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Every month the Director at McPhersons share some useful financial tips especially for Business in Hastings readers. This month, Ainsley Gill looks at Will and Trusts.mcphersons-logo

The Courts are familiar with families arguing over the division of the assets of a parent who died without a Will. If you don’t want to run the risk of putting your family at war and want to ensure your family is taken care of, here’s what you need to consider.

  • Make sure you use a regulated individual as your Will-maker when making your decision as anyone can set themselves up as a writer of Wills. The Law Society says: “It is important that consumers are able to distinguish between those that are unregulated, uninsured and untrained, and solicitors who specialise in this area and offer a quality service”.
  • With effect from the 1st October 2014 new rules were introduced relating to who inherits what if a person dies without a Will. Under these new rules, where there are no children, if a spouse dies intestate then the surviving spouse or civil partner inherits the whole estate, rather than only £450,000 as was the previous case. Where children are involved, under these new rules the surviving spouse or civil partner would inherit the first £250,000 and then half of the remainder of the estate, with the remaining balance of the assets being held in trust for the children until they become an adult. Siblings and parents of someone married and with no children, will no longer inherit a share of the estate if it is worth more than £450,000, the entire sum will go to the surviving spouse. However, this is a danger for unmarried couples who do not have any rights over their deceased partner’s estate, so you need to ensure a Will is in place to guarantee your wishes are carried out.
  •  Many people have seen their property rise in value and some have more than doubled in value over recent years, but there is a price to pay in the form of inheritance tax. One way to mitigate this charge is to set up a trust; you can then protect some of your estate from the 40 per cent inheritance tax. Trusts can also be a good way to protect your estate for future generations in case of your divorce or bankruptcy. It is also useful to get advice from a solicitor if you have assets overseas because some countries will not recognise a Will written in the UK.
  • For children you need to name a guardian and check with them first to make sure they would be happy to take on the responsibility. In some cases, particularly for unmarried parents, having a Will is the best way to be sure that children under 18 will stay in the custody of your loved ones.
  • Making a Will is not relatively expensive; not having one could be more costly. If your needs are simple and basic, you can even use an online company, but using a solicitor or professional financial adviser who specialises in this area, offers peace of mind.

TRUSTS 

Lifetime Trusts

Lifetime trusts are often known as property protection trusts or asset protection trusts.

Unlike will trusts, which come into being on death, lifetime trusts are established straight away. Your home is gifted to the trust, which allows you to carry on living in it. The rationale is that if you need residential care at some point in the future, you no longer own a house and can only be assessed on minimal assets.

Anyone considering setting up a lifetime trust for this reason should be aware that a local authority may regard this arrangement as ‘deliberate deprivation of assets’. If this is the case, they can assess you as if you still owned the property (and refuse to fund your care).

By placing property outside your estate, lifetime trusts can reduce probate costs significantly.

Lifetime trusts and tax  

The tax treatment of lifetime trusts is worth considering carefully. Because you gift the house to the trust, it can attract IHT if it is worth more than the nil-rate band (currently £325,000).

Those who transfer their property to a lifetime trust may face an immediate 20% charge on the balance over £325,000 (including gifts made in the previous seven years), while the trustees must submit tax accounts to HMRC. They may have a further tax bill every 10 years plus income tax on any payments from the trust.

Lifetime trusts are far more expensive than basic wills or will trusts. They are normally sold as part of a package.

Discretionary trusts

Will trusts and lifetime Trusts can be either fixed interest (where the beneficiary has an absolute right to occupy the house and receive the income from any trust investments) or discretionary (where the trustees have a pool of potential beneficiaries and have a discretion how to benefit any of the potential beneficiaries).

Usually a discretionary trust also has a letter of wishes for the trustees to consider, which may give one beneficiary the trustees’ permission to live in the house or receive the income from investments.  The tax treatment of fixed interest trusts is different from discretionary trusts.

Taxation advice, Trusts and Will writing are not regulated by the Financial Conduct Authority. 

Need more help?

This feature aims to give some informal hints and tips.  McPhersons Chartered Accountants and McPhersons Financial Solutions are offering businesses free advice so get in touch now to arrange your meeting. Simply email Peter Watters p.watters@mcphersons.co.uk  or call our Head Office on 01424 730000 for a free consultation at mcphersons’ London, Bexhill or Hastings offices. www.mcphersons.co.uk