Wills, trusts and inheritance tax planning


Most adults in the UK do not have a will, which may deprive your family, friends and others, that you might want to benefit from your estate after your death.

Your Will is the only way to ensure your property, savings and possessions go to the people you want to benefit from them after you die. Telling your family what you want does not count – it has to be formalised in a legally recognised document to be enforceable.

Stating your wishes is vital for being reassured that the “laws of intestate” rules aren’t followed instead.

It becomes particularly fraught for non-traditional families, such as those with stepchildren or for co-habiting couples. If an unmarried person dies, the surviving partner has no right to inherit their assets, regardless of how long they have been in a relationship. By contrast, estranged spouses retain the right to inherit, even if any amicable attachment has long since dissolved. Wills also allow you to state who you would like to look after children, other dependents etc which can be enormously reassuring.

Emma’s Story

Emma says: ‘After mum died I decided I wanted to have everything sorted for my children. Now I know they will not have anything to worry about when the time comes.’
Her affairs are straightforward and it is unlikely there will be inheritance tax to pay in the future. It was important to Emma that she prepare for the future on behalf of those left behind.
So she set up a lasting power of attorney at the same time. She adds: ‘I feel so much better knowing everything is in place, whatever happens. It makes life easier for children during a hard time after losing a parent.’

Chestnut is able to draft Wills and help arrange for witnessing.

Will Writing is not part of the Intrinsic Financial Services offering and is offered by Chestnut Financial Services in our own right. Intrinsic Financial Services accept no responsibility for these aspects of our business.

Trusts are a great way to help protect your loved ones, ensuring they can be provided for in the future.

Trusts can:

  • Protect your assets – safeguarding how funds are to be spent
  • Guarantee an income for your loved ones – providing financial stability for their future
  • Help to avoid inheritance tax – ensuring your money etc is passed on in the most tax efficient way
  • Ensure your estate is dealt with in accordance with your wishes rather than the rigid provisions of the state.

Lasting Powers of Attorney

A lasting power of attorney (LPA) is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf.

This gives you more control over what happens to you if you have an accident or an illness and can’t make your own decisions (you ‘lack mental capacity’).

There are the two types of LPA and we would always advise that your clients hold both:

• Property and Financial Affairs
• Health and Welfare

The first dealing with, as the name suggests, any assets (including money) owned by the individual and the health and welfare LPA dealing specifically with matters relating to their health and wellbeing.

What is often overlooked is that the Property and Affairs LPA can be used at any time once registered; not just as a result of incapacity, be that mental or physical. This could help clients who struggle to leave the house to visit the bank to pay their bills or manage their finances.

The Health and Welfare LPA, of course, only becomes effective when the Donor has lost mental capacity. For both types, best practice is to register them with the Office of the Public Guardian (OPG) straight away to ensure they are correct.

A key time for LPAs is where there are sufferers of dementia, but there are many limiting illnesses and injuries where a LPA is of inestimable value.

Lasting Powers of Attorney are really important to provide reassurance that all your affairs are looked after even if you are struggling or unable to look after them yourself, by people that you trust given legal authority to tell others about things entirely on your behalf.

By offering this service we believe our clients can benefit from a truly holistic planning service. Chestnut can help draft LPAs, to take account of all your wishes. Our advice  aims to ensure that you are cared for with effective LPA if you become unable to manage your own affairs at any stage of life through either, accident, ill health, the onset of mental illness or simply old age.

Inheritance Tax Planning

Every year, thousands more people are falling into the threshold for paying this much-hated tax. The estates of many people will not exceed the threshold for paying inheritance tax, which is £325,000 and known as the ‘nil-rate band’. But if you have owned a home over many years it is possible the property value will now tip you over that threshold. Any value above the nil-rate band is taxed at 40 per cent.

You can avoid this charge by leaving everything to your spouse, in which case no tax is owed. Unmarried couples not covered by this inheritance tax exemption might want to consider formalising their partnership through marriage – if for no other reason than to avoid a hefty inheritance tax bill. A surviving spouse also inherits any unused portion of a deceased person’s nil-rate band of inheritance tax and could end up with a threshold worth up to £650,000. So when he or she passes away, children and other beneficiaries can receive a greater slice or all of the estate without having to pay inheritance tax.

The Office for Budget Responsibility forecasts that £5.4 billion of inheritance tax will be paid between now and the end of March 2019.

Although such a rise is not solely down to the absence of valid wills, having one can limit how much of your money goes into the pockets of Revenue & Customs – rather than your relatives.

People tend to want advice on how to avoid (legally) the cost of inheritance tax, or large amounts of it if it is unavoidable. We advise clients on what inheritance tax is, how it works, the use of Wills and trusts and gifts; balanced by the need for our clients to enjoy their lives, as actively as possible.

For example;

  • Naming spouses or civil partners as beneficiaries in your will attracts an inheritance tax exemption, as can leaving gifts to registered charities and major political parties.
  • Make use of annual gift allowances. For example, you can give away up to £250 per person every year free of inheritance tax.
  • Remembering a charity in your will can also have an impact. Giving 10 per cent of anything over £325,000 to charity reduces the taxable sum by the value of that donation. The tax rate also falls to 36 per cent. For example, if you have £100,000 left once the nil-rate band is accounted for, and donate 10 per cent of that sum to charity, you pay 36 per cent tax on £90,000 instead.
The Residence Nil-Rate Band

A new exemption for inheritance tax was introduced in April last year, called the ‘residence nil-rate band’, it is an extra allowance for individuals passing on their main home to direct descendants.
It is worth £125,000 this year, rising by £25,000 a year up to £175,000 in 2020. It will then rise in line with the Consumer Prices Index measure of inflation. The allowance can be inherited by a surviving spouse, meaning a married couple could leave children up to £1 million tax-free by 2020 if they include the family home and maximise use of both nil-rate bands.

  • I would advise anyone with assets over the £325,000 threshold who also has children, to review their Will to ensure they are taking advantage of the new exemption. Failing to do so could mean that beneficiaries are liable for thousands of pounds more tax than they need to be.
  • Direct descendants include children, grandchildren, step-children, adopted or foster children. But it will not cover nieces, nephews, brothers or sisters.
  • The allowance tapers off for estates worth more than £2 million and does not include buy-to-let or second properties.

Tax treatment varies according to individual circumstances and is subject to change.

Estate planning is not regulated by the Financial Conduct Authority.

Tax planning is not regulated by the Financial Conduct Authority.

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