Inheritance tax, Uncategorized

Residence Nil Rate Bands

It seems that Residence Nil Rate Bands are here to stay.  Complicated as they are, they provide for an increase in the Nil Rate Band against Inheritance Tax (IHT) for people who have had a property in which they have resided and who leave it to their “direct descendants”.

Putting it simply, the Nil Rate Band is a tax free amount that is available to all individuals before IHT is calculated.  The current Nil Rate Band is £325,000, and after that IHT is charged at 40% of the estate above that figure (subject to various reliefs and exemptions).  The main exemption is when an estate is left to a spouse and the spouse’s inheritance is free of IHT.

The Nil Rate Band is increased by the “Residence Nil Rate Band” (RNRB) in cases where the person dies leaving a property in which they have lived and the property passes to “direct descendants”.

It is not necessary that the deceased was living in the property at the date of death.  There are transitional provisions for properties sold by the deceased after July 2015 and before death.

The definition of “direct descendants” is quite wide, and specifically includes step children.  However, the RNRB is not available to individuals who leave their estate to nephews and nieces, for example.

The RNRB is currently £100,000 for deaths on or after 6th April 2017.  This is going to rise to £175,000 for deaths on or after 6th April 2020.

What does this mean for a “typical” couple who have a house and are leaving their estate to the children of either or both of them? 

The Nil Rate Band is £325,000 per person.

The additional RNRB is now an extra £100,000 increasing to £175,000.

Hence effectively each individual could then achieve a £500,000 threshold before IHT is payable.

Due to the availability of transferable Nil Rate Bands (which have been around since 2007) then it is quite possible that between a couple who are married or in a civil partnership (or for the survivor of such a union) the IHT threshold will be £1,000,000.

In a complicated way (and biased towards individuals with “children” – in the widest possible definition of the word) the IHT threshold has increased quite significantly.  The legislation is, however, quite complex and is worth looking at closely when dealing with the estate of someone whose estate may or may not be liable for IHT.

Specialist advice can be obtained from Tom Morrish at Morrish Solicitors, telephone 033 3344 9609, email tom.morrish@morrishsolicitors.com.

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Lasting Power of Attorney, Power of Attorney, Uncategorized

Lasting Powers of Attorney – helpful or not?

Denzil Lush, former Senior Judge of the Court of Protection, warned the public recently that he believed Lasting Powers of Attorney (LPAs) may leave elderly people open to abuse.

An LPA is a powerful legal document that allows a person to appoint trusted individuals to make important decisions about care and finances on their behalf, in the event of a loss of mental capacity through an accident or illness such as dementia.

In the foreword to a new book on the subject, Mr Lush raised concerns about the “lack of transparency” in how appointed attorneys manage older people’s finances.

However, we in the Morrish Solicitors elderly client team, think LPAs are effective safeguards when created responsibly and national organisation Solicitors for the Elderly (SFE) agrees:

“Senior Judge Lush’s comments have given rise to fears that LPAs are a direct avenue for financial abuse. However, his comments must be put into context, as his 20-year career at the Court of Protection will have presented him with the very worst cases of financial abuse.

“An LPA can be a positive and effective legal tool, which ensures your wishes are respected should you ever lose capacity. Senior Judge Lush’s comments should highlight the clear need for professional advice when considering powerful legal documents of this nature.”

Top tips on drafting a lasting power of attorney

SFE is an independent, national organisation of over 1,500 lawyers, such as solicitors, barristers and chartered legal executives, who provide specialist legal advice for older and vulnerable people, their families and carers. SFE has been campaigning to ensure essential checks and controls are conducted when making an LPA. Here are their top tips to ensure your LPA is effective, legally robust and safe:

Plan early – While you have capacity, it’s vital that you get your affairs in order and choose the best people to manage your affairs, in case of an accident or illness. You can’t appoint an attorney once you lose capacity.

Choose carefully – Think carefully who you want to appoint as your attorney and have an open conversation with them so they understand your wishes and what their responsibilities will include. Consider appointing more than one person as your attorney so they can share the responsibility.

Consider appointing a professional – A family member might not always be the best person to act as your attorney. Instead, you can appoint a professional such as a solicitor. They can act as a neutral third party and make unbiased decisions that are in your best interests. Bear in mind this usually involves a cost.

Think about different circumstances – Consider how you would like your attorney to manage your property and financial affairs in different situations. For example, are you happy for your property to be sold to pay for your care costs?

Address the difficult questions – Your attorney might have to make difficult decisions about your health and welfare. If you have specific wishes around your care plans, medical treatment, or end of life wishes, make sure you discuss this with them and make your choices clear in your document.

Seek professional advice – Shop-bought and online LPA kits may be suitable for those with very straightforward financial situations or with considerable legal experience, but for most people, seeking professional legal advice is the best way of ensuring that an LPA is what they want.

Keep your plans current – Make sure you keep your LPA updated if your circumstances change. Your choices around the people you want to be responsible for your finances and wellbeing may change, such as following a marriage or divorce, when children reach adulthood, or if parents pass away.

Tom Morrish and Monika Volsing of the elderly client team here at Morrish are both fully accredited members of Solicitors for the Elderly. They and their colleagues would be happy to discuss LPAs with you – contact us on 0333 3449609.

Lasting Power of Attorney, Uncategorized

The Importance of Instructing a Solicitor or Professional when Preparing a Lasting Power of Attorney

A Lasting Power of Attorney is a powerful and important legal document.  By making a Lasting Power of Attorney you are setting up an arrangement which will potentially give someone authority to deal with everything you own and your personal care at a time when you will be at your most vulnerable.

The benefits of using a solicitor/professional are as follows:

  1. A dedicated professional whose expertise are those of drafting Lasting Powers of Attorney. They will look after you throughout the whole process.
  1. They will prepare all documentation for you and explain all options that can be taken.
  1. They will deal with the registration process with the Office of the Public Guardian.
  1. They will agree a fixed price up front with no hidden charges.
  1. They will act as your certificate provider so that no third party is required.

There are many errors that can be made when preparing a Lasting Power of Attorney but by using a solicitor/professional who specialises in Lasting Powers of Attorney, these errors are less likely to occur.

Some common errors are:

  1. When appointing more than one Attorney and you appoint those Attorneys jointly, if one Attorney predeceases the Donor or is unable to act for any reason, then the other Attorney cannot act alone. Therefore, the Lasting Power of Attorney becomes void.  This would result in a new Lasting Power of Attorney having to be made.
  1. There is a strict order of signing the Lasting Power of Attorney which must be maintained. First must be part A, then part B and finally part C.  If these are signed and dated in the incorrect order the Lasting Power of Attorney would be rejected at registration with the Office of the Public Guardian.
  1. Any mistakes made on the Lasting Power of Attorney must be crossed through, written again and initialled by the person completing that particular section and witnesses if appropriate. If the mistakes are not initialled again, the Lasting Power of Attorney could again be rejected at registration.

These errors are just to name a few but there are many more that could cause a Lasting Power of Attorney to be rejected when registering.

In some cases, the Donor may require use of the Lasting Power of Attorney quite urgently.  Registration is currently taking 2-3 months, however, if the Lasting Powers of Attorney is rejected at registration this can hold things up considerably.

Therefore, it is beneficial to instruct a Solicitor/Professional to prepare a Lasting Power of Attorney. Please contact our Elderly Client Department for more information on:

Pudsey – 0033 3344 9606

Yeadon – 033 3344 9609

or email info@morrishsolicitors.com

 

Inherit, Inheritance tax, Uncategorized

No Inheritance Tax on estates worth up to £1 million? Not quite!

George Osborne announced the introduction of an additional Inheritance Tax (IHT) Nil Rate Band (NRB) for a person’s main residence in the Summer 2015 Budget. This was good news for with wealth tied up in their family home. The existing NRB of £325,000 per person or £650,000 per couple, on which 40% IHT is not paid, will remain the same. But from 2017/18, an additional Residence Nil Rate Band (RNRB) of £100,000 per person will be introduced, which will increase to: £125,000 in 2018/19; £150,000 in 2019/20; and £175,000 in 2020/21. In 2020/21, this means a house worth £1 million could be passed on tax free. But tax planning is still important, as there are a number of drawbacks you have to avoid in order to make sure you are eligible for the full amount.

Drawback 1 = you need to be married

Spouses* can inherit their other half’s share of an estate tax free so the NRB does not need to be used up. This means the deceased’s £325,000 NRB can transfer to the survivor, who will then have an IHT allowance of £650,000 when they die. The RNRB can also be passed on to the survivor so in 2020/21, this will equal £1 million. Unmarried couples do not have the right to pass on NRBs to each other.

Drawback 2 = only your children can benefit

Spouses who do not have children will miss out on the RNRB. The property must be passed to lineal descendants, such as children (including adopted/foster/stepchildren, children under a guardianship, and their direct descendants) and grandchildren, but not nieces and nephews.

Drawback 3 = the £1 million allowance does not apply now

The allowance will be phased in over the next five years so the £1 million will actually only apply in 2020/21.Drawback 4 = keep your wealth in your home

If you have a large investment portfolio and no house, you cannot benefit from the additional allowance, only the £325,000 NRB. But if your total estate is over £2 million, the RNRB will be tapered away. An estate with a net value of more than £2 million will see the band withdrawn at a rate of £1 for every £2 over the threshold.

Other points to consider

Trusts

The RNRB may be lost where, for example, the property is placed into a discretionary Will trust for the benefit of the children or grandchildren.

Downsizing

The family home does not need to be owned at death to qualify. This helps those who may have downsized or sold their property to move into residential care or a relative’s home. The RNRB will still be available provided that:

  • The property disposed of was owned by the individual and it would have qualified for the RNRB had they retained it;
  • The replacement property and/or assets form part of the estate and pass to descendants;
  • Downsizing or disposal of the property has to take place after 8 July 2015. But there is no time limit on the period between disposal and death.

Multiple residences

Only one residential property will qualify. It will be down to the personal representatives of the estate to nominate which one should qualify if there is more than one. A property which was never the deceased’s residence, e.g. a buy-to-let, cannot be nominated.

*For ease, spouse will refer to civil partner as well.

 

Probate, Uncategorized

Probate Court Fees – Expected Hike

The Government has issued proposals to increase the fee paid to the Probate Registry for obtaining a Grant of Probate.  A Grant of Probate is very often required when someone dies to allow the estate to be administered.  Currently the fee is £155.00 for all estates which have a value of more than £5,000.

Is this fair?

The proposals suggest that there should be no fee for estates of value less than £50,000 which will make it cheaper to administer estates of less than that sum.  However the raising of this threshold is countered by a massive increase on higher value estates.  For example the fee to obtain a Grant of Probate for an estate worth £2 million or more will become £20,000.  The following consequences seem either to unfair or unsatisfactory or both:

  1. People seeking to organise their affairs (especially the elderly) might be persuaded to move their assets out of their name to their children or into some form of ‘Trust’ so that when they die their estate is of a lower value and therefore a Grant of Probate will not be necessary.  Vulnerable people might be persuaded to part with assets, which may not be in their best interests.  Unregulated organisations might see this as a marketing tool to try and grab business from elderly people in this manner.
  2. Although most very large estates will have cash in them to enable payment of the probate fee some very large estates may almost entirely consist of property or shares and it may not be easy to find cash for the probate fee which has to be paid up front.
  3. People might be tempted to put their money in lots of very small accounts to try and enable each account to be administered individually after their death so that a Grant of Probate is not required.
  4. The current proposal is not designed to ensure that the Probate service simply pays its way.  The service currently pays its way.  This revenue raising exercise is designed to subsidise other parts of the Court and Tribunal Service.    Charging such high fees to deceased estates is probably seen by the Government as an easy target to fund other areas of the Court and Tribunal Service.

Government consultation ends on 1 April 2016 and one can only wait to see what the outcome will be.

Whatever action individuals might be prepared to take to deal with increased probate fees they should always ensure that when dealing with a professional, the professional is regulated and insured before undertaking any business with them, or handing over any money.  The advantage of using a solicitor is that solicitors are regulated by the Solicitor’s Regulation Authority and all carry insurance.  Firms of solicitors which close or merge can be tracked through the Law Society so that documents held by a former firm of solicitors are traceable in the future.

Tom Morrish

Partner

Disputed Will, Living Wills, Uncategorized

The effect of “separation” on your death

Upon the breakdown of a marriage/civil partnership it is usual for the parties to proceed to finalise the end of their union by applying for a divorce or dissolution of a civil partnership.

Upon the Decree Absolute/Dissolution Order being granted the marriage/civil partnership is over and both parties are then free to proceed with their own lives individually.

However more and more situations are arising whereby a couple separate and never divorce/dissolve the civil partnership. In such situations the parties to the union become estranged.

No formal arrangements are made and it is usual for any assets held in the couple’s joint names to be divided at the date of separation. At that time each party then proceeds to lead their own individual lives, forming new relationships etc.

The only connection between the estranged couple is the validity of their marriage/civil partnership.

This is now posing a great problem upon the death of one of the estranged spouses/civil partners, irrespective of whether or not a Will has been made in favour of a new partner. Any Will made may have supporting declarations to state why they have not included their estranged spouse/civil partner in the Will due to a long term separation. (Please be mindful that such supporting documents will not prevent the estranged spouse/civil partner from making a claim on the deceased’s estate but it will serve as evidence as to why the deceased excluded them from the Will).

All matters after death may proceed without any issue until:

  1. A life policy with a nominated beneficiary is found – this will inevitably still be in the name of the estranged spouse/civil partner. The proceeds of the policy will more than likely be paid directly to the nominated beneficiary.
  2. Any widow’s pension or death in service benefit is likely to be paid to the estranged spouse/civil partner in place of the deceased’s current partner. This will cause upset and delays in payments being made, as the current partner will try and appeal to the Trustees of any pension or death in service benefit payable. The Trustees of the pension fund will make the final decision. If there is no dispute from the estranged spouse/civil partner, the decision may be favourable to the deceased’s current partner. In the event that the estranged spouse/civil partner proceeds with their right to claim, this may result in no payment being received by the deceased’s partner.

Therefore an informal separation may at the time appear to be the more cheap and amicable way to proceed. However upon the death of an estranged spouse/civil partner, problems may arise as the parties are still legally married/civil partners.

Estranged spouses/civil partners will still legally be the next of kin to the deceased. This may entitle them to make the funeral arrangements and deal with the estate – potentially alienating any current partner of the deceased. This, to an extent, can be remedied by ensuring that your Will is updated upon any separation.

The case of Williams V Martin currently being heard in the courts presents these facts:

  • Spouses separated over 20 years ago
  • The deceased lived with his partner for over 18 years and they built a life together
  • No divorce ever took place
  • The deceased failed to update his Will to reflect the change in his circumstances and make any provision for his long term partner
  • Consequently the estranged wife is claiming she should receive his estate as the marriage is still valid
  • At the time of writing a decision has not been reached.

Therefore upon separation it is advisable – if the decision is final – for the parties to:

  1. Proceed with a divorce/dissolution of a civil partnership to provide clarity in the future for both parties
  2. Update your Wills (whether or not a divorce/dissolution of a civil partnership has been finalised) to reflect any new relationship and also the inclusion of any children
  3. Review your nominated beneficiaries for any life polices or death in service benefits.

For further information, please contact our Wills and Probate department on 033 3344 9600, or complete our contact form.

 

 

Inheritance tax, Living Wills, Uncategorized, Wills

New Year…make a Will

Happy New Year!

Welcome to our first Blog of 2016. In the new year, many people like to make a fresh start or may even make a resolution. So now may be a good time to give some serious thought to making a Will?

A Will is the only way to ensure your loved ones inherit what you want them to have. A Will also prevents your estate being distributed in accordance with the intestacy rules. Depending on who survives you, the intestacy rules could result in an estranged relative inheriting your estate. A Will gives you peace of mind knowing that the intended recipient receives your estate.

Appointing Executors of your Will is also an important decision. Executors are the people who are responsible for dealing with your estate assets when you die. You can appoint anybody as an Executor. Most people tend to appoint family members, although some prefer to have a professional, like a Solicitor.

A Will also allows you to appoint Guardians if you have young children and stipulate that money should be held in trust for your children, if necessary.

A Will may also allow you to mitigate inheritance tax and therefore it is important that you discuss this issue with a professional. Putting it off can result in your estate being liable to a large amount of tax. Taking advice from a solicitor is a sensible step.

Above all, making a Will gives you peace of mind. Why wait? Give Morrish Solicitors a call today on 033 3344 9600 and ask to speak to James Shingleton or Charlotte Bandawe at our Pudsey office or Tom Morrish or Monika Volsing at our Yeadon office.

Best wishes for 2016!