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Feb 2012

A FLIT TRUST CAN PROTECT YOUR HOME AND YOUR CHILDREN'S INHERITANCE

A Flexible Life Interest Trust allows you to put your assets into trust for the benefit of your children or other nominated beneficiaries. The Trust is activated after first death and provides the following benefits.

Protection: The life tenant (spouse/partner) has a guaranteed right of residence in the property for the remainder of his or her life, or a clause can be put in where right of residence is removed upon re-marriage. If at any time the surviving spouse wants to sell the property, buy another one, the Trust enables them to do so. The Trust includes powers for the Trustees to loan the capital to the surviving spouse, this is done as an IOU and has to be repaid upon second death. The Trust involves severing the joint tenancy where required so that the owners become Tenants in Common.

Flexibility: This enables Trustees to convert some or all of the it into another type of Trust. So if for example, Inheritance Tax Laws change and the trustees consider it financially advantageous for the Trust capital to sit in another type of Trust, they are able to convert it.

Inheritance Tax: A Flexible Life Interest Trust means that on the death of the first partner, his share of the house and assets do not go to the spouse or partner but directly into trust. The money placed in a Trust is treated for Inheritance Tax purposes as an outright gift to the surviving spouse. Therefore this does not use any of the deceased spouse’s IHT allowance, with the allowance preserved for later on 2nd death.

Care Fees: A Flexible life Interest Trust: When a local authority is making an assessment for care they cannot include any of the assets already in Trust, thus protecting them for future beneficiaries.

Sideways Disinheritance: People often want their children to inherit the family home in the event of their deaths, without sufficient protection this may not always be possible. Where assets are jointly owned they automatically pass over to the surviving joint owner. This creates a potential problem if the survivor then goes on to remarry or cohabit, leaving the assets to the new wife or partner. The estate may then pass to children of that relationship with the deceased partners children disinherited. A Flexible Life interest Trust protects against these circumstances.

Bankruptcy: Placing the assets into Trust means that the house cannot be assessed should a beneficiary be declared bankrupt.

Children from other marriages: Where assets belong to a couple who both have children from previous relationships. The Trust can secure and guarantee an appropriate distribution of assets, ensuring that each parent’s assets go to their children. Assets can be released to the beneficiaries upon second death and or upon re-marriage of the surviving partner. This guarantees that each child or beneficiary receives the inheritance planned.

Dependant Relative Claims: The trust cannot be be contested or challenged unlike a will.

HAPPY NEW YEAR 2012 to all of our clients new and old from all the team at Wills Direct.

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PROPERTY OVERSEAS

Approximately 2 million British people own properties overseas. The majority of these people will have considered carefully the relevant issues as regards the impact of taxation, especially UK Inheritance Tax (IHT), when considering their wills.

How many consider the impact of foreign inheritance laws and taxes? Many purchasers look at writing a foreign Will as an unnecessary expense but there are several reasons for writing a Will in the country where the property is situated. The first reason is that in the UK an estate will pass to beneficiaries indirectly, via an executor. In most European countries, however, the estate passes directly to the beneficiaries. This can cause problems if the country has an IHT regime which taxes transfers to non-relatives (which might include an executor) at a higher rate than transfers to relatives. The initial transfer of title to an executor may lead to the imposition of an otherwise avoidable and/or higher tax charge on the estate or at best unnecessary legal fees to sort the problem out.

The second issue is that if a foreign Will is not prepared, it may cause a great deal of extra work in preparing, notarising (in most countries the relevant documents will have to be notarised, not just witnessed) and having translations made of all the necessary documents. This can also cause substantial delay in dealing with the property in the estate. This can of itself cause problems as in some countries failure to pay the taxes due on death within quite tight time limits can lead to fines. Making sure that dealing with an estate is not prolonged unnecessarily is almost always a good idea.

The laws and taxes vary in each different country, so research should be done carefully to ascertain what is needed. It is also essential that the UK executor knows that there is foreign property and a foreign Will. If you are domiciled in the UK when you die, IHT will be levied on the value of worldwide assets. Most UK citizens will be UK domiciled on death no matter where they are resident. The submission of an incorrect IHT account can lead to big tax penalties being levied if errors are discovered at a later date, especially if it looks like IHT evasion was on the agenda.

Also, if a new Will is prepared, the standard clause in it which states that you revoke all former Wills may have the effect of making a foreign Will void, which could lead to an estate being distributed in a way which is contrary to your wishes.

All of the above assume the scenario of a family which gets along and is not arguing over the division of the estate. Add the sort of problems mentioned here to a ‘warring family’ and the result is likely to be a potential disaster.

IF THE POSSIBILTY OF YOUR HOME HAVING TO BE SOLD TO PAY FOR CARE FEES concerns you, or the thought of your estate passing to someone other than your children through remarriage worries you, then you should consider creating Property Trust Wills. With people living longer, more and more people are going into residential or nursing care homes in their later years.

In order to pay for this care, the Local Authorities can sell your home and use the proceeds towards your care fees if your assets exceed £23,250 (2010/11). This may mean that your hard earned estate will pass to the government rather than to your family or loved ones. However, by preparing carefully worded Property Trust Wills, you can protect one half of the value of your home in the event that long term care should become necessary.

DO YOU REALISE THAT NOT HAVING A LASTING POWER OF ATTORNEY COULD COST YOU UP TO £3000?

LASTING POWER OF ATTORNEY (LPA) Vs THE COURT OF PROTECTION AND THE APPOINTMENT OF A DEPUTY.

LASTING POWER OF ATTORNEY (LPA) - The Property and Affairs LPA is the formal legal document in which the Donor appoints his/her Attorney(s), and authorises them to manage his/her financial affairs and property. This can include paying bills, managing a bank account or even selling a property.

The LPA must be completed while the Donor has mental capacity, but it can continue to be valid and be used after the Donor has lost mental capacity to manage his/her finances. However, the LPA cannot be used until it has been registered with the Office of the Public Guardian. The Donor may choose to register it while s/he still has capacity. If this has not already been done then the Attorney(s) will have to register it when they believe the Donor no longer has capacity.

WITHOUT A LASTING POWER OF ATTORNEY (LPA) - The Court of Protection is an institution based in London. It helps to look after individuals who lack the capacity to make decisions for themselves.
 

Q: When would the Court appoint a Deputy? A Deputy is appointed when an individual’s affairs need to be looked after because that individual is not capable of making decisions for themselves.

Q: How would someone lose capacity? Someone loses their mental capacity in a variety of ways. The most common of these is due to dementia, mental health difficulties, brain injuries or other illnesses that may occur even in the prime of life.

Q: What does a Deputy do? A Property and Affairs Deputy looks after someone’s financial affairs. This includes paying bills and taking over bank accounts. A Deputy can sell that person’s house (with the Court’s permission) on their behalf if it is in that person’s best interests to do so.

A Deputy has to account to the Court at all times. Every year the Deputy has to provide a ‘Deputyship Report’ to the Court. This gives the Court information on decisions that the Deputy has made on that person’s behalf and also provides summary accounts for the Court to approve.

Q: Who can be a Deputy? In theory, anyone over 18 can be someone’s Deputy. However, the Court wants to ensure that the person being appointed is suitable. Usually the Deputy will have a connection to the person who lacks capacity. It is usually a family member or close friend who is appointed as a Deputy

Q: What is the procedure to appoint a Deputy? First of all medical evidence has to be obtained. The Court will not accept jurisdiction without medical evidence in the required form being submitted to the Court using its standard form - the COP3.

A medical practitioner completes the COP3. It is usually completed by the person’s GP or by a psychiatrist. There are then other forms to complete. These give details to the Court about the type of order being asked for, details about the person applying to be appointed as Deputy and, finally (and most importantly), details about the person who lacks capacity.

The application (comprising of four different forms) is then sent to the Court of Protection and the Court will make an order appointing the Deputy.

Q: How long does it take? Once the application has been sent to the Court it usually takes 2 or 3 months for someone to be appointed as Deputy. There can be delays prior to sending the application to Court as the medical evidence can sometimes take a long time to get hold of depending on the medical practitioner involved.

Q: How much does it cost?
The medical practitioner sometimes charges a fee for completing the medical evidence. Some practitioners do not charge for their services. It is entirely down to luck whether a fee is charged or not. When the practitioner does charge, their fee can range from £50 to £300.

The Court charges an application fee of £400. There is also an appointment of Deputy Fee of £125.

The Court then charge an annual supervision fee which ranges from £0 to £800. The most likely supervision fee for a Deputy looking after an elderly relative is £175 per annum.

The Deputy has to also take out a ‘security bond’ to cover their actions as Deputy and this too is payable annually. The bond is set by the Court; the more assets a person has (and therefore the more responsibility the Deputy has), the higher the bond. The bond levels seem to have increased since October 2007. It is likely that the bond will be at least £200.

Finally, a solicitor will also charge a fee for making the application to appoint the Deputy. There is a lot of work involved and the Court will state in the Order they make that the solicitor is entitled to charge a fixed fee of £825 plus VAT. This would only really apply, however, in the simplest of cases. A solicitor is entitled to charge more than this, but any bill they raise needs to be assessed and approved by a costs Judge at the Supreme Court Costs Office (‘SCCO’). This delays payment for the solicitor and it may be that they decide to charge the fixed fee only!

All fees are payable from the assets of the person who lacks capacity. Otherwise, if they had to pay for it themselves, clearly no-one would ever want to be appointed as someone’s Deputy! The solicitor will usually agree to postpone their fee until the Deputy has access to the relative’s bank accounts. The Court fees can also usually be postponed. One fee that cannot be postponed is the security bond, and the proposed Deputy usually has to pay this from his own assets. The Deputy can legitimately recover any costs incurred in making the application from the relative’s estate when they are able, however.

It makes sense to give consideration to establishing an LPA. It is a misconception that an LPA is something only the elderly should consider. Mental illness can strike at any age, as can other incapacitating events. Having an LPA in place is a small price to pay for peace of mind that your financial affairs will be in order should you be unable to manage them yourself. 

HOW DOES DOMICILE STATUS AFFECT INHERITANCE TAX (IHT)?

 

An individual who is domiciled in the UK is liable to IHT on chargeable property on a worldwide basis. A non-UK domiciled individual is also liable to IHT, but only on chargeable property in the UK. There is a separate rule regarding domicile, which applies for IHT purposes only. An individual can be deemed domiciled in the UK for IHT purposes if he or she was UK domiciled at any time in the 3 years immediately preceding the time at which the question of domicile is to be decided, or alternatively UK resident for at least 17 out of the last 20 years ending with the tax year in which a chargeable event takes place.
 

BUDGET 2011: INHERITANCE TAX CUT FOR SUPPORTERS OF GOOD CAUSES
 

George Osborne announces 10% reduction for estates leaving at least 10% to charity. From April 2012, there will be a reduced rate of IHT of 36% for estates leaving 10% or more to charity, chancellor George Osborne revealed in the budget. HT is levied after someone's death on money, property and possessions worth more than the current threshold of £325,000. A taxable estate of £1m would currently attract death duties of 40% on any assets above the threshold, but the budget proposals reduce that to 36% for anyone pledging to hand over more than 10% of their estate's value.
 

HAVE YOU CONSIDERED THE CONSEQUENCES OF NOT MAKING A LASTING POWER OF ATTORNEY?
 

CHANGES TO INHERITANCE TAX

 

Changes have been made to the Inheritance Tax rules for married couples and couples living with civil partnerships. Under the old Inheritance Tax rules, it was common practice to provide that on the death of the first spouse their Nil Rate Band would be left to a Nil Rate Band Discretionary Trust (NRBDT) for the benefit of the surviving spouse and their children. This was done to prevent the whole of the combined estate passing to the surviving spouse with the result that the Nil Rate Band (£325,000) of the first spouse to die was wasted.

It would now seem that where the first spouse to die has had all (or a proportion) of their Nil Rate Band available at their date of death it can be transferred to the survivor. The relevant Nil Rate Band is that applicable at the date of the second death, rather than the first. For example, if a surviving spouse dies in 2010/11 and the predeceased spouse's Nil Rate Band was unused then the total available Nil Rate Band will be £650,000.00.

 

NEW HELP FOR FAMILIES IS NOW AT HAND WITH PROBATE ASSIST from Kings Court Trust Corporation

 

When someone dies and you find yourself the Executor of the estate, you may at some point consider the case for doing the probate yourself. It’s certainly true that some estates are more straightforward than others and a decision on what “straightforward” means will typically depend on what is set out in the Will – assuming there is one of course – together with a look at the number and complexity of assets of the deceased (for example, property and bank accounts). 

Probate Assist offers the best of both worlds. It allows you to stay in full control of the estate whilst at the same time you gain the comfort and security of knowing that professional help is at hand when you most need it. Why not talk to Kings Court first using their free Probate Advice Line on 0800 496 9000.

 

Happy New Year to all of our clients and to those who have not yet used our Will writing services we can help you to write your Will simply and quickly with our affordable FREE home visit service.  

 

December 2010

 

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