Wills, tax, trusts & probate

Be savvy when leaving to charity…
10 May, 2018

Are you planning to leave something to charity in your Will?  If so, did you know that there is a lower rate of inheritance tax if you leave 10% or more of your net estate to charity? This means you can leave more to charity on your death with less impact on other non-charity beneficiaries.

This is how it works…

On death, inheritance tax (“IHT”) is charged at 40% on the value of what you own in excess of the available Nil Rate Band (“NRB”), currently £325,000. The NRB is the amount which you can give away without IHT being payable. It is reduced by the value of any gifts made in the 7 years before your death, and gifts to a spouse are exempt from IHT.

Gifts to UK charities are also exempt from IHT. This exemption also applies to gifts made to equivalent organisations in Europe, Iceland and Norway. If you leave 10% or more to charity, the rate of IHT on the rest of the estate (i.e. the part not left to charity or a spouse) is reduced to 36%. This reduced IHT rate means that by leaving more of your estate to charitable beneficiaries the amount left to your non-charitable beneficiaries may also increase.

Here is an example, with a net estate worth £750,000 at death, no lifetime gifts or residence nil rate band (Read about the residence nil rate band here) to take into account:

Scenario 1

You leave £60,000 (8% of your net estate) to qualifying charities and the rest to your children.

A total of £385,000 (the £60,000 charitable gift plus your available NRB at £325,000) passes free of IHT.  The remaining £365,000 is charged to IHT at 40%, being £146,000.

Your children receive £544,000.

Scenario 2

You leave £75,000 (10% of your net estate) to qualifying charities and the rest to your children.

A total of £400,000 (the £75,000 charitable gift plus your available NRB at £325,000) passes free of IHT.  The remaining £350,000 is charged to IHT at the reduced rate of 36%, being £126,000.

Your children receive £549,000.

This is a ‘cliff-edge’ tax relief which does not have a gradual scale.  Once you cross the 10% line your estate becomes eligible.  Of course this is only a simple example and it is important to work out the implications based on your specific circumstances.

Please get in touch if you would like to discuss gifts to charities or any other matters relating to your Will. You can contact Hannah Baker on 01892 506 057 or at hannah.baker@cripps.co.uk


Planning ahead to stay in control of your medical decisions
26 April, 2018

Do you feel strongly about maintaining control over your medical treatment if you later lose the ability to make or communicate decisions for yourself? If so, an advance decision could give you peace of mind.

An advance decision, often referred to as a ‘living will’, is a legal document recording your instructions about specific medical treatments that you wish to refuse in the future. To make an advance decision you must be over the age of 18 and have mental capacity.

Any treatments you wish to refuse must be clearly set out in the advance decision alongside details of the specific circumstances in which you would refuse these treatments. A properly drafted and signed advance decision will be legally binding and will take priority over decisions made, even in your ‘best interest’, by others on your behalf.

An advance decision is particularly useful as a companion to a Health and Care Lasting Power of Attorney (‘LPA’). The LPA allows you to select people you trust to make decisions on your behalf if you are ever unable to do so yourself.  These people are known as your attorneys.  When making a Health and Care LPA you can give your attorneys the right to refuse or consent to life sustaining treatment on your behalf.  A valid and legally binding advance decision allows you to retain some control over that process, as your attorneys, the court and medical practitioners must follow it, even if they disagree with your decision.  Beware! An advance decision created before a Health and Care LPA is signed and registered can be overridden by your attorneys if you have given them authority to consent to or refuse life sustaining treatment on your behalf.  The order in which you make these documents is vital to ensure your wishes are carried out.

Advance decisions can be a useful tool in planning for your future, whether you are suffering from a specific condition or simply want to plan ahead. By making an advance decision, you can ensure that your wishes are observed and, perhaps more importantly, help your loved ones by taking those difficult decisions out of their hands.

To find out more about advance decisions or Health and Care LPAs please contact Hannah Baker at hannah.baker@cripps.co.uk or on 01892 506 057.


Does your Lasting Power of Attorney limit your attorney’s investment options?
12 April, 2018

If you give (donate) someone a power of attorney it means they can make decisions on your behalf if you are unable to make decisions for yourself. There are two types of Lasting Power of Attorney (‘LPA’), one for health and care decisions and one for financial decisions. This blog is about an issue that affects LPAs for financial decisions.

The Office of the Public Guardian (‘OPG’) is responsible for monitoring use of LPAs and also provides guidance on what LPAs should contain. In September 2015, the OPG published new guidance that appears to prevent attorneys from investing the donor’s funds in a fund which gives the fund managers a discretion to make investments, or even to leave funds with the investment managers previously appointed by the donor, unless the LPA includes wording which specifically permits this.  

This seems to be an unhelpful and unnecessary prohibition and whether this guidance is correct is disputed. The guidance refers to banks but there are other institutions which offer fund management.  The use of investment managers who are given a discretion is not unusual. It is particularly useful for attorneys who need to sell the donor’s house to raise money for care fees. The sale proceeds need to be invested  to generate an income and the attorney will rely on the investment manager’s expertise to buy and sell investments. 

As many LPAs prepared before 2015 will not include the wording, the legal and investment communities have been lobbying the OPG to clarify the position or to withdraw the reference in the 2015 guidance. Alternatively, they are asking for an easy solution for those who have made LPAs without the wording prior to the guidance being published to update their LPAs.

Stephen Horscroft, a managing associate at Cripps, sits on the steering committee of the Society of Trust & Estate Practitioners Special Interest Group on Mental Capacity who are actively trying to engage with the OPG about this issue and is therefore in a position to keep clients updated on the current position.

What is clear is that some investment managers now refuse to accept instructions from attorneys without specific wording in the LPA.  Without the wording, attorneys are left with three options:

  1. move to another fund manager who will accept instructions (with no certainty one can be found);
  2. move funds into a standard bank account or investment fund (likely lower returns for the donor); or
  3. apply to the Court of Protection for specific permission to use a fund manager on a discretionary basis.

A practical alternative – where the donor still has capacity – is to put in place a new LPA that includes the recommended wording.

Does this affect you?

If you made an LPA (or its predecessor, an Enduring Power of Attorney) before September 2015 it may not include the required wording.

If you made an LPA after 7 September 2015, it should include the wording but we recommend that you check your documents.

In either case, if you would like your attorneys to be able to instruct a fund manager to help manage your investments on a discretionary basis, or to continue to use your preferred fund manager, we strongly suggest that you review your LPA (or EPA). If the required wording is not in the document, you should consider making a new LPA to ensure that your attorneys can manage your affairs and enlist professional investment assistance.

If you would like any more guidance on this point, or would like to prepare a new LPA , please contact Nicola Hillyer on 01892 506 014 or at nicola.hillyer@cripps.co.uk.


Why ask a solicitor to draft my Will if a Will writing company is cheaper?
28 March, 2018

We are often asked this question.  Here are some reasons why, prompted by recent news of a Will Writing company going into administration.

Your Will is your chance to say formally how you want your property and assets shared out when you die.  A properly drafted Will is vital to ensure that your wishes are followed.  Poorly drafted Wills can cause difficulties which are usually only discovered when it is too late, and the family is left to clear up the mess.

On the face of it, a Will writing company may be a more desirable option than using a solicitor because it costs less – although it is not always the case that the costs are less especially if trusts are involved, and if they are, it could cost you more in the long run.  The problem is that some businesses offering ‘professional’ Will writing or estate planning advice are totally unregulated. They need no technical qualifications, negligence insurance or continuity arrangements to protect consumers should they cease trading. 

If your affairs are simple, you could draft your own Will but the cost of obtaining professional advice will normally be modest compared with the issues that could arise if you get it wrong!

A survey undertaken by STEP (The Society of Trusts and Estate Practitioners) highlighted the ‘incompetence and dishonesty in the UK Wills market’.

Here are some key reasons to ‘go legal’:

Legal understanding

Solicitors undertake years of legal training, the training is ongoing and comprehensive. A legal professional will tailor your Will to fit your wishes and your circumstances.  There may be complex tax issues or reliefs available that are not understood by someone trained only in basic Will drafting.  For example, a solicitor can advise on whether you are eligible for the residence nil rate band.

Validity

There are formal legal requirements for a Will to be valid.  It is not uncommon to find Wills drafted that do not meet those requirements.  If the Will is invalid, your estate could be tied up for years in litigation before it is distributed, and it may not, ultimately, benefit your chosen beneficiaries e.g. if  you have no valid Will, there are rules (Intestacy Rules) that dictate how your estate will be shared out which may not match your wishes. Testamentary capacity is required for a Will to be valid, and solicitors are used to advising on issues surrounding capacity.

Insurance

Solicitors have to have insurance that covers their clients’ losses if the solicitor is negligent and makes a mistake that causes the loss.  Unregulated Will writers do not have to have insurance, so if they make a mistake there is no guarantee that the loss will be made good.

Executors

Your executors are responsible for collecting in your assets and distributing them in accordance with your Will, so your choice of executors is key.  A solicitor trust corporation can be appointed as your executor, or co-executor with a family member, removing the burden from family or friends during a difficult time.

If an unregulated Will writing company is appointed as the executor of your Will, and then goes out of business, you may have to make a new Will appointing new executors if there has been no continuity planning.  For more information on the benefits of appointing a solicitor trust corporation as an executor see our previous blog here.

Storage

A solicitor (or Will writing company) can store your Will until it is required. If stored with a solicitor your Will is protected if the firm goes out of business or moves. This is because all law firms are regulated by the Solicitors Regulation Authority (‘SRA’).  If a law firm becomes insolvent the SRA will take control of documents and papers relating to that firm’s clients.  An unregulated Will writing company can simply disappear without trace. There have been cases where an unregulated Will writing company had gone out of business and Wills and files held by them were found on the pavement or stored in a barn. 

If you would like to discuss your Will, please contact Nicola Hillyer on 01892 506014 or at nicola.hillyer@cripps.co.uk.

 


Should I appoint a trust corporation as an executor or trustee of my Will?
8 March, 2018

When we help clients to prepare their Wills, one of the most important things we discuss is the choice of executors and trustees.  Most people want friends or family members to carry out their wishes and to deal with their estate after their death.  They, after all, have intimate knowledge of the family and its arrangements but before making the decision, it is worth giving it a little more thought.

Being an executor and trustee is a serious responsibility, with personal responsibility.  It can be difficult to do everything that has to be done whilst keeping relationships on an even keel, at a time when emotions are likely to be running high and, later, when making decisions about managing any ongoing trust arrangements.  This is where a professional executor can work alongside family members, helping them to stay objective and taking any ‘flak’ if difficult decisions have to be made.  

Perhaps there are sensitivities about how the estate is being shared out between a second wife and the children of a previous marriage. 

There might be a nil rate band trust (NRBT) in the Will, setting aside a slice of the estate while the rest goes to the surviving spouse.  Children are often appointed as executors and trustees of their parents’ Wills but if they are beneficiaries under the NRBT, you might not want them to have a say over how the trust is used while the surviving spouse is still alive.  

Sometimes, a named professional person is appointed as co-executor or trustee alongside a family member, to help with administration of the estate or trust.  This is perfectly possible but can cause problems e.g. if the professional moves to another firm or cannot act because of illness or worse. 

We dealt with one such case, involving a substantial trust fund held across a wide range of assets.  The firm dealing with the administration did not have a trust corporation and so individual partners were appointed.   One of the partners decided to move to another law firm.  The family wanted the trust work to remain with the original firm, so another partner in that firm had to be appointed as trustee, and all the assets re-registered in the names of the new trustees.  This was a time consuming and expensive exercise.

In another case, the named partner was suddenly taken very ill and was unable to work for many months, so another trustee had to be appointed at short notice and, again, all the trust assets re-registered in the names of the new trustees.

This is where a trust corporation has the edge.  Instead of appointing an individual, your Will can appoint the trust corporation as an executor and trustee.  In our own trust corporation, Cripps Trust Corporation Limited (CTC), the directors are partners in Cripps’ Private Client team and CTC continues even though the  directors might retire and change. On a practical level, one of the directors of CTC is more likely to be available for making decisions or to sign documents than a single individual. The combined experience of the directors is invaluable if unusual or complex issues arise during the administration of the estate or, later, when dealing with the trust.

One additional advantage of trust corporations like CTC came to light recently, when the Court of Protection (CoP) said that solicitors’ trust corporations will need less compliance to be approved to act for individuals whose affairs are dealt with in the CoP.  This is because the directors will already be subject to the stringent regulations which apply to solicitors for the protection of the public.

If you would like to discuss trust corporations or learn more about appointing Cripps Trust Corporation Limited as a trustee or executor, please contact Hannah Baker on 01892 506 057 or at hannah.baker@cripps.co.uk .