A recent change in Inheritance Tax legislation could adversely affect hundreds of thousands of people whose current Wills contain a Discretionary Trust. Discretionary Trusts were used historically by many clients as a way of limiting the Inheritance Tax liability due on their death; however the recent legislation changes could leave many potentially losing out on a valuable new Inheritance Tax incentive if action is not taken.
The change in the law could see many families miss out on the new Residence Nil Rate Band (‘RNRB’) allowance which came into force on 6th April this year. The RNRB gives everyone an additional Inheritance Tax allowance, on top of the usual £325,000.00, if certain criteria are met. With the aim that once the new policy has been fully implemented from 6th April 2020 a married couple could then be able to pass on assets worth £1,000,000 free of Inheritance Tax.
One of the main criteria for being eligible for the new RNRB is that your property is inherited by “direct descendants”, under the terms of your Will. The definition of ‘‘direct descendants’’ does not include property, or a share of property, left to a Discretionary Trust. This is because the property will then be technically controlled by Trustees and not inherited directly by the Discretionary Trust’s beneficiaries.
It is therefore essential that anyone with a Discretionary Trust in their Will seeks expert professional advice on whether the same should be removed or retained. There are often a number of factors to consider when thinking of removing a Discretionary Trust from a Will, with Inheritance Tax being a major concern, however all implications should be considered to ensure that removal of the Discretionary Trust does not cause other issues after death.
It is also vital that Executors dealing with a Will of someone who has passed away after 6th April 2017, which contains a Discretionary Trust also seek expert advice as the new legislation does allow the possibility of removing a Discretionary Trust, if all interested parties under the Will agree within two years after death.
Richard Neea, Head of Wills, Tax and Probate at Enoch Evans LLP comments that, ‘‘The introduction of the new Residence Nil Rate Band has allowed people the opportunity to pass more wealth on to their loved ones Inheritance Tax free, which is more than welcome. Unfortunately, it has made the preparation of Wills and the advice that goes into Will making more complex, particularly surrounding the area of Discretionary Trusts. Discretionary Trusts are still extremely useful in estate planning and careful consideration of an individual’s unique circumstances, must be taken before deciding to take a Discretionary Trust out of an existing Will, or place one into a new Will. The ability to vary the terms of a Will and remove a Trust after death does give some comfort, in that adverse Inheritance Tax consequences can be reversed, however as this is more costly and requires the approval of all interested parties under the Will, I would recommend that all clients with a Discretionary Trust Will seek independent, professional advice as soon as possible.’’
The Wills, Tax and Probate team at Enoch Evans LLP have a wealth of experience in preparing Wills and advising clients on reducing the Inheritance Tax that will be due on death. The Department has also recently been reaccredited by the Law Society for membership of its elite Wills and Inheritance Quality Scheme (‘WIQS’). If you wish to discuss the above in more detail, the making of a Will or undertake a review of your affairs, please do not hesitate to get in touch with a member of our Wills, Tax and Probate team who will be more than happy to assist you.
The decision to make a Will can be based on a number of important factors such as who should inherit, appointing guardians for minor children or to follow expert tax planning advice.
Whatever the reason for making a Will, one area that is often overlooked when considering the benefits, is the appointment of the right people to act as Executors.
The Executors ultimately deal with finalising your financial affairs after your death and depending on your circumstances, this can be very involved, time consuming and stressful. It includes dealing with money, property, investments as well as juggling the emotions of family members and any potential family politics. The Executors could also find themselves in a position of defending any legal claims by disgruntled family members at Court.
By taking independent professional advice from your solicitor and making a valid Will you can ensure that your estate is dealt with by your chosen Executors being either close family members, friends or in some circumstances, your Solicitor.
So what happens if I don’t have a valid Will?
The Statutory Intestacy Rules determine how your estate is to be divided. This includes who can act as the Administrator (an Administrator is like an Executor but where there is no valid Will) as well as identifying the potential beneficiaries of your estate. This can become problematic if according to the Statutory Intestacy Rules, there are a large number of beneficiaries who potentially have an equal right to act as Administrator. This could include family members you have little or nothing to do with finalising your affairs above other people you would rather trust with such an important role.
Although the distribution of the estate is already determined by the Statutory Intestacy Rules it is a common misconception that the Administrator has an influence as to who gets what from the estate and this is what can cause a power struggle as who should act as Administrator. It can also lead to mistrust between Beneficiaries and Administrators, which can lead to potential conflict in dealing with the estate in a productive manner. If this does arise, it is important that independent professional legal advice from your Solicitor is obtained as soon as possible to avoid disputes arising.
However, the best way of dealing with this is to make a valid Will appointing an Executor of your choice. Our experienced Private Client Team will be happy to advise you on the Will making process.
Enoch Evans LLP offer the benefit of a town centre location with great public transport links, as well as offering free client parking. We also offer a late night every Tuesday when our offices are open to 6:00pm. If, however, you are unable to attend our offices a qualified member of our Team would be happy to arrange to visit you in the comfort of your own home. We offer agreed fees for Wills and administration of estates so you will always know the cost before any work is undertaken. Once your Will is finalised we offer the peace of mind that your Will is kept in secure Will storage facility, free of charge.
Contact the Private Client Team at Enoch Evans LLP on 01922 720333 for a free no obligation 20 minute consultation.