Benefits of a Will

Having a will means that you decide who benefits from your estate on your death but also the way you make your will could save significant amounts in tax especially for married couples and civil partners.

What happens if you die without a valid will

The law dictates who inherits, known as the intestacy rules. If there is a surviving spouse they receive a legacy of £125,000 from the estate if you also have children and £200,000 if there are no children but there are parents and/or brothers and sisters. A consultation paper has proposed increases in these amounts to £350,000 and £650,000 respectively but this has not yet taken effect What happens to the remainder depends on whether there are children. If there are children, they take one half of the remainder outright (or on statutory trusts if under age 18). The surviving spouse gets a life interest (right to income) in the other half with the capital passing to the children on the spouses death. If there are no children, other relatives in a prescribed order take the rest. It is therefore a misconception that a husband and wife are automatically entitled to the whole of each others estates on death. Further remarriage revokes a previous will whilst a divorce removes from the will reference to the divorced spouse.

Practical reasons for making a will

• Those you wish to benefit will in fact benefit after your death
• Your estate can be distributed faster and often with fewer costs
• Where there are children under age 18, you can specify guardians for them in your will and you can control the terms of the trust under which the monies are held and who will act as trustees
• If you wish to specify successive interests, for example, someone to have an income for life and after their death for someone else to benefit this can be done by way of a trust in your will

Tax reasons for making a will

In general terms Inheritance Tax (IHT) is payable on an estate with a value in excess of the "nil rate band" (currently £300,000) if it passes other than to your spouse (or charity). The setting up of a trust within a will can avoid an estate passing into the estate of a beneficiary and adding to their IHT liability or being frittered away or becoming assets under attack in a divorce situation. Whilst the government have doubled the spouses nil rate band to a current rate of £600,000 thereby removing the necessity for the nil rate band will for IHT purposes there are still tax advantages in the use of a trust following the death of the surviving spouse Therefore do not hesitate to take advice with a view to reviewing your will and or putting in place a valid and suitable will Contact.

Horwich Cohen Coghlan on 0161 830 4600 or Pamela Wilson direct on 0161 830 4672
email p.wilson@hccsolicitors.com

Pension Death Benefits and the use of Pilot Trusts

Many people have heard the expression "pilot trust" or "spousal bypass trust". Either term is commonly used in the context of members of pension schemes directing by way of nomination death benefits into a trust thereby enabling that scheme member, by the careful choice of trustees, to retain some control over the monies and benefit a range of persons according to their needs.

Further, where necessary, this planning means that the monies can be kept out of a specific dependant's estate for inheritance tax purposes. This is achieved by the scheme member setting up a lifetime trust for a nominal amount, say £10.00, and nominating the pension death benefits into that trust. The trust would normally be a discretionary trust and it would lie dormant until receipt of the death benefits. Whether or not a nomination can be made into a trust arrangement in this manner will depend upon the scheme rules, but in most circumstances the scheme rules will allow this type of arrangement.

Lump sum, or capital, payments on death from a pension scheme, can come from insured arrangements or the value of the pension fund itself where that fund has been built up by the member's contributions. The area of pension law is complex but most pension schemes do provide for a capital payment to be made on the death of a member, under the age of 75 years, prior to that member having taken benefits. Many pension schemes also provide, particularly personal pension schemes, for capital payments to be made on death after the member has taken benefits, but subject to tax charges.

Where a member has taken benefits from a pension scheme which under its scheme rules allows a dependant to continue to take pension after the member's death, it is important to provide safeguards in terms of a nomination into a trust so that there is an option for the dependant to continue to take pension income payments rather than a lump sum payment where these circumstances suggest this is appropriate.

Many pension nominations are in favour of a spouse and it is always therefore worth considering whether a nomination of the whole of or part of those death benefits into a trust arrangement, where spouse and children can benefit, could be more flexible and meet the family's particular circumstances.

Whilst a discretionary trust, or any type of trust, has its own taxation regime upon which advice is required, in many cases it is certainly worth looking into this type of arrangement.

Where the member's pension scheme is one where that member and his family have interest also as trustees, e.g. in a small self-administered scheme, the member could provide an Expression of Wish to the scheme trustees asking them to declare a trust of the death benefits on the member's death rather than setting up a lifetime pilot trust. There is however more certainty about the terms of the arrangement where the trust is set up beforehand.

Once the trust is in place, where the terms of that trust allow monies to be loaned to a beneficiary, e.g. a spouse, those loans could be made from the trust rather than capital distributions which could have the result of reducing the spouse's estate on their death as there would be a debt due to the trust from the spouse's assets.  

If you are interest in looking into this arrangement more then contact Pamela Wilson on 0161-830 4600 or direct dial on 0161-830 4672 email p.wilson@hccsolicitors.com

If you would like to request a quote for having a Will prepared please download one of the following forms into your own word area on your PC, print and complete. Then either post back in the external mail to
Pam Wilson, Horwich Cohen Coghlan, Quay House, Quay Street, Manchester M3 3JE or email the completed form to pam.wilson@hccsolicitors.com:

• Complex Will Instruction Form
• Simple Will Form

Review your Nil Rate Band Will

Many married couples have carried out will planning in order to utilise their individual inheritance tax allowances. They have made use of sophisticated will planning involving the use of a trust arrangement, known as a "nil rate band will trust".

This arrangement effectively ring-fences on the first death within a trust environment an amount equivalent to the nil-rate band whilst enabling the surviving spouse to have the benefit, where required, of the trust assets.

Such an arrangement, however, can appear complicated to anyone unused to trust arrangements and particularly so where the main value of the estate lies in the marital home. Even those couples who have been made aware of this tax planning via their lawyers, accountants, financial advisors or otherwise, do not in all cases take up this planning, not only because of its complication, but also because of the costs involved.

As a result of the Government's pre-budget report of 9 October 2007 it would appear that these trusts will not be needed in order to make full use of both parties nil-rate band allowances. This is not to say a discretionary trust within a will already drafted may not be useful for other purposes, such as protection of assets and inheritance tax planning further down the family line, but nonetheless the main purpose for which these trusts were put in place no longer applies.

A spouse will be allowed to transfer any unused part of the nil-rate band to her surviving spouse and the initial indication is that this will be automatic and therefore will benefit those couples who have not hitherto had the benefit of professional advice.

Accordingly, those who have entered into this type of nil-rate band planning may wish to review their wills in the light of this change and whilst the change is welcome, unfortunately the need to review the wills comes on top of the April 2006 legislation in relation to trusts which has already led those who have trusts included in their wills to review them in the light of those changes.

It is still necessary and relevant to plan wills effectively and as it has been suggested that more than 50% of people die without a valid will in place, the need to address estate and death benefit planning cannot be underestimated