Wills, tax, trusts & probate

Pension protection trusts – a safe haven for pension death benefits?
30 August, 2018

For many, pension savings represent one of our most significant assets, second only to our homes.

A 2018 study by the insurer Royal London found that the average person needs a pension pot of around £260,000 to retire comfortably. Some of us may choose to invest much more, taking advantage of the £1,030,000 lifetime allowance.

With auto-enrolment minimum pension contributions set to rise to 8% by 2020, a significant proportion of our lifetime earnings will be invested in pensions.

What is a pension protection trust (PPT)?

Pension protection trusts (PPTs) can be created at any point during your lifetime. Once set up, they remain dormant until required.

After your death the PPT receives the lump sum from your pension, instead of this passing direct to your spouse or any other named beneficiary.  While pension death benefits usually pass free of inheritance tax (IHT), without a PPT, when the recipient of the lump sum dies there could be an inheritance tax bill of 40% on whatever is still held by them.

An alternative, if your pension provider offers it, is to use the new pension rules to leave a drawdown fund for your beneficiaries.  However, a PPT may offer more protection and flexibility. 

Why set up a PPT?

Asset protection

PPTs give you increased control over how your pension pot passes to future generations. You can choose trustees to hold funds for your children and grandchildren until they are old enough to inherit. Assets retained in the trust may be shielded from divorce proceedings, bankruptcy or the remarriage of your spouse.

Assets held in the trust will also be excluded from a local authority’s assessment of your spouse’s ability to pay for care, allowing them to take full advantage of any available grants. Your trustees may still make funds available if these grants are not sufficient to cover care costs.

Tax efficiency

By putting the lump sum into the trust, the funds remain outside your spouse’s estate for IHT purposes. Capital can be loaned to your spouse interest free with payment due back to the trust on their death, preserving the funds for your children and reducing the amount of IHT payable on your spouse’s death.

Although there will be a tax charge if you die over 75, this can be reclaimed if payments are made out of the trust to beneficiaries.

Flexibility

After your death, the trustees can review the circumstances and decide whether to retain the trust or to distribute the assets in order to limit potential ongoing inheritance tax liabilities.

PPTs allow you to nominate a number of potential beneficiaries, such as your spouse, children and grandchildren.  The trustees will be able to take account of all the beneficiaries’ circumstances at the time when the money is available before distributing the trust assets or paying out income.

Conclusion

A pension protection trust should be seriously considered as a suitable way of passing your pension to future generations. If you would like more information on PPTs, please contact Jessica Jamieson on 01892 506 019 or jessica.jamieson@cripps.co.uk.


The simple way to make guardianship arrangements for your children
22 August, 2018

 

Deciding who should take care of your children if you (or others with parental responsibility) are no longer there to look after them can be a difficult decision.  Sometimes the decision can be so delicate that it becomes one of those ‘to do’ items that falls to the bottom of the pile never to be thought about again. We all do it!

Taking time to consider who you wish to appoint as your child’s guardian if the worst happens and you die whilst your children are under 18 will help to give you peace of mind, and avoid arguments between those you leave behind.  Although we can’t make that particular decision for you, we can help you to make a clear and valid guardianship appointment.

The clearest way to ensure your children are brought up by the people you choose is to name them as guardians of your minor children in your Will.  Your Will can also name replacement guardians if those first named guardians are unwilling or unable to act. Your latest Will will be looked at following your death, making it less likely that your wishes regarding guardians will be overlooked.  As your Will is likely to make financial provision for your children too, it is sensible for all arrangements for your children to be recorded in one document. 

Many parents also like to have the opportunity to set out their wishes as to how their children should be raised in their absence; from their education and the values they are taught to live by to the hobbies and experiences that they should have the opportunity to enjoy.  A letter of wishes documenting your thoughts on these matters can be prepared and stored with your Will.  Although not binding it is helpful guidance for your children’s guardians.

Without a clear, signed indication of your wishes, guardianship arrangements will be determined by the court.  This widens the list of potential guardians, takes the decision out of your hands, giving the decision making power to the Court instead.

Appointing a guardian is important to many, yet acted on by relatively few.  As we approach the end of the summer holidays and before the start of the busy ‘back to school’ period perhaps it is time to consider making a Will, or revisiting yours if you have one already, to include provision for the future care of your children.

To discuss guardianship arrangements or your Will please contact Hannah Baker at hannah.baker@cripps.co.uk.


The Estates Team – here for you come rain or shine
2 August, 2018

 

At Cripps we have four dedicated Probate Managers and although we typically have the same job description our day to day lives, roles and responsibilities couldn’t be less ‘typical’. 

‘Probate’ is the legal document required to collect in and distribute a person’s assets after their death. The word ‘Probate’ is also used more generally to describe the process of dealing with, or ‘administering’, someone’s estate whether or not they had made a Will. As Probate Managers we help the people appointed to deal with a person’s estate, the Personal Representatives (usually family or friends), to obtain the Grant of Probate and to use the Grant to finalise the estate administration.

Our day to day activities can range from, arranging funerals, consoling the bereaved, calculating and advising on inheritance tax, managing Estate Accounts, to eradicating rats, sorting belongings, locating long lost relatives, and so much more. With such a range of responsibilities, our personalities have to be able to match up to this ever changing roller-coaster.

As a team we support each other and each of us plays an integral role in the Estates Team who, together, will support you.

We have the memory whizz, the much appreciated go to person for any facts and complex law queries who, without a doubt, will remember the nil rate band from 36 years ago and an exact case number from 12 years ago immediately.

We have the all rounder, who is the soft toned, gentle pillar of the team but it’ll be a hard task to find a query she cannot answer.

We have the kind heart, who will put at ease any unsure or anxious clients needing that extra support throughout the Probate process, which we all know can be lengthy and difficult.

We also have the IT whizz, able to save the day on any computing disaster, which is essential these days with our effective but challenging e-files.

Finally we have the hard worker, who supports the Probate Managers and whose energy and quick wit always gets the team through a challenging day.

So whatever the weather, rest assured we are the team that can support you through one of the most difficult times you will face and hopefully make this part of the process, at least, that little bit easier.

If you have any queries or would like assistance with Probate please contact Sophie Brooker on 01892 506252 or sophie.brooker@cripps.co.uk


Wedding dress (check), invitations (check), caterer (check), Wills (oh!)…
19 July, 2018

 

For the estimated 230,000 of us set to tie the knot in 2018 (myself included!), producing new Wills is unlikely to feature high up on the wedding-planning agenda.

Wait!

Don’t click back to pictures of wedding favours and tiers of cake just yet…considering your Will might be more important than you think.

“But my fiancé and I have already made Wills so can get back to choosing the perfect yellow centrepieces”.

Not just yet! You might be surprised to learn that from the happy moment you sign the marriage register, your current Will is automatically revoked unless you have planned ahead.

Bet you weren’t expecting that!

Couples can avoid this unintended consequence by preparing Wills ‘in contemplation of marriage’. If a Will is made in contemplation of marriage (or civil partnership), it will still be effective after the ceremony has taken place.

To make your intentions clear, your Will should clearly state:

  • The name of your future spouse or civil partner;

 

  • That you do not intend the Will to be revoked by your marriage or civil partnership; and

 

  • Whether or not the Will should continue even if the marriage never takes place.

 

It is not essential to have set a date for the marriage or civil partnership when making the Will but the ceremony should take place in the near-future. If left too long it could later be argued that the Will was not in fact made in contemplation of marriage. For example, if a Will is made 25 years before the wedding takes place it is unlikely to survive the wedding. On the other hand, a Will making provision for a future wife was found not to have been revoked when the marriage took place 3 years later.

“My fiancé and I have been too busy sourcing the perfect English grown flowers so haven’t had time to make Wills”

If the worst happens and you die without making a Will, or your previous Will is revoked on marriage, your estate will be shared amongst your relations under set rules, known as the intestacy rules. It is unlikely that the intestacy rules will result in your estate being distributed as you would have wanted.

An additional reason for making a Will, if you have children, is that it gives you an opportunity to put guardianship arrangements in place, to make sure the children are secure even if you are no longer there to look after them.

With the venue booked, invitations sent and table plans negotiated, spare a little thought for your Will. To discuss making a Will, including Wills in contemplation of marriage, please contact Hannah Baker on 01892 506 057 or at hannah.baker@cripps.co.uk.


Happy anniversary!
5 July, 2018

You might be surprised to know that there are some remarkable similarities between trusts and marriage.

Tax planning – Yes, call me unromantic but trusts and marriage can both save you tax. Trusts are very useful for tax planning and are an effective way of passing assets to the next generation. Marriage also brings a number of tax saving opportunities.

Not to be taken lightly – The decision to set up a trust involves many considerations and they should not be entered into lightly, just like a marriage.

The Big Day is only the beginning – While wedding preparations can seem laborious, the real hard work for couples begins once the Big Day is over and they embark on the joys and challenges of married life.  Similarly, while trustees may breathe a sigh of relief once the initial formalities have been dealt with, they cannot just sit back and relax once a trust has been set up.

This is not the place to give you my recipe for a happy married life but trustees do need to know about their continuing obligations.

Trustees’ duties – As well as their duties to look after the trust assets and the needs of the beneficiaries, trustees must keep accounts, record their decisions and comply with HMRC reporting requirements.  A key event, easily overlooked by trustees, is the 10 year anniversary charge.

10 year anniversary charges only apply to ‘relevant property trusts’. Broadly, this includes most discretionary trusts, and life interest trusts not set up by Will, but there are exceptions and trustees should seek advice to check whether the rules apply to their trust.  

Nil rate band discretionary trusts are a common type of relevant property trust. As they often do not require active management, the trustees must keep a note of each 10 year anniversary to avoid it passing by unnoticed.

What is the significance of the 10 year anniversary? Tax may be payable and the deadline is tight – As the name suggests, the 10 year anniversary arises every 10 years after the creation of the trust.  This is the date of the trust deed for trusts made during lifetime, or the date of death for trusts created by a Will.  The trustees must review the value of the trust assets and obtain valuations if necessary.  An anniversary charge arises if the trust assets are worth more than the nil rate band (currently £325,000).  The charge is currently a maximum of 6% on the value of the assets over the nil rate band and the trustees must submit an Inheritance Tax (IHT) return to HMRC along with payment of the tax.   If the assets are worth 80% or more of the nil rate band (£260,000), the trustees must still submit an IHT return to HMRC even though there is no tax to pay. 

The deadline for paying tax and submitting the return is 6 months from the end of the month in which the 10 year anniversary arises. Unlike a spouse, HMRC will not accept a tin gift as payment; the similarity, perhaps, is that penalties and interest arise if the deadline is missed!

It may be possible to take action to avoid a charge arising.  Trustees should take legal advice well before the 10 year anniversary to allow time to consider their options and take any necessary action.

Anniversaries are significant events in both a trust and a marriage and must be addressed to avoid displeasing HMRC or your spouse.  I will leave you to decide which is worse!

If you would like to discuss trusts and 10 year anniversary charges further please contact Francesca Sassoli on +44 (0)1892 506 354 or at francesca.sassoli@cripps.co.uk.


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