Wills, Trusts and Probate: Frequently Asked Questions
Wills, Trusts and Probate: Frequently Asked Questions
Q. Why do I need a Will?
A. If you die without having made a Will, the intestacy rules apply. The intestacy rules apply in an illogical manner and does not recognise co-habitees who are unmarried and not in a civil partnership. Your Will allows you to choose the person(s) who will deal with the administration of your estate, ensure that your estate passes in the way that you wish and be structured to take advantage of the Inheritance Tax allowances available for your estate.
Q. What does an Executor do?
A. An Executor deals with the administration of your estate which includes identifying and valuing the assets and liabilities of the estate, completing the Inheritance Tax Account and paying the appropriate tax, applying for probate, collecting in the assets of your estate and distributing your estate in accordance with the terms of your Will or the intestacy rules. The role of an Executor is very important and you should appoint people you have confidence in and who have the right set of skills.
Q. Why would I include a Trust in my Will?
A. An ageing population means that tens of thousands of homes are sold each year to fund the cost of residential care. A carefully drafted Will can ensure that a share of the family home passes into a Trust on the first death, providing the survivor with a right to occupy. Trusts can protect assets should future generations suffer financial or matrimonial difficulties, or if beneficiaries are not mature or responsible enough to manage large sums of money. Your Will can also redirect business interests into a Trust in order to:
- secure Business Property Relief (BPR); or
- include special trusts for the benefit of any disabled beneficiaries. This will provide special tax treatment for the trust assets, income and gains.
A Trust enables your trustees to adapt to situations as they arise and manage the Trust taking into account the beneficiary’s personal circumstances.
Q. Why would I gift assets into a Trust during my lifetime?
A. Many parents wish to gift assets onto the next generation to reduce the Inheritance Tax payable on their estate but are concerned that their children are not ready to manage these assets. Trusts provide a means of gifting your assets but retaining control as to how they are used. There are different types of trusts and the best option for your family would depend on the particular asset to be gifted into the Trust and the beneficiary’s personal situation. The tax consequences will also influence the type and timing of the Trust you choose. The ongoing tax treatment of the assets within the Trust will have to be weighed up against the benefit of asset protection.
Q. What are the current rules on Inheritance Tax?
A. Inheritance Tax is charged at the rate of 40% on the value of your estate above the allowances available. The main allowance is the Nil Rate Band (NRB); this is currently £325,000 and is frozen at this level until April 2020. From 6th April 2017, a new Residence Nil Rate Band (RNRB) is available to claim where an individual leaves their home to direct descendants. In this tax year, the allowance is £100,000 per individual and increases by £25,000 each tax year until 2020/21 when it will be £175,00. From 2020/21 the RNRB is due to increase with the Consumer Price index. To enable the RNRB to be claimed your property needs to be left to your beneficiaries either outright or in specific types of trusts. The RNRB is subject to tapering and will be reduced by £1 for every £2 that the estate exceeds £2 million. Spouses or civil partners may miss out on the additional RNRB by not ensuring that your Wills are structured in the most efficient way, in particular, to reduce the survivor’s estate to below the £2 million threshold. Any unused NRB and RNRB can be transferred to a surviving spouse or civil partner’s estate even if one partner has died prior to 6th April 2017.
Q. What is a Lasting Power of Attorney?
A. A Lasting Power of Attorney enables you to appoint one or more people as your attorney(s) to make either financial or welfare decisions for you if you are incapable of making the decision yourself. If you have not made a Lasting Power of Attorney and you become unable to deal with your affairs, an application may need to be made to the Court of Protection for a deputy to be appointed to make these decisions for you. Making a Lasting Power of Attorney means that you choose the people you wish to act on your behalf and the way in which you would like them to act.
Q. What can an Attorney do?
A. Your attorney is only able to make decisions if you are incapable of making the particular decision. An attorney must act in your best interests taking into consideration all the relevant information including consulting with relevant people. They are not allowed to make gifts of your assets without the court's approval except for the usual birthday, Christmas and anniversary gifts you had usually made. It is important however that you appoint an attorney you trust will act in your best interests.
Contact our private client experts today
If you would like to discuss your Will or Lasting Powers of Attorney or any other related issue please contact our private client experts on 01494 790002 or email estatemanagement@ibblaw.co.uk.
