News - Wills, Enduring Powers of Attorney, Advance Medial Directives, IHT Planning, Asset Protection, Powers of Attorney

11) HMRC prevaricate on transferable Nil Rate Bands

Rumour has it that the Taxman has decided that it is uncertain how transferable Nil Rate Bands will work in practice, so it is holding up claims under the new rules until it knows exactly what they are - which rather conforms our advice not to make any major changes yet!

10) Lasting Powers of Attorney - registration is taking 8 weeks

We don't entirely subscribe to the view that Lasting Powers of Attorney should be registered immediately.  Obviously they should if there are health issues or other pressing requirements, but if the donor (person whose LPA it is) is young and fit, £150 per LPA is a significant sum, and it may never need to be used (but if it does, you may have to wait 8 weeks....)  We recommend immediate registration of the fees (£600 for a couple) are easily affordable.

9) Severance of Joint Tenancy

This can often be a major issue, so we have set up a separate service to make it easy and relatively inexpensive.  Check out www.Tenancy-Severance-Service.co.uk or contact us.

8) Pre Budget Review 2007  - a considered view of the opportunities for planning

IHT planning after October 9th Pre-Budget Report

The first thing to say is that these changes should focus minds on the fact that NOT having Wills (and LPAs) can be disastrous for all couples, even married ones.  A married couple without valid Wills will NOT be able to take full advantage of the new IHT concessions as some of the Nil Rate Band will be used under the Rules of Intestacy, which can leave the survivor with as little as £125,000 and the interest on half the balance, which can result in a forced sale and move to a small flat.

But back to the Pre Budget Review and its effect on IHT Planning Wills (discretionary Will trusts or nil Rate Band IOU Trusts):

The dust is not going to fully settle on this one until June 2008 at the earliest, but several advice points for have arisen as a result of the PROPOSED retrospective legislative changes:

1.      Until October 9th, we would have advised married clients with joint estates in significantly over current nil-rate band of £300,000, to write mirror Wills incorporating a nil-rate band discretionary trust. This was rather a “no brainer” and the massive potential savings tended to overshadow other vital issues, despite our best efforts!

2.      We now advise new cases to go back to straightforward asset protection Wills, where circumstances are appropriate, so that the whole of the estate is available to the surviving spouse and, on their death, to children or other beneficiaries, without the likelihood of Community Care Tax wiping out the entire inheritance, or the problem that the survivor may re-marry and accidentally disinherit the “old” children.

The advantage of using this type of Will is that under the new legislation, the surviving spouse (civil partner) will be potentially entitled to two nil-rate bands on their death – theirs and any balance left over by the first to die which would currently equate to as much as £600,000 but will increase to a maximum of  £700,000 by 2010 when the current individual nil-rate band increases to £350,000.   You can even collect bits of the NRB from previous spouses, but the maximum will always be double the then current NRB. We do recommend still that www.SWWTrust.co.uk is involved at least in an advisory capacity on probate to ensure the vital records are retained and stored for what could be 30 or 40 years.

If a client now uses the nil-rate band discretionary trust then the nil-rate band of the first spouse (civil partner) to die will be fixed at the current nil-rate band of £300,000, unless it is appropriate to leave assets with substantial growth potential in the nil rate band trust.   (This is only beneficial where those assets are likely to grow much faster than the annual increase in the Nil Rate Band, so this is rather a specialist circumstance.) 

If one spouse died in December 2007 and created a nil-rate band IOU trust under their Will and the surviving spouse died in June 2010, the survivor would only be entitled to their own £350,000 nil-rate band which added to the December 2007 nil-rate band of £300,000 means that the total tax-free sum available to the married couple totals £650,000 or £50,000 less than with the simpler Will solution and so could potentially add £20,000 to the inheritance tax due (IHT rate 40% of £50,000).  And, of course, the asset protection solution has other potential benefits that could be worth £50,000 a year.

The big question to arise as a result of the pre-Budget Report is whether or not those clients who have already made Wills incorporating nil-rate band IOU trusts should change their Wills.

We are currently advising clients with RRB IOU Trust Wills not to rush to revise their Wills.

The reasons:

a. It is conceivable that the nil-rate band may increase to £1,000,000 in the event of a Conservative Government being elected within the next 3 years and many will, as a result, not create an IHT liability whatever the type of Will that is in place.

b. Even if a death occurs and a nil rate band discretionary loan Will trust is put into effect, it is currently possible to exit the trust and revert to the same end result as would otherwise occur by way of a simple Will as set out in 1. above, should this be appropriate. This is allowed by virtue of Section 144 of the Inheritance Tax Act 1984 and requires the Trustees of the nil rate band trust entering into what is known as a Deed of Appointment in favour of the surviving spouse after three months but prior to two years after the date of death of the deceased person.

c) Current Wills NRB IOU Wills do have some asset protection benefits, but these can be enhanced with the benefit of a discounted re-write. Members of our ongoing Professional Maintenance Service are entitled to free advice and discounted amendments or re-writes.  Top-level members also benefit from free amendments (which have turned out to be a real bargain!)

IHT planning (though not necessarily Will drafting) has become considerably simpler as a result of the pre-Budget report for many clients. As a result, more time is spent in protecting assets and carefully considering how, when and to whom they wish to leave their estates rather than primarily concentrating on the saving of inheritance tax, which must surely be a good plan.

7) Pre Budget Review 2007

Whilst the Rules are retrospective to deaths from 9th October 2007, the legislation will not hit the Statute books and become Law until June 2008 at the earliest, so some uncertainty still exists.

From the individuals viewpoint, the new rules make life easier, and some of the advantages of a Nil Rate Band IOU Trust are automatically available to any married couple or civil partners - provided they have a Will. Without a Will, the Rules of Intestacy come into play to ensure that the deceased's estate is distributed to relatives by the rules which will create Trusts and will in many cases increase liability to Inheritance Tax.

To combine IHT saving and to preserve assets contact us today.

6) Phizackerley - HMRC go sexist!

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/04/14/nherit14.xml

This is an appalling ruling which takes us back to the Victorian era where wives were virtually owned by their husbands.   It is morally wrong to deny the contribution made by a wife who stays at home to look after children and enable the husband to concentrate on work, as against one who leaves the kids with a carer so they can gout out to earn money.

This sort of development very much confirms the value of the optional ongoing Professional Maintenance Service (PMS) we offer all our clients, which we operate in association with Will Custodian Ltd. 

PMS members will typically be entitled to re-assurance through a free review of their IHT Planning Will, and gold members to free re-writes for ANY reason - that said, we don't believe any of our Wills are affected as they are designed to provide a tax planning tool kit rather than just a single solution. 

5) Fatal Flaw in Mental Capacity Act designed to protect

I am very concerned that the new version of the Enduring Power of Attorney, due to come into use next year under the Mental Capacity Act 2005, may remove a VITAL safeguard. It will now be possible for crooks to target vulnerable people, bully them into signing a Continuing Power of Attorney and the to milk the vulnerable persons money without the family ever being consulted or advised.  I suspect the reason for this lunacy is that a very few people positively do not wish their families to be informed - so their wishes are being met by endangering everyone.  But maybe this will be addressed before the legislation finally comes in - you may want to address this via your MP at www.writetothem.com  I have made my feelings known, but the consultation period is now over so the only way to bring pressure for a more common sense approach is through your MP.

4) 2006 Budget

It is still too early to be sure how this will pan out, but (in my view) Gordon Brown has created yet more stealth taxes, at the expense of future generations.  Broadly, the effects will be fairly minor, but where a parent dies leaving money in trust for young children, there will now be a very substantial administrative burden, and ultimately some tax to pay for every year the trust retains funds after the child's 18th birthday. Plain nasty in my non-political opinion, but a great result for lawyers and accountants, whose charges for sorting these matters will be far more than the tax revenue gained.  More info as soon as the dust settles, but newsletter members will hear first.

3) Enduring Powers of Attorney (EPA)

Joint property owners can no longer act as sole Attorneys for each other and must appoint a second Attorney as a matter of urgency. Call us. Members of our Professional Maintenance Service were automatically advised of the changes.

From 2007, you will write a Lasting Power of Attorney, rather than an EPA - these can cover the same areas as an EPA plus those covered currently by Advance Medical Directives.  Existing planning will not be affected by the new rules, so that is not a good excuse for putting planning off further!

2) Unmarried and Single Sex Couples click for LATEST INFO

A Report is attempting to introduce Relationship Agreements to help in these circumstances. We can already take steps to safeguard the future of you and your partner, married or not. Single sex couples need to take extra legal steps to protect themselves and each other. Contact us Members of our Professional Maintenance Service will continue to benefit from regular updates and our free helpline. To Government proposals summary.


1) Probate Changes click for full story

New rules have been introduced to simplify and speed up the administration of Estates under £240,000. This re-enforces the benefits of our "pay if and as you need us" Probate Advisory Service. Contact us

SINGLE SEX COUPLES


Under the new Law, same sex couples will have the same financial and legal rights as married couples, allowing them to share joint state pension benefits, obtain parental responsibility for each other's children and "maintain each other financially" says the DTI, as well as inherit property as a partner.  This will be available after 5th December 2005 to couples having gone through the appropriate legal Civil Partnership Ceremony.

Although it will not be seen in legal terms as a marriage, couples will be able to register their relationship in the presence of two civil registrars and two witnesses, but will also have to dissolve any arrangement through the courts, in much the same fashion as couples seeking a divorce.

Once registration is taken, the couple will then be entitled to adopt the same rights to inheritance and intestacy rules as married couples, receive tenancy succession rights, as well as claim a survivor pension, become eligible for bereavement benefits, receive compensation for fatal accidents or injuries of their partner and register the death of the partner.

While the move is broadly welcomed, the decision to apply tax-specific reforms to England and Wales law only – to the exclusion of Scotland and Northern Ireland – has perplexed tax and technical experts.
A spokeswoman for the DTI confirms its powers over such matters are now devolved to Scotland and separately again for Northern Ireland, so the DTI has no control over them.

But this appears to be the first time devolved status has extended to tax laws.

An additional benefit which seems to appear within the consultation concerns 'insurable interests' law.

There is may be no limit to the amount a same-sex couple can insure each other for when purchasing an insurance policy, if the intention is to cover the cost of Inheritance Tax.

Testing of the same sex civil register was launched in London by Mayor Ken Livingstone in 2001, but there are now nine other countries in the European Union already have provision for recognising those in committed same-sex partnerships.

Consultation period for civil partnership closes on 30 September 2003.