Withers Worldwide

Introduction

Your Will could be the most important document you will ever make and needs a great deal of care.  We will prepare the Will and guide you through the legal formalities but are also here to give you the professional and practical help you may need in deciding on its terms.

We will need a meeting to discuss the Will and take your instructions but it would be very useful if before we meet you would consider the points set out in this guide, complete as much of the enclosed questionnaire as you can, and return it to us with a letter, however brief, noting the points on which you need help.  We will then be in a much better position to advise you about the will and whether the inheritance tax changes announced in the Budget on 22 March 2006 will affect it.

The following are some of the points that you should think about before completing the Will Questionnaire:

Your assets

We will need a summary of your assets with estimated values.  Do you own them outright or jointly?  Jointly held property may be held as joint tenants (survivor takes all, property passes outside Will) or as tenants in common (passes under Will)

• Chattels (eg car, furniture and jewellery)

.. gifts of specific items to family/friends?

.. letter of wishes sometimes used to suggest how chattels should be divided - non-binding but flexible

• Life assurance policies; pension arrangements; interests under trusts
• Foreign property; may require a separate Will and is sometimes subject to ‘forced heirship' provisions
• Business or agricultural property

.. who will control the business?  How should the shareholdings be structured?

.. inheritance tax reliefs

Your beneficiaries

• Spouse/civil partner

.. protection of spouse/civil partner

.. gift of the inheritance tax ‘nil rate band' (see below) to children can achieve an overall tax saving as can the same gift to a trust under which the spouse or civil partner can be a beneficiary

• Children (a gift to children includes illegitimate and adopted children unless specifically excluded)

.. equal shares?

.. trustees/spouse/civil partner to have power to vary children's shares?

.. age at which children to take capital

.. age at which children to take income (18 unless otherwise stated)

• Grandchildren, stepchildren, other relatives, charities, godchildren and others
• Ultimate gift in event of death of all close family members

Outright gifts or in trust?

• Outright gifts are straightforward and need no continuing administration BUT may not always be appropriate
• Trusts

.. give flexibility

.. can shield assets from spendthrift beneficiaries

.. allow for professional management of assets where the beneficiaries do not have the time, expertise or inclination to manage them themselves

.. can protect family assets from outside claimants

.. BUT costs of administration and importance of good trustees

Tax

• No inheritance tax on property passing to spouse or civil partner outright (or on certain restricted trusts) certain to UK charities
• All other property subject to inheritance tax

.. first £285,000 (the ‘nil rate band') pays no tax

.. balance pays tax at 40%

• No inheritance tax on most outright gifts made more than seven years before death (this was also the case for certain gifts to trusts made prior to 22 March 2006)
• Tax position affected if testator domiciled outside UK
• Relief for business and agricultural property

Other points

• Executors - names and addresses

.. two usual unless everything passing to spouse or civil partner

.. substitute desirable if spouse or civil partner named as an executor - ensures two executors if both spouses or civil partners die in common accident

• Guardians - names and addresses

.. important for infant children.  Discuss with proposed guardians before naming them in the Will (it can be an onerous responsibility!)

• Burial or cremation?
• Exercise of any powers of appointment under trusts
• Claimants - is anyone likely to bring a claim against the estate?

You should not worry that making your Will is a once and for all exercise and indeed you should review it at regular intervals.  However, the Will should be sufficiently flexible to cover the position if, say, you and your spouse or civil partner die within a short time of each other (eg. in a motor accident).

It is particularly important that this scenario is covered where there are young children.  You must decide who you would want to look after them and how this would be financed.  Basically, any money left to your children will have to be managed for them by your executors until the children are at least 18, but you can provide that funds are tied up for longer than that, albeit that they could be made available for use for the children's education, upkeep etc in the meantime.  The inheritance tax consequences of creating trusts for children need to be considered.

Often the most practical plan for a married person or civil partner with young children is for them to leave everything to their spouse or civil partner (subject perhaps to a ‘nil rate band' cash legacy as mentioned below) with the proviso that if the spouse or civil partner dies before them (or within a short time afterwards to cover the joint accident situation) then the estate should pass to the children (on trusts if they are minors).

Choosing guardians can be very difficult and whilst if at all possible they should be named in the Will, do not postpone making the Will simply because at the moment you are unable to name a guardian.  This can always be added in by Codicil at a later stage.

For a married couple or civil partners with children (whatever the age of the children) inheritance tax is likely to be an issue on the death of the survivor, because if the first leaves everything to the second then although there will be no tax on the first death there will be more to pay on the second.

For this reason, where funds allow, it may be sensible to leave an amount equivalent to the ‘nil rate band' (currently £285,000) to your children rather than giving everything to your spouse or civil partner.

If your children are not old enough, or if there is not enough in your estate to give such a legacy to your children whilst at the same time making sufficient provision for your spouse or civil partner, you could consider a ‘nil rate band' discretionary trust.  This would mean that your Will would include a cash legacy equivalent to the nil rate band to trustees for them to hold on ‘discretionary trusts' for a group of beneficiaries (which could include your spouse or civil partner) so that more or less the same provision could be made for him or her from the estate as if he or she had been left everything outright.

In general terms the advantage of such a legacy is that it would save inheritance tax on the death of the survivor at 40% of the value of the fund.  Against this, there would be annual administration expenses for running the trusts and your spouse or civil partner would be reliant on the co-operation of the trustees (although of course he or she could be one of them).