A simple Will?

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When meeting a Will client for the first time, the phrase “I just want a simple Will” is often deployed early in the conversation.  Over the years I’ve come to accept that this defensive opening gambit is borne of the assumption that solicitors complicate everything because complexity means a higher fee.

Searching questions are assumed to be motivated by a wish to identify complexity.  They are! The difficult truth of the matter is that most people’s lives are complicated, not simple.  Children from former marriages, beneficiaries with addiction, money or matrimonial problems, foreign property, business interests, agricultural property, pension pots, life insurance, the threat of long term care fees and inheritance tax are just some of the common complicating factors.

As such, the primary skill of a WFamily wealth securityill draftsman is in identifying the threats to the estate value and opportunities to maximise the benefit for the beneficiaries. This information then needs to be consolidated within a single document which is robust enough to take account of all such factors over at least the next few years and in many cases for the rest of your life.  It’s therefore essential to have a full and frank discussion with the solicitor drafting your Will.

Of course complexity does influence cost but leaving complexities, with consequent risk of disputes, for your executors to deal with after death is a false economy.  It is far better to deal with complexity within the Will itself as almost all solicitors will provide a fixed fee quote of only a few hundred pounds. Conversely probate administration services will usually cost several thousand pounds and contentious probate fees can easily be tens of thousands of pounds, if not more.

If you haven’t discussed the following with your Will draftsman, then we would suggest that you do:

  1. Your beneficiaries

It is important to accurately identify your chosen beneficiaries and any particular needs which they may have.  An immediate transfer of significant funds at death is not always the most appropriate course of action.

It is important to consider carefully the terms upon which any minors should receive their inheritance. “Too much to young” is sadly a common problem and testators need to be aware of the detrimental effect which a large legacy can have upon a young person. Careful consideration needs to be given to the age at which a young beneficiary should inherit particularly in view of the complex and varied tax treatment of these trusts.  If any of your children, your grandchildren or the children of your chosen beneficiaries are step children (i.e. not formally adopted) then they are unlikely to fall within the standard definition of “children” and may be inadvertently disinherited as a result.

Your beneficiaries may well be of age but still vulnerable to bankruptcy, divorce, and the influence of third parties or perhaps dependent upon means tested benefits. In any of these situations a trust to protect the value of the estate for your beneficiaries can be extremely useful and you should give careful consideration to the use of a trust to give your trustees the time to reflect upon the circumstances of your beneficiaries and fulfil your wishes at the right time and for the right people.

It is also important that to identify any persons to whom you are not providing a benefit under the Will but who may wish to claim against your estate. There are several ways in which challenges can be brought against your Will and if we are aware of any likely claims then we can assist you in reducing the risks of such challenges.  In particular you need to bear in mind the Inheritance (Provision for Family and Dependants) Act 1975 which entitles your “dependents” to bring a claim for “reasonable financial provision” if they have not received sufficient provision from your Will.  The definition of “dependent” is much wider than you may expect.

  1. Your assets

In order to advise you appropriately we need to know the nature and value of your estate and the income you receive from employment, pensions and investments. The value of your assets and income is relevant to the structure of your Will and the advice we may provide in planning for inheritance tax and long term care fees.

Additionally, it cannot be taken for granted that all of your assets will pass under the Will.

Joint assets may pass automatically to the surviving joint owner(s) notwithstanding provision to the contrary contained within the Will.  It’s therefore crucial to identify the nature of the joint ownership (whether joint tenancy or tenants in common) and attend to any changes to that basis.  It’s also important to clarify how any loans or mortgages relating to the joint asset will be dealt with (i.e. passing to the joint owner or to your estate beneficiaries).

Your domicile and residence and the location of any foreign based property needs to be identified. This is a complicated matter and the interaction of your UK Will with any foreign Wills needs to be carefully considered.  In particular it is important to ensure one Will does not revoke the other!

Insurance policies and pension death benefits are regularly overlooked because they have no immediate value to you.  However on death they can be of significant value to your estate and it is important to understand to whom and how they will be paid and the impact that will have on your estate for inheritance tax.

  1. Care fees

As the population ages local authorities and the NHS are likely to continue tightening their approach to funding care fees. You are therefore increasingly likely to be required to fund your own care and the costs may be significant. You need to be aware of the implications of such fees and tailor your wills and the other available solutions to preserve your estate against this threat and balance your provision to take account of the potential reduction in your estate value.

You need to plan carefully if you are looking to make provision for a beneficiary who is already in care or is likely to need residential care after your death (e.g. your spouse). In such cases a direct gift to the beneficiary may be inappropriate. It could well be that they actually receive negligible benefit as your legacy may simply replace state funding which would otherwise have been available. That’s not to say that you should not leave them a legacy, indeed you may have a duty to do so, but you may wish to consider the use of a trust to help protect the value of the legacy for your beneficiary. Interests in trusts are currently ignored from some of the key benefit calculations and the availability of an exempt fund of this nature can make a marked difference in the beneficiary’s quality of life.

  1. Inheritance tax

Inheritance Tax is payable when you die if the value of your estate exceeds the inheritance tax threshold. For Inheritance Tax purposes, your estate can include the value of gifts made within seven years before death and any interest you may have in particular trusts.

Inheritance Tax is payable at 40% on any excess over the ‘nil rate band’ threshold at the date of your death. The current ‘nil rate band’ is only £325,000 per person which allows most couples to pass down £650,000 of value without any charge to Inheritance Tax. There are many important reliefs and exemptions which can be claimed and proper use of these is at the core of any professionally drafted Will.  In particular changes to the tax system such as the transferrable nil rate band allowance (from 2007) and the proposed residence nil rate band (from 2017) mean that Wills older Wills containing structures such as the nil rate band discretionary trust need contemporary review.

The government provides very generous relief against inheritance tax for the owners of trading businesses and to owners of agricultural land and buildings. Any such owners need to ensure they obtain detailed and specialist advice from both their solicitor and their accountant. The drafting of Wills dealing with these assets is a particularly specialist area and mistakes can be costly. We have seen many clients come to us with pre-existing Wills which fail to take advantage of these reliefs which is particularly disappointing because there are now so few reliefs available to the testator.

  1. Lasting powers of attorney (LPA)

In considering long term estate planning it is sensible to make provision for the possibility of you becoming incapable of managing your own finance and welfare during your lifetime. There are two key documents which can be prepared to deal with such an eventuality.

LPA (Property & Affairs) are designed for you to appoint attorneys to make a range of decisions including the buying and selling of your house and other assets, dealing with your tax affairs, operating bank and building society accounts and claiming benefits on your behalf.

LPA (Personal welfare) attorneys are appointed under this document to make decisions relating to your living accommodation and care, consenting to or refusing medical treatment on your behalf, and on day-to-day matters such as diet and dress.

The LPA becomes increasingly relevant as the risk of mental incapacity grows through longevity, but it could occur at any time through accident, sickness or stroke. As such, provision for incapacity is not a question of how old you are but rather how important are the decisions you make. If you lose capacity without a valid lasting power of attorney then your family may be faced with an expensive and lengthy court application to have a deputy appointed to act for you.