean? When a gift is left in a will it can either be left subject to tax or free of tax (tax usually referring to inheritance tax). This simply specifies weather any inheritance tax due on the gift is to be deducted from the gift itself or if instead the beneficiary should receive the full amount of the gift with any inheritance tax deducted from the remainder (residue) of the estate. Unless otherwise specified in the will gifts are taken to be free of tax. 32. What does it mean if I give someone a "life interest"?

14 1 4 You would perhaps consider giving your partner a "life interest" in your Estate or perhaps just your property If you wanted to ensure that your partner is adequately provided for but feel you have a duty towards, say, children from an earlier marriage. For example say you had re-married and if you died you did not want your home to pass to her but to your children, however you would not want your new partner to be homeless, you may leave the property to your children giving your partner a life interest in the property allowing her to live their for a specified period, until they die or say if they were to remarry. After the specified event has taken place then your home and/or the capital sum will pass to whoever you have specified in your Will (such as your children). A life interest could also simply restrict the partner's inheritance to the income (interest earned) on your capital or specified sum. This can be especially useful in tax planning and is also use in conjunction with property protection trusts. When considering a gift of a life interest, it is very important to remember; The recipient does not own the property or capital sum and therefore cannot dispose of it in his or her own Will. The prime duty of your appointed Trustees is to keep a fair balance between income for the person getting a life interest and capital growth for those who will be ultimately entitled to your Residuary Estate. Unless your Estate is fairly large, the income from it may be insufficient to support your partner. 33. What's the best way to provide for my disabled child? When there is someone in your family with a physical or mental disability, it can often be difficult to see how they would cope in the future when you're no longer there to care for them especially if they are unable to manage their own financial affairs. Leaving money in a will if the worst were to happen is of course a great help; however there can often be many problems caused as a result. One problem is by leaving money to secure the future of a loved one may reduce their entitlement to DSS benefits or local authority funding of residential care. Moreover if you leave them some or all of your estate the money could go to the social services simply to pay for their long-term care (care that may have been state funded without the inheritance) this would not give any improvement to their lifestyle. If you don't leave them your estate their appointed legal representatives could make a claim under the "Provision for Family and Dependants Act 1975" and your estate may end up with the social services anyway. However legislation now allows trusts to be created by a third party for a disabled beneficiary or by the disabled people to benefit themselves. The principal beneficiary must be a disabled person at the time the trust is established and there are two main types of trust available: 1 - Non interest in possession trust This is a discretionary trust where the disabled person (beneficiary) has no interest in possession ( IIP ). This means that there is no right for the disabled person to receive the income from the trust. Although the income can be held throughout the lifetime of the disabled person in the majority of cases both the income and the capital will be applied for the benefit of the disabled person, In some cases there may be circumstances where it would be desirable to appoint up to half of the capital to, or for the benefit of, other beneficiaries. For inheritance tax purposes, the disabled person would be

15 1 5 treated as having an IIP, which means that the value of the trust would form part of the disabled persons estate on their death. This type of arrangement would NOT affect means tested benefits as it does allow for income to be accumulated. However - generally - payment of income will be treated as income for means-tested benefit purposes and as such is likely to affect such benefits. 2 - Interest in possession trust With this type of trust an IIP is conferred directly to the disabled person. As a result, the disabled has an absolute right to the income. Also unlike a non-iip (explained above), there are no restrictions as to the capital of the trust some or all may be applied for the benefit of the disabled person if required. For inheritance tax purposes the trust property will belong to the disabled person s estate upon death. All income paid under this arrangement WILL be taken into consideration for any means tested benefits to which the disabled person may be entitled. At Dunham McCarthy we have experience in writing wills for these types of situation. There is much you can do to ensure benefits are not reduced and your estate is not taken to pay for long-term care costs. Of course, all circumstances are unique and each case would be considered carefully before making a recommendation. 34. How can I avoid the council selling my home if I'm taken into care? There is a solution; first of all, it is important to understand what causes homes to be seized in the first place. In recent years, it has become increasingly apparent that the State will provide only for those with little or no savings/assets. The rest of us will be expected to pay at least part, if not all long-term care costs. So even if you don't have savings available, the Department of Social Security can place a charge against the family home, which allows them to recover the care costs when your property is eventually sold. As a result if you own home it is unlikely you will receive any assistance even though you my not have large amounts of cash assets. However currently the Local Authority will only seize a person's home to pay for care costs if both of the following are true: a) That person owns 100% of their home (Excluding any mortgages) b) They art worth more than 23,250 (Including the value of their home) So if one of you dies the survivor inherits the property and both a) and b) will be true. If the survivor then goes into Long Term Care, the home can and will be seized by the Local Authority. If one of you goes into care with the other remaining in the property again as mentioned above a charge may be placed on the property until the property is eventually sold. Protective Property Trust Wills prevent this from happening by ensuring that the neither of you ever owns the property 100% outright. A 'Property Trust' is based around three basic elements: the basis on which you own your property, the Trust terms, and your Wills, which contain the Trust instrument. The trust can only be created whilst both partners are alive and the property must be owned as Tenants in Common as opposed to Joint Tenants. A trust will only come into force after the death of the first occupier. On this first death, the Protective Property Trust Will states that the first to die does not leave their share of the property to the survivor, but specifies that the survivor has the right to live in the property (a Life Interest or Right of Residence ). That way:

16 1 6 a) The survivor only owns 50% of the property b) However, they can still live in it, due to the Life Interest This simple arrangement ensures that the surviving spouse never owns 100% of the property and so the Local Authority cannot seize it. NOTE: If the second partner goes into long term care there 50% can be taken by the state to cover care costs. Disclaimer: The materials within this document have been prepared by Dunham McCarthy for informational purposes only and are not, nor are they intended to be, professional advice. This information is not intended to constitute, and receipt of it does not constitute a contract for professional advice or the establishment of a company-client relationship.