Estate and Trust Planning Helping You Plan for Your Future and Your Family's Future 02 Guide to Estate and Trust Planning

GUIDE TO

SEPTEMBER 2019 ESTATE AND TRUST PLANNING HELPING YOU PLAN FOR YOUR FUTURE AND YOUR FAMILY'S FUTURE 02 GUIDE TO ESTATE AND TRUST PLANNING

GUIDE TO ESTATE AND TRUST PLANNING

Helping you plan for your future and your family’s future

WELCOME

Welcome to our Guide to Estate and Trust assets to your beneficiaries in a manner that is Planning. Tis guide is designed to give you consistent with your goals and objectives. We TIME TO CREATE A a basic understanding of Estate and Trust provide an extensive range of services, plus BESPOKE PLAN THAT Planning and the issues you may face. We look the ability to tailor solutions based on your WORKS FOR YOU AND at various ways you could reduce a potential specific needs. WHAT YOU WANT TO Inheritance Tax liability in order to pass on as It‘s not easy projecting yourself into the ACHIEVE? much wealth as possible. future and seeing what‘s around the next bend. Every family is diferent, and Tis guide addresses the main arrangements Benjamin Franklin famously said: ‘Nothing can every estate is unique. We available to individuals. be said to be certain, except death and taxes.’ understand this, and we work Te language used throughout this guide is But while there’s nothing any of us can do with you to create a bespoke plan technical due to the nature of the subject. We about the former, there are steps you can take that is tailored for you and what always recommend that you obtain professional to legitimately reduce a potential Inheritance you want to achieve. To fnd out fnancial advice before making any decisions. We Tax liability. By structuring your assets in a more about how we can help and can help you understand these technical issues tax-efcient way, you can make sure everyone is our Estate and Trust Planning and make any decisions that are appropriate for provided for in the future. n services, please contact one of your personal circumstances. our experts for an informal chat On page 20, we have included a ‘glossary’ of ESTATE PLANNING AND TRUSTS ARE A – don’t leave it to chance. the technical terms to assist you. HIGHLY COMPLEX AREA OF FINANCIAL Estate planning is not just about reducing PLANNING. INFORMATION PROVIDED tax. It’s about giving you peace of mind for AND ANY OPINIONS EXPRESSED ARE FOR the future, knowing you’ll have enough afer GENERAL GUIDANCE ONLY AND NOT retirement and your loved ones will have the PERSONAL TO YOUR CIRCUMSTANCES fnancial support they need, which is why it’s NOR INTENDED TO PROVIDE SPECIFIC essential to make sure your wealth is protected ADVICE. PROFESSIONAL FINANCIAL for you and your family. By structuring your ADVICE SHOULD BE OBTAINED. WE assets in a tax-efcient way, you can make sure ACCEPT NO RESPONSIBILITY FOR ANY everyone is provided for in the future. LOSS ARISING TO ANY PERSON FROM There are many factors to consider: from ACTION AS A RESULT OF THIS GUIDE. simple gifting to more advanced planning with various entities, we can help you transfer GUIDE TO ESTATE AND TRUST PLANNING 03

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CONTENTS

02 WELCOME 12 TRUSTS Helping you plan for your future and your How to give away your wealth and keep family’s future some control

04 INHERITANCE TAX 16 LASTING POWER OF ATTORNEY How do you leave a legacy which serves your Allowing someone to make decisions for you, family’s best interests? or acting on your behalf

06 RESIDENCE NIL-RATE BAND 18 WEALTH PRESERVATION How to apply the additional threshold Te 6 things you need to consider to help preserve your wealth 08 MAKING FINANCIAL GIFTS Passing on your assets efectively whilst 20 GLOSSARY you’re alive Estate and Trust Planning technical terms explained 10 MAKING A WILL Secure more of your wealth for your loved ones 04 GUIDE TO ESTATE AND TRUST PLANNING

INHERITANCE TAX How do you leave a legacy which serves your family’s best interests?

Will you be one of the thousands of rights under the Inheritance Tax rules. Tax can also become payable on the lifetime households in Britain that will have to pay However, there are steps people can gifs themselves – although gifs made between Inheritance Tax? What’s the best way to take to reduce the amount of money their three and seven years before death could qualify avoid it? If you’re administering an estate benefciaries have to pay if Inheritance for taper relief, which reduces the amount of because someone has died, how do you obtain Tax afects them. Where a person’s estate Inheritance Tax payable. probate? Is it ever possible to retrospectively is lef to someone other than a spouse or From 6 April 2017, an Inheritance Tax minimise an estate’s tax liabilities? registered civil partner (i.e. to a non-exempt RNRB was introduced in addition to the Inheritance Tax receipts reached a record benefciary), Inheritance Tax will be payable standard NRB. It’s worth up to £150,000 for high of £5.2 billion in the 2017/18 tax year on the amount that exceeds the £325,000 the 2019/20 tax year and increases to £175,000 according to fgures published by HM Revenue nil-rate threshold. Te threshold is currently for 2020/21. In order to qualify, you must own & Customs[1], despite the introduction of a new frozen at £325,000 until the tax year 2020/21. a property or a share in a property, which you residence nil-rate band (RNRB). have lived in at some stage and which you Families are becoming increasingly complex IHT is payable at 40% on leave to your direct descendants (including entities, ofen shaped by divorces, remarriages the amount exceeding the threshold children, grandchildren or stepchildren). For and children from previous relationships. Tis Every individual is entitled to a nil-rate band estates over £2 million, the RNRB is reduced can make estate and trust planning a challenge (NRB) – that is, every individual is entitled to at the rate of £1 for every £2 over £2 million. to navigate if an individual has strong feelings leave an amount of their estate up to the value of In addition, it only applies on death and not about those they would like to inherit their the nil-rate threshold to a non-exempt benefciary on gifs or any other lifetime transfers. assets and those they wouldn’t. without incurring Inheritance Tax. If a widow If applicable to your situation, efective estate or widower of the deceased spouse has not used Property, land or certain and trust planning could save your family a their entire NRB, the NRB applicable at the time types of shares where IHT is due potential Inheritance Tax bill amounting to of death can be increased by the percentage of the It might also apply if the person sold their hundreds of thousands of pounds. Inheritance NRB unused on the death of the deceased spouse, home or downsized from 8 July 2015 onwards. Tax planning has become more important provided the executors make the necessary If spouses or registered civil partners don’t than ever following the Government’s decision elections within two years of your death. use the RNRB on frst death – even if this was to freeze the £325,000 lifetime exemption, To calculate the total amount of Inheritance before 6 April 2017 – there are transferability with infation eroding its value every year and Tax payable on a person’s death, gifs made options on the second death. Executors or subjecting more families to Inheritance Tax. during their lifetime that are not exempt legal personal representatives typically have six transfers must also be taken into account. Where months from the end of the month of death to Reducing the amount of money the total amount of non-exempt gifs made pay any Inheritance Tax due. Te estate can’t pay benefciaries have to pay within seven years of death – plus the value of out to the benefciaries until this is done. Te Inheritance Tax is usually payable on death. the element of the estate lef to non-exempt exception is any property, land or certain types When a person dies, their assets form their benefciaries – exceeds the nil-rate threshold, of shares where the Inheritance Tax can be paid estate. Any part of an estate that is lef to a Inheritance Tax is payable at 40% on the amount in instalments. Benefciaries then have up to ten spouse or registered civil partner will be exempt exceeding the threshold. years to pay the tax owing, plus interest. n from Inheritance Tax. Te exception is if a spouse or registered civil partner is domiciled Certain gifs made could qualify for Source data: outside the UK. Te maximum a person can taper relief [1] https://assets.publishing.service.gov. give them before Inheritance Tax may need to Tis percentage reduces to 36% if the estate uk/government/uploads/system/uploads/ be paid is £325,000. Unmarried partners, no qualifes for a reduced rate as a result of a charity attachment_data/fle/730110/Table_12_1.pdf matter how long-standing, have no automatic bequest. In some circumstances, Inheritance GUIDE TO ESTATE AND TRUST PLANNING 05

INHERITANCE TAX IS USUALLY PAYABLE ON DEATH. WHEN A PERSON DIES, THEIR ASSETS FORM THEIR ESTATE. ANY PART OF AN ESTATE THAT IS LEFT TO A SPOUSE OR REGISTERED CIVIL PARTNER WILL BE EXEMPT FROM INHERITANCE TAX. 06 GUIDE TO ESTATE AND TRUST PLANNING

RESIDENCE NIL-RATE BAND How to apply the additional threshold

Te Inheritance Tax residence nil-rate band (RNRB) came into efect on For these purposes, direct descendants are lineal descendants of the 6 April 2017. Te RNRB provides an additional nil-rate band where an deceased – children, grandchildren and any remoter descendants together individual dies on or afer 6 April 2017, owning a residence which they with their spouses or registered civil partners, including their widow, leave to direct descendants. During the 2019/20 tax year, the maximum widower or surviving registered civil partner – a step, adopted or fostered RNRB available is £150,000. Tis rises in £175,000 in 2020/21, afer which child of the deceased, or a child to which the deceased was appointed as a it will be indexed in line with the Consumer Prices Index. guardian or a special guardian when the child was under 18. Te RNRB is set against the taxable value of the deceased’s estate – not just the value of the property. Unlike the existing nil-rate band (NRB), it Any unused allowance can’t be ofset against other assets doesn’t apply to transfers made during an individual’s lifetime. For married Te amount of RNRB available to be set against an estate will be the lower couples and registered civil partners, any unused RNRB can be claimed by of the value of the home (or share) that’s inherited by direct descendants the surviving spouse’s or registered civil partner’s personal representatives and the maximum RNRB available when the individual died. Where to provide a reduction against their taxable estate. the value of the property is lower than the maximum RNRB, the unused allowance can’t be ofset against other assets in the estate but can be Special provisions apply where an individual has downsized transferred to a deceased spouse or registered civil partner’s estate when Where an estate is valued at more than £2 million, the RNRB will be they die, having lef a residence to their direct descendants. progressively reduced by £1 for every £2 that the value of the estate exceeds A surviving spouse or registered civil partner’s personal representatives the threshold. Special provisions apply where an individual has downsized may claim any unused RNRB available from the estate of the frst spouse to a lower value property or no longer owns a home when they die. or registered civil partner to die. Tis is subject to the second death GUIDE TO ESTATE AND TRUST PLANNING 07

occurring on or afer 6 April 2017 and the under a deed of variation. Te RNRB applies to amount of RNRB – a downsizing addition if survivor passing a residence they own to their a property that’s included in the deceased’s estate the following conditions apply: the deceased direct descendants. Tis can be any home and one in which they have lived in. disposed of a former home and either they’ve lived in – there’s no requirement for It needn’t be their main residence, and no downsized to a less valuable home or ceased them to have owned or inherited it from their minimum occupation period applies. If an to own a home on or after 8 July 2015; the late spouse or civil partner. individual has owned more than one home, former home would have qualified for the their personal representatives can elect which RNRB if it had been held until death; and RNRB is represented as a percentage one should qualify for RNRB. Te open at least some of the estate is inherited by of the maximum RNRB available market value of the property will be used less direct descendants. Te facility to claim unused RNRB applies any liabilities secured against it, such as a Te downsizing addition will generally regardless of when the frst death occurred – if mortgage. Where only a share of the home is represent the amount of ‘lost’ RNRB that this was before RNRB was introduced, then lef to direct descendants, the value and RNRB could have applied if the individual had died 100% of a deemed RNRB of £100,000 can be is apportioned. when they owned the more valuable property. claimed, unless the value of the frst spouse or However, it won’t apply where the value of the registered civil partner’s estate exceeded Depending on the type of replacement home they own when they die £2 million, and tapering of the RNRB applies. trust will determine whether is worth more than the maximum available Te unused RNRB is represented as a the home is included RNRB. It’s also limited by the value of other percentage of the maximum RNRB that was A home may already be held in trust when an assets lef to direct descendants. available on frst death – meaning the amount individual dies, or it may be transferred into available against the survivor’s estate will beneft trust upon their death. Whether the RNRB will Planning techniques are from subsequent increases in the RNRB. Te be available in these circumstances will depend available to address a potential transferable RNRB is capped at 100% – claims on the type of trust, as this will determine Inheritance Tax liability for unused RNRB from more than one spouse whether the home is included in the deceased’s Te downsizing addition can also apply where or registered civil partner are possible but in estate, and also whether direct descendants are an individual hasn’t replaced a home they total can’t be more than 100% of the maximum treated as inheriting the property. previously disposed of – provided they leave available amount. Tis is a complex area, and HM Revenue & other assets to direct descendants on their death. Customs provides only general guidance, with Te deceased’s personal representatives must Personal representatives can a recommendation that a professional specialist make a claim for the downsizing addition within elect which property should qualify should be consulted to discuss whether the two years of the end of the month in which the Under the RNRB provisions, direct descendants RNRB applies to your particular situation. individual died. inherit a home that’s lef to them which becomes Diferent planning techniques are available part of their estate. Tis could be under the Limited by the value of to address a potential Inheritance Tax liability, provisions of the deceased’s Will, under the other assets lef to direct descendants and these can be incorporated into the fnancial rules of intestacy or by some other legal means Estates that don’t qualify for the full amount arrangements of any individual whose estate is as a result of the person’s death – for example, of RNRB may be entitled to an additional likely to exceed the threshold. n 08 GUIDE TO ESTATE AND TRUST PLANNING

MAKING FINANCIAL GIFTS Passing on your assets efectively whilst you’re alive

Some people like to transfer some of their has the absolute right to the capital and next step is to determine whether taper relief can assets whilst they are alive – these are known assets within the trust, as well as the income reduce the tax bill for the recipient of the PET. as ‘lifetime transfers’. Whilst we are all free to generated from these assets), there are two do this whenever we want, it is important to be potential outcomes: survival for seven years Sliding scale dependant on the passage aware of the potential implications of such gifs or more, and death before then. Te former of time from giving the gif to death with regard to Inheritance Tax. Te two main results in the PET becoming fully exempt, and Te amount of Inheritance Tax payable is types are potentially exempt transfers (PETs) is no longer included in the Inheritance Tax not static over the seven years prior to death. and chargeable lifetime transfers (CLTs). liability assessment. In other cases, the amount Rather, it is reduced according to a sliding scale PETs are lifetime gifs made directly to other transferred less any Inheritance Tax liability dependant on the passage of time from the individuals, which includes gifs to bare trusts. exemptions is ‘notionally’ returned to the estate. giving of the gif to the individual’s death. A similar lifetime gif made to most other types Anyone utilising PETs for tax mitigation No relief is available if death is within three of trust is a CLT. Tese rules apply to non- purposes, therefore, should consider the years of the lifetime transfer. Survival for exempt transfers; gifs to a spouse are exempt, so consequences of failing to survive for seven between three and seven years and taper relief at are not subject to Inheritance Tax. years. Such an assessment will involve balancing the following rates is available. the likelihood of surviving for seven years Survival for at least seven years ensures against the tax consequences of death within Tax treatment of CLTs has some full exemption from Inheritance Tax that period. similarities to PETs Where a PET fails to satisfy the conditions Te tax treatment of CLTs has some similarities to remain exempt – because the person who Determining whether taper relief can to PETs but with a number of diferences. When made the gif died within seven years – its reduce the Inheritance Tax liability bill a CLT is made, it is assessed against the donor’s value will form part of their estate. Survival for for the recipient of the PET NRB. If there is an excess above the NRB, it is at least seven years, on the other hand, ensures Failure to survive for the required seven-year taxed at 20% if the recipient pays the tax or 25% full exemption from Inheritance Tax. A CLT period results in the full value of the PET if the donor pays the tax. is not conditionally exempt from Inheritance transfer being notionally included within the Te same seven-year rule that applies to PETs Tax. If it is covered by the nil-rate band (NRB) estate – survival beyond then means nothing then applies. Failure to survive to the end of this and the transferor survives at least seven years, is included. It is taper relief which reduces period results in Inheritance Tax becoming due it will not attract a tax liability, but it could still the Inheritance Tax liability (not the value on the CLT, payable by the recipient. Te tax rate impact on other chargeable transfers. transferred) on the failed PET afer its full value is the usual 40% on amounts in excess of the NRB, A CLT that exceeds the available NRB when has been returned to the estate. Te value of the but taper relief can reduce the Inheritance Tax bill, it is made results in a lifetime Inheritance PET itself is never tapered. Te recipient of the and credit is given for any lifetime tax paid. Tax liability. Failure to survive for seven years failed PET is liable for the Inheritance Tax due results in the value of the CLT being included on the gif itself and benefts from any taper Potentially increasing the Inheritance in the estate. If the CLT is subject to further relief. Te Inheritance Tax due on the PET is Tax bill for those that fail to survive for Inheritance Tax on death, a credit is given for deducted from the total Inheritance Tax bill, and long enough any lifetime Inheritance Tax paid. the estate is liable for the balance. Te seven-year rules that apply to PETs and Lifetime transfers are dealt with in CLTs potentially increase the Inheritance Transferred amounts less any chronological order upon death; earlier transfers Tax bill for those that fail to survive for Inheritance Tax exemptions is are dealt with in priority to later ones, all of long enough afer making a gif of capital. ‘notionally’ returned to the estate which are considered before the death estate. If If Inheritance Tax is due in respect of the Following a gif to an individual or a bare a lifetime transfer is subject to Inheritance Tax failed PET in and of itself, it’s payable by the trust (a basic trust in which the benefciary because the NRB is not sufcient to cover it, the recipient. If Inheritance Tax is due in respect of GUIDE TO ESTATE AND TRUST PLANNING 09

a CLT on death, its payable by the trustees. Any remaining Inheritance result from death afer the PET or CLT was made can be estimated, and Tax is payable by the estate. a special form of ‘gif inter vivos’ (a life assurance policy that provides a Te potential Inheritance Tax diference can be calculated and covered by lump sum to cover the potential Inheritance Tax liability that could arise a level or decreasing term assurance policy written in an appropriate trust if the donor of a gif dies within seven years of making the gif ) is put in for the beneft of whoever will be afected by the Inheritance Tax liability and place (written in an appropriate trust) to cover the gradually declining tax in order to keep the proceeds out of the settlor’s estate. Whatever is more liability that may fall on the recipient of the gif. suitable, and the level of cover required, will depend on the circumstances. Level term policy written in an appropriate Covering the gradually declining tax liability trust for estate legatees might be required that may fall on the gif recipient Trustees might want to use a life of another policy to cover a potential If the PET or CLT is within the NRB, taper relief will not apply. However, Inheritance Tax liability. Taper relief only applies to the tax – the full value this does not mean that no cover is required. Death within seven years of the gif is included within the estate, which in this situation will use up will result in the full value of the transfer being included in the estate, the NRB that becomes available to the rest of the estate afer seven years. with the knock-on efect that other estate assets up to the value of the Terefore, the estate itself will also be liable to additional PET or CLT could sufer tax that they would have avoided had the donor Inheritance Tax on death within seven years, and depending on the survived for seven years. A seven-year level term policy may be the most circumstances, a separate level term policy written in an appropriate appropriate type of policy in this situation. trust for the estate legatees might also be required. Where an Any additional Inheritance Tax is payable by the estate, so a trust for Inheritance Tax liability will continue afer any PETs or CLTs have the beneft of the estate legatees will normally be required. Where the PET dropped out of account, whole of life cover written in an appropriate or CLT will exceed the NRB, the tapered Inheritance Tax liability that will trust can also be considered. n

TRUSTEES MIGHT WANT TO USE Timing of gif Relief on the 40% IHT A LIFE OF ANOTHER POLICY TO COVER A POTENTIAL INHERITANCE Less than 3 years before death No relief – full 40% IHT payable TAX LIABILITY. TAPER RELIEF ONLY 3–4 years 20% APPLIES TO THE TAX – THE FULL VALUE OF THE GIFT IS INCLUDED 4–5 years 40% WITHIN THE ESTATE, WHICH IN THIS SITUATION WILL USE UP THE 5–6 years 60% NRB THAT BECOMES AVAILABLE TO 6–7 years 80% THE REST OF THE ESTATE AFTER SEVEN YEARS. 7 years and above Not liable to IHT 10 GUIDE TO ESTATE AND TRUST PLANNING

MAKING A WILL Secure more of your wealth for your loved ones

If a person wants to be sure their wishes will smaller proportion of the estate than n If the deceased person has no surviving be met afer they die, then it’s important to intended. Making a Will is the only way for relatives at all, their property and have a Will. A Will is the only way to make an individual to indicate whom they want to possessions may go to the Crown sure savings and possessions forming an estate beneft from their estate. Failure to take action go to the people and causes that the person could compromise the long-term fnancial Unmarried partners have no right to cares about. Unmarried partners, including security of the family. inherit under the intestacy rules same-sex couples who don’t have a registered Without a Will, relatives who inherit under the civil partnership, have no right to inherit if What are the implications of law will usually be expected to be the executors there is no Will. Another of the main reasons dying without making a Will? (someone named in a Will, or appointed by for drawing up a Will is to mitigate a potential n Assets people expected to pass entirely to the court, who is given the legal responsibility Inheritance Tax liability. their spouse or registered civil partner may to take care of a deceased person’s remaining Where a person dies without making a have to be shared with children fnancial obligations) of your estate. Tey might Will, the distribution of their estate becomes n An unmarried partner doesn’t automatically not be the best people to perform this role. subject to the statutory rules of intestacy inherit anything and may need to go to court Making a Will lets the person decide the people (where the person resides also determines how to claim for a share of the deceased’s assets who should take on this task. their property is distributed upon their death, n A spouse or registered civil partner from Where a Will has been made, it’s important which includes any bank accounts, securities, whom a person is separated, but not to regularly review it to take account of property and other assets you own at the time of divorced, still has rights to inherit from them changing circumstances. Unmarried partners death), which can lead to some unexpected and n Friends, charities and other organisations have no right to inherit under the intestacy unfortunate consequences. the person may have wanted to support will rules, and neither do stepchildren who haven’t Te benefciaries of the deceased person not receive anything been legally adopted by their step-parent. that they want to beneft from their estate n If the deceased person has no close family, Given today’s complicated and changing may be disinherited or lef with a substantially more distant relatives may inherit family arrangements, Wills are ofen the only GUIDE TO ESTATE AND TRUST PLANNING 11

means of ensuring legacies for children of an estate is distributed among benefciaries, someone has a joint bank account, their partner earlier relationships. all debts and the funeral expenses must be will continue to have access to the money they paid. When a person has a joint bank account, need for day-to-day living without having to Simplifying the distribution the money passes automatically to the other wait for their afairs to be sorted out. of estates for a surviving spouse or account holder, and they can’t leave it to registered civil partner someone else. Tere are two ways that a person can own Changes to the intestacy rules covering England something jointly with someone else: and Wales which became efective on 1 October Estate assets may include: 2014 are aimed at simplifying the distribution n A home and any other properties owned Tenants in common of an estate and could mean a surviving spouse n Savings in bank and building society (called ‘common owners’ in Scotland) or registered civil partner receives a larger accounts Each person has their own distinct shares of the inheritance than under the previous rules. n Insurance, such as life assurance or an asset, which do not have to be equal. Tey can Making a Will is also the cornerstone for endowment policy say in their Will who will inherit their share. Inheritance Tax and estate planning. n Pension funds that include a lump sum payment on death Joint tenants Before making a Will, a n National Savings, such as premium bonds (called ‘joint owners’ in Scotland) person needs to consider: n Investments such as stocks and Individuals jointly own the asset so, if they die, n Who will carry out the instructions in the shares, investment trusts, Individual the remaining owner(s) automatically inherits Will (the executor/s) Savings Accounts their share. A person cannot use their Will to n Nominate guardians to look afer children if n Motor vehicles leave their share to someone else. the person dies before they are aged 18 n Jewellery, antiques and other personal n Make sure people the person cares about are belongings Dying without a Will is not the only provided for n Furniture and household contents situation in which intestacy can occur n What gifs are to be lef for family and It can sometimes happen even when there is a friends, and decide how much they should Liabilities may include: Will, for example, when the Will is not valid, or receive n Mortgage when it is valid but the benefciaries die before n What provision should be taken to minimise n Credit card balance the testator (the person making the Will). any Inheritance Tax that might be due on the n Bank overdraf Intestacy can also arise when there is a valid person’s death n Loans Will but some of the testator’s (person who has n Equity release made a Will or given a legacy) assets were not Preparing a Will disposed of by the Will. Tis is called a ‘partial Before preparing a Will, a person needs to Jointly owned property and possessions intestacy’. Intestacy therefore arises in all cases think about what possessions they are likely Arranging to own property and other assets where a deceased person has failed to dispose of to have when they die, including properties, jointly can be a way of protecting a person’s some or all of his or her assets by Will, hence the money, investments and even animals. Before spouse or registered civil partner. For example, if need to review a Will when events change. n 12 GUIDE TO ESTATE AND TRUST PLANNING

TRUSTS How to give away your wealth and keep some control

Trusts are not a one-size-fts-all solution, outset, the value of the initial gif is reduced by the into trust for their minor child or stepchild, but they are incredibly useful for protecting value of the settlor’s retained rights. where parental settlement rules apply to the and giving you control over your assets. Income Tax treatment. Appropriate trusts can be used for minimising Normal expenditure or mitigating Inheritance Tax estate taxes, out of income exemption Trustees look afer the trust property and they can ofer other benefts as part of When family protection policies are set up for the known benefciaries an integrated and coordinated approach to in bare trusts, regular premiums are usually Te trust administration is relatively managing wealth. exempt transfers for Inheritance Tax purposes. straightforward even for lump sum A trust is a fduciary arrangement that Te normal expenditure out of income investments. Where relevant, the trustees allows a third party or trustee to hold assets exemption ofen applies, as long as the cost of simply need to choose appropriate on behalf of a benefciary or benefciaries. the premiums can be covered out of the settlor’s investments and review these regularly. Once the trust has been created, a person can excess income in the same tax year, without With a bare trust, the trustees look afer the use it to ‘ring-fence’ assets. afecting their normal standard of living. trust property for the known benefciaries, who Where this isn’t possible, the annual become absolutely entitled to it at age 18 (age 16 Trusts terms: exemption ofen covers some or all of the in Scotland). Once a gif is made or a protection Settlor – the person setting up the trust. premiums. Any premiums that are non-exempt trust set up, the benefciaries can’t be changed, Trustees – the people tasked with looking transfers into the trust are PETs. Special and money can’t be withheld from them beyond afer the trust and paying out its assets. valuation rules apply when existing life policies the age of entitlement. Tis aspect may make Benefciaries – the people who beneft from are assigned into family trusts. Te transfer of them inappropriate to many clients who’d prefer the assets held in trust. value for Inheritance Tax purposes is treated to retain a greater degree of control. as the greater of the open market value and the Bare Trust value of the premiums paid up to the date the Securing the settlor’s right policy is transferred into trust. to receive their fxed payments Simplest form of trust With a loan trust, this means repaying any Tey’re also known as ‘absolute’ or ‘fxed No ongoing IHT reporting requirements outstanding loan. With a discounted gif trust, it interest trusts’, and there can be subtle or further IHT implications means securing the settlor’s right to receive their diferences. Te settlor – the person creating Tere’s an adjustment to the premiums-paid fxed payments for the rest of their life. With the trust – makes a gif into the trust which is calculation for unit-linked policies if the unit protection policies in bare trusts, any policy held for the beneft of a specifed benefciary. value has fallen since the premium was paid. proceeds that haven’t been carved out for the life If the trust is for more than one benefciary, Te open market value is always used for assured’s beneft under a split trust must be paid each person’s share of the trust fund must be term assurance policies that pay out only on to the trust benefciary if they’re an adult. Where specifed. For lump sum investments, afer death, even if the value of the premiums paid the benefciary is a minor, the trustees must use allowing for any available annual exemptions, is greater. the trust fund for their beneft. the balance of the gif is a potentially exempt With a bare trust, there are no ongoing Difculties can arise if it’s discovered transfer (PET) for Inheritance Tax purposes. Inheritance Tax reporting requirements and that a trust benefciary has predeceased As long as the settlor survives for seven years no further Inheritance Tax implications. With the life assured. In this case, the proceeds from the date of the gif, it falls outside their estate. protection policies, this applies whether or belong to the legatees of the deceased Te trust fund falls into the benefciary’s Inheritance not the policy can acquire a surrender value. benefciary’s estate, which can leave the Tax estate from the date of the initial gif. With loan Where the trust holds a lump sum investment, trustees with the task of tracing them. Te trusts, there isn’t any initial gif – the trust is created the tax on any income and gains usually fact that benefciaries are absolutely entitled with a loan instead. And with discounted gif plans, falls on the benefciaries. Te most common to the funds also means the trust ofers no as long as the settlor is fully underwritten at the exception is where a parent has made a gif protection of the funds from third parties, for GUIDE TO ESTATE AND TRUST PLANNING 13

example, in the event of a benefciary’s divorce of the NRB, the gif must be reported to HM bond value less the amount of any outstanding or bankruptcy. Revenue & Customs (HMRC) on an IHT 100. loan still repayable on demand to the settlor. When family protection policies are set up in Discretionary Trust discretionary trusts, regular premiums are usually Retained rights can be recalculated as if exempt transfers for Inheritance Tax purposes. the settlor was ten years older Settled or relevant property Any premiums that are non-exempt transfers into For discounted gif schemes, the value of the trust With a discretionary trust, the settlor makes a gif the trust will be CLTs. Special valuation rules for fund normally excludes the value of the settlor’s into trust, and the trustees hold the trust fund existing policies assigned into trust apply. retained rights – and in most cases, HMRC for a wide class of potential benefciaries. Tis is are willing to accept pragmatic valuations. For known as ‘settled’ or ‘relevant’ property. For lump Value of the trust fund will be the open example, where the settlor was fully underwritten sum investments, the initial gif is a chargeable market value of the policy at the outset, and is not terminally ill at a ten- lifetime transfer (CLT) for Inheritance Tax As well as the potential for an immediate yearly anniversary, any initial discount taking purposes. It’s possible to use any available annual Inheritance Tax charge on the creation of account of the value of the settlor’s retained rights exemptions. If the total non-exempt amount the trust, there are two other points at which can be recalculated as if the settlor was ten years gifed is greater than the settlor’s available nil-rate Inheritance Tax charges will apply. Tese are older than at the outset. band (NRB), there’s an immediate Inheritance known as ‘periodic charges’ and ‘exit charges’. If a protection policy with no surrender Tax charge at the 20% lifetime rate – or efectively Periodic charges apply at every ten-yearly value is held in a discretionary trust, there 25% if the settlor pays the tax. anniversary of the creation of the trust. Exit will usually be no periodic charges at each Te settlor’s available NRB is essentially the charges may apply when funds leave the trust. ten-yearly anniversary. However, a charge current NRB less any CLTs they’ve made in the Te calculations can be complex but are a could apply if a claim has been paid out and previous seven years. So in many cases, where maximum of 6% of the value of the trust fund. the funds are still in the trust. In addition, if no other planning is in place, this will simply be In many cases, they’ll be considerably less than a life assured is in severe ill health around a the current NRB band, which is £325,000 up to this – in simple terms, the 6% is applied on the ten-yearly anniversary, the policy could have 2020/21. Te residence nil-rate band (RNRB) value in excess of the trust’s available NRB. an open market value close to the claim value. isn’t available to trusts or any lifetime gifing. However, even where there is little or, in If so, this has to be taken into account when some circumstances, no tax to pay, the trustees calculating any periodic charge. Special valuation rules for existing still need to submit an IHT 100 to HMRC. policies assigned into trust Under current legislation, HMRC will do any Investing in life assurance investment Again, there’s no initial gif when setting calculations required on request. For a gif bonds could avoid complications up a loan trust, and the initial gif is usually trust holding an investment bond, the value of Where discretionary trusts hold discounted when setting up a discounted gif the trust fund will be the open market value of investments, the tax on income and gains plan. Where a cash gif exceeds the available the policy – normally its surrender value. For can also be complex, particularly where NRB, or an asset is gifed which exceeds 80% a loan trust, the value of the trust fund is the income-producing assets are used. Where 14 GUIDE TO ESTATE AND TRUST PLANNING

appropriate, some of these complications that meet specifed criteria and some Will trusts, In the event of a claim, the provider normally could be avoided by an individual investing but further discussion is outside the scope of this pays any policy benefits to the trustees, who in life assurance investment bonds, as these guide. must then pay any carved-out entitlements to are non-income-producing assets and allow All post–21 March 2006 lifetime trusts of the life assured and use any other proceeds trustees to control the tax points on any this type are taxed in the same way as fully to benefit the trust beneficiaries. chargeable event gains. discretionary trusts for Inheritance Tax and If terminal illness beneft is carved out, this Bare trusts give the trustees discretion over Capital Gains Tax purposes. For Income could result in the payment ending up back who benefts and when. Te trust deed will Tax purposes, any income is payable to and in the life assured’s Inheritance Tax estate set out all the potential benefciaries, and taxable on the default benefciary. However, before their death. A carved-out terminal these usually include a wide range of family this doesn’t apply to even regular withdrawals illness beneft is treated as falling into their members, plus any other individuals the settlor from investment bonds, which are non- Inheritance Tax estate once they meet the has chosen. Tis gives the trustees a high income-producing assets. Bond withdrawals conditions for payment. degree of control over the funds. Te settlor is are capital payments, even though chargeable ofen also a trustee to help ensure their wishes event gains are subject to Income Tax. As with Trade-of between are considered during their lifetime. bare trusts, the parental settlement rules apply simplicity and the degree of control if parents make gifs into trust for their minor Essentially, these types of trust ofer a trade- Powers depend on the trust provisions, children or stepchildren. of between simplicity and the degree of but usually include some degree of veto control available to the settlor and their In addition, the settlor can provide the Trustees still have discretion over which chosen trustees. For most, control is the more trustees with a letter of wishes identifying of the default and potential benefciaries signifcant aspect, especially where any lump who they’d like to beneft and when. Te letter When it comes to benefciaries and control, sum gifs can stay within a settlor’s available isn’t legally binding but can give the trustees there are no signifcant diferences between fully Inheritance Tax NRB. Keeping gifs within the clear guidance, which can be amended if discretionary trusts and this type of trust. Tere NRB and using non-income-producing assets circumstances change. Te settlor might also will be a wide range of potential benefciaries. In such as investment bonds can allow a settlor to be able to appoint a protector, whose powers addition, there will be one or more named default create a trust with maximum control, no initial depend on the trust provisions, but usually benefciaries. Naming a default benefciary is no Inheritance Tax charge and limited ongoing include some degree of veto. more binding on the trustees than providing a administrative or tax burdens. Family disputes are not uncommon, and letter of wishes setting out who the settlor would In other cases (for example, grandparents many feel they’d prefer to pass funds down like to beneft from the trust fund. funding for school fees), the bare trust may ofer the generations when the beneficiaries are Te trustees still have discretion over which advantages. Tis is because tax will fall on the slightly older than age 18. A discretionary of the default and potential benefciaries actually grandchildren, and most of the funds may be used trust also provides greater protection from benefts and when. Some older fexible trusts up by the age of 18. Te considerations are slightly third parties, for example, in the event of a limit the trustees’ discretionary powers to within diferent when considering family protection potential beneficiary’s divorce or bankruptcy, two years of the settlor’s death, but this is no policies, where the settlor will ofen be dead when although in recent years this has come under longer a common feature of this type of trust. policy proceeds are paid out to benefciaries. greater challenge. A bare trust ensures the policy proceeds Split Trusts will be payable to one or more individuals, Flexible Trusts with Default Benefciaries with no uncertainty about whether the Family protection policies trustees will follow the deceased’s wishes. At least one named default benefciary These trusts are often used for family However, this can also mean that the only Tese are similar to a fully discretionary trust, protection policies with critical illness or solution to a change in circumstances, such except that alongside a wide class of potential terminal illness benefits in addition to as divorce from the intended benefciary, benefciaries, there must be at least one named life cover. Split trusts can be bare trusts, is to start again with a new policy. Settlors default benefciary. Flexible trusts with default discretionary trusts or flexible trusts with are ofen excluded from benefting under benefciaries set up in the settlor’s lifetime from default beneficiaries. When using this type discretionary and fexible trusts. Where this 22 March 2006 onwards are treated in exactly the of trust, the settlor/life assured carves out applies, this type of trust isn’t suitable for use same way as discretionary trusts for Inheritance the right to receive any critical illness or with joint life, frst death protection policies if Tax purposes. Diferent Inheritance Tax rules terminal illness benefit from the outset, so the primary purpose is for the proceeds to go apply to older trusts set up by 21 March 2006 there aren’t any gift with reservation issues. to the survivor. n GUIDE TO ESTATE AND TRUST PLANNING 15

WHEN IT COMES TO BENEFICIARIES AND CONTROL, THERE ARE NO SIGNIFICANT DIFFERENCES BETWEEN FULLY DISCRETIONARY TRUSTS AND THIS TYPE OF TRUST. THERE WILL BE A WIDE RANGE OF POTENTIAL BENEFICIARIES. IN ADDITION, THERE WILL BE ONE OR MORE NAMED DEFAULT BENEFICIARIES. 16 GUIDE TO ESTATE AND TRUST PLANNING

LASTING POWER OF ATTORNEY Allowing someone to make decisions for you, or acting on your behalf

A lasting power of attorney (LPA) enables a key part of any protection insurance planning be accompanied by a certifcate confrming individuals to take control of decisions that exercise. Planning for mental or physical the granter understands what they are affect them, even in the event that they incapacity should sit alongside any planning for doing, completed by a solicitor or medical can’t make those decisions for themselves. ill health or unexpected death. practitioner only. Without them, loved ones could be forced to Commencing from 1 October 2007, it is no LPAs don’t apply to Northern Ireland. Instead, endure a costly and lengthy process to obtain longer possible to establish a new enduring those seeking to make a power of appointment authority to act for an individual who has power of attorney (EPA) in England and Wales, over their fnancial afairs would complete an lost mental capacity. but those already in existence remain valid. Te EPA. Tis would be efective as soon as it was An individual can create an LPA covering their attorney would have been given authority to act completed and would only need to be registered property and fnancial afairs and/or a separate in respect of the donor’s property and fnancial in the event of the donor’s loss of mental LPA for their health and welfare. It’s possible afairs as soon as the EPA was created. At the capacity with the High Court (Ofce of Care to appoint the same or diferent attorneys in point the attorney believes the donor is losing and Protection). respect of each LPA, and both versions contain their mental capacity, they would apply to the safeguards against possible misuse. Ofce of the Public Guardian (OPG) to register Where the donor has lost mental capacity the EPA to obtain continuing authority to act. in the opinion of a medical practitioner Individual loses the capacity to manage It’s usual for the attorney to be able to make their own fnancial afairs Giving authority to a chosen attorney in decisions about the donor’s fnancial afairs It’s not hard to imagine the difculties that could respect of fnancial and property matters as soon as the LPA is registered. Alternatively, arise where an individual loses the capacity to Similar provisions to LPAs apply in Scotland. the donor can state it will only apply where the manage their own fnancial afairs, and without Te ‘granter’ (donor) gives authority to their donor has lost mental capacity in the opinion of access to their bank account, pension and chosen attorney in respect of their fnancial a medical practitioner. investments, family and friends could face an and property matters (‘continuing power of An LPA for health and welfare covers additional burden at an already stressful time. attorney’) and/or personal welfare (‘welfare decisions relating to an individual’s day-to-day LPAs and their equivalents in Scotland and power of attorney’). Te latter only takes well-being. Te attorney may only act once Northern Ireland should be a consideration in efect upon the granter’s mental incapacity. the donor lacks mental capacity to make the all fnancial planning discussions and should be Applications for powers of attorney must decision in question. Te types of decisions GUIDE TO ESTATE AND TRUST PLANNING 17

A LASTING POWER OF ATTORNEY (LPA) ENABLES INDIVIDUALS TO TAKE CONTROL OF DECISIONS THAT AFFECT THEM, EVEN IN THE EVENT THAT THEY CAN’T MAKE THOSE DECISIONS FOR THEMSELVES. WITHOUT THEM, LOVED ONES COULD BE FORCED TO ENDURE A COSTLY AND LENGTHY PROCESS TO OBTAIN AUTHORITY TO ACT FOR AN INDIVIDUAL WHO HAS LOST MENTAL CAPACITY.

covered might include where the donor lives attorneys, including the requirement to keep the and scope of the LPA. A certifcate provider and decisions concerning medical treatment. donor’s money and property separate from their will be an individual aged 18 or over and either own or anyone else’s. someone who has known the donor personally Option to provide authority Anyone aged 18 or over who has mental well for at least two years, or someone chosen by to give or refuse consent for capacity and isn’t bankrupt may act as an the donor on account of their professional skills life-sustaining treatment attorney. A trust corporation can be an attorney and expertise (for example, a GP or solicitor). Te donor also has the option to provide their for a property and fnancial afairs LPA. In attorney with the authority to give or refuse practice, attorneys will be spouses, family Allowing for any concerns or objections consent for life-sustaining treatment. Where no members or friends, or otherwise professional to be raised before the LPA is registered authority is given, treatment will be provided contacts such as solicitors. Tere are restrictions on who may act as a to the donor in their best interests. Unlike the certifcate provider – these include attorneys, registration process for an EPA, registration for Relating to things an attorney should or replacement attorneys, family members and both types of LPA takes place upfront and is not shouldn’t do when making decisions business associates of the donor. A further dependent on the donor’s mental capacity. An Where joint attorneys are being appointed, the safeguard is the option for the donor to choose up attorney must act in the best interest of the donor, donor will state whether they act jointly (the to fve people to be notifed when an application following any instructions and considering the attorneys must make all decisions together), or for the LPA to be registered is being made. donor’s preferences when making decisions. jointly and severally (the attorneys may make Tis allows any concerns or objections to be joint decisions or separately), or jointly for some raised before the LPA is registered, which must Tey must follow the Mental Capacity Act Code decisions (for example, the sale of the donor’s be done within fve weeks from the date on of Practice which establishes fve key principles: property) and jointly and severally in respect of which notice is given. Te requirement to obtain 1. A person must be assumed to have capacity all other decisions. An optional but useful feature a second certifcate provider where the donor unless it’s established he or she lacks capacity. of the LPA is the ability to appoint a replacement doesn’t include anyone to be notifed has now 2. A person isn’t to be treated as unable to make a attorney in the event the original attorney is no been removed as part of the Ofce of the Public decision unless all practicable steps to help him longer able to act. Guardian (OPG) review of LPAs. or her do so have been taken without success. Te donor can leave instructions and 3. A person isn’t to be treated as unable to make preferences, but if they don’t, their attorney Strict limits on the type of gifs attorneys a decision merely because he or she makes an will be free to make any decisions they feel can make on the donor’s behalf unwise decision. are correct. Instructions relate to things the A person making an LPA can have help 4. An act done, or decision made, under the attorney should or shouldn’t do when making completing it, but they must have mental capacity Act for or on behalf of a person who lacks decisions – not selling the donor’s home, when they fll in the forms. Otherwise, those capacity must be done, or made, in his or her unless a doctor states the donor can no longer seeking to make decisions on their behalf will need best interests. live independently, or a particular dietary to apply to the Court of Protection for a deputyship 5. Before the act is done, or the decision is made, requirement would be examples. order. Tis can be expensive and time-consuming regard must be had to whether the purpose for and may require the deputy to submit annual which it’s needed can be as efectively achieved Beliefs and values an attorney has to reports detailing the decisions they have made. in a way that is less restrictive of the person’s consider when acting on the donor’s behalf Tere are strict limits on the type of gifs rights and freedom of action. Preferences relate to the donor’s wishes, beliefs attorneys can make on the donor’s behalf. Gifs and values they would like their attorney to may be made on ‘customary occasions,’ for Trust corporation can be an attorney consider when acting on their behalf. Examples example, birthdays, marriages and religious for a property and fnancial afairs LPA might be ethical investing or living within close holidays, or to any charity to which the donor A donor with mild dementia might be provided proximity of a relative. was accustomed to donating. Gifs falling with the means to purchase items for daily Te following apply to both forms of LPA. A outside of these criteria would need to be living, but otherwise their fnancial matters are ‘certifcate provider’ must complete a section approved by the Court of Protection. An undertaken by their attorney. Te code of practice in the LPA form stating that as far as they are example would be a gif intended to reduce the applies a number of legally binding duties upon aware, the donor has understood the purpose donor’s Inheritance Tax liability. n 18 GUIDE TO ESTATE AND TRUST PLANNING

WEALTH PRESERVATION Te 6 things you need to consider to help preserve your wealth

Whether you have earned your wealth, inherited of the £3,000 exemption to the following event of a family crisis and monies returned to it or made shrewd investments, you will want year, but they must use it or it will be lost. the settlors via the benefciaries. to ensure that as little of it as possible ends up Parents can give cash or gifs worth up to in the hands of HM Revenue & Customs. With £5,000 when a child gets married, grandparents 5. Te income over expenditure rule careful planning and professional fnancial up to £2,500, and anyone else up to £1,000. As well as putting lump sums into an advice, it is possible to take preventative action to Small gifs of up to £250 a year can also be made appropriate trust, people can also make monthly either reduce or mitigate a person’s benefciaries’ to as many people as an individual likes. contributions into certain savings or insurance Inheritance Tax bill – or mitigate it altogether. policies and put them into an appropriate trust. Tese are some of the main areas to consider. 3. Give away assets Te monthly contributions are potentially subject Parents are increasingly providing children with to Inheritance Tax, but if the person can prove 1. Make a Will funds to help them buy their own home. Tis that these payments are not compromising their A vital element of efective estate preservation is can be done through a gif, and provided the standard of living, they are exempt. to make a Will. According to a YouGov survey, parents survive for seven years afer making almost 60% of all UK adults do not have a Will. it, the money automatically moves outside of 6. Provide for the tax Tis is mainly due to apathy but also a result of their estate for Inheritance Tax calculations, If a person is not in a position to take avoiding the fact that many people feel uncomfortable irrespective of size. action, an alternative approach is to make talking about issues surrounding death. provision for paying Inheritance Tax when it is Making a Will ensures an individual’s assets are 4. Make use of trusts due. Te tax has to be paid within six months of distributed in accordance with their wishes. Assets can be put in an appropriate trust, death (interest is added afer this time). Because Tis is particularly important if the person thereby no longer forming part of the estate. probate must be granted before any money can has a spouse or registered civil partner. Even Tere are many types of trust available that, if be released from an estate, the executor may though there is no Inheritance Tax payable appropriate, usually involve parents (settlors) have to borrow money or use their own funds to between both parties, there could be tax payable investing a sum of money into a trust. Te trust pay the Inheritance Tax bill. if one person dies intestate without a Will. has to be set up with trustees – a suggested Tis is where life assurance policies written Without a Will in place, an estate falls under minimum of two – whose role is to ensure that in an appropriate trust come into their own. the laws of intestacy – and this means the estate on the death of the settlers, the investment A life assurance policy is taken out on both may not be divided up in the way the deceased is paid out according to the settlors’ wishes. a husband’s and wife’s life, with the proceeds person wanted it to be. In most cases, this will be to children or payable only on second death. Te amount grandchildren. of cover should be equal to the expected 2. Make allowable gifs Te most widely used trust is a discretionary Inheritance Tax liability. By putting the policy in A person can give cash or gifts worth up to trust and can be set up in a way that the settlors an appropriate trust, it means it does not form £3,000 in total each tax year, and these will (parents) still have access to income or parts of part of the estate. Te proceeds can then be used be exempt from Inheritance Tax when they the capital. It can seem daunting to put money to pay any Inheritance Tax bill straightaway die. They can carry forward any unused part away in a trust, but they can be unwound in the without the need for the executors to borrow. n GUIDE TO ESTATE AND TRUST PLANNING 19

WHETHER YOU HAVE EARNED YOUR WEALTH, INHERITED IT OR MADE SHREWD INVESTMENTS, YOU WILL WANT TO ENSURE THAT AS LITTLE OF IT AS POSSIBLE ENDS UP IN THE HANDS OF HM REVENUE & CUSTOMS. WITH CAREFUL PLANNING AND PROFESSIONAL FINANCIAL ADVICE, IT IS POSSIBLE TO TAKE PREVENTATIVE ACTION TO EITHER REDUCE OR MITIGATE A PERSON’S BENEFICIARIES’ INHERITANCE TAX BILL – OR MITIGATE IT ALTOGETHER. 20 GUIDE TO ESTATE AND TRUST PLANNING

GLOSSARY Estate and Trust Planning technical terms explained

Administrator amount is minus the amount of any loans, debts since then. It may also occur if there is no Te Administrator is the person assigned to or liabilities that you may have. Executor appointed. handle the Estate of a deceased person who does not have a Will, because no Executor(s) have Executor Intestacy (Rules of) been appointed. Tey will mainly handle fnancial Tis is the person or people who you will appoint If a person passes away without a Will, there are aspects of their life, such as ensuring bills are in your Will to administer your estate upon your rules that must be followed, particularly if the paid, closing credit card accounts, utility and death. Tey will be the ones who deal with your person has lef assets or an Estate behind. Te bank accounts, and distributing gifs. fnancial afairs and be responsible for disposing rules may pertain to what level of relationship the of your assets afer they have been validated by survivors had to that person. Asset the Probate court. Tese are items of value you own, such as Irrevocable a savings account, fne jewellery, vehicle, Family Trust Tis is a process where the Will cannot be condominium or house. Tey are separate from A person with a family can create a family trust changed or cancelled. Te Will is fnal. Tis is so debts and must be free of liens that are held until in advance that will not necessitate any need that benefciaries or other people cannot attempt a loan has been paid of. for formal administration afer death. It may to make changes when they may be unhappy afer also include generation skipping or protection the reading of the Will. Benefciary/Benefciaries measures. Tere are tax benefts that may be of One person or a group of people who will receive beneft to setting up a family trust in advance. Joint Tenancy money, property or other items designated in a Tis is when more than two people own a single Will. Tese may involve friends, family, colleagues, Grant of Probate property. Even if one of the people dies in the joint an organisation or a charitable association. Te Court will give a Grant of Probate afer a Will tenancy, the other person will automatically inherit has been fled with the Probate Registry or Sub- their portion. Even if that person has designated Capital Registry. Te Executor(s) can then dispose of the another owner of the property in their own Will, Capital is in reference to the current value of the assets and property of the deceased. the original joint tenancy agreement will hold. assets. It does not pertain to any future income, such as interest or income that may be earned Guardian Lasting Power of Attorney (LPA) from them. Tis is a person that can be designated by a (Property and Financial Afairs) Testator so that children or their dependents are An LPA can be assigned through a document Deed properly cared for in the event of their death. Te by a person or their family in the event that the A deed difers from a Will in that it transfers an Guardian will have all parental responsibilities for person can no longer manage their afairs. It may interest in property or land to another person. these children. be because of mental incapacitation, illness or It is also a legal document that must be legally accident, and is permanent. A friend, relative or witnessed. Inheritance Tax lawyer may be assigned. Inheritance Tax is a tax that must be paid on an Deed of Gif Estate before it passes on to the benefciaries. Lasting Power of Attorney (LPA) Tis occurs as a gif that is transferred from one If the Estate is valued at under £325,000, then (Health & Welfare) person to another. It can involve property, a share no tax is due. Tere are ways of reducing the Tis is similar to the above, but may also be of the property, land, or other buildings. Tere is potential Inheritance Tax bill through things such designated when a person can no longer make no recompense involved. as charitable donations and legacy gifs. healthcare or welfare decisions for themselves. Tis is also assigned by a document. Donor Intestacy Te donor is the person who requires the Tis is when a person has died without having Legacy services of the lasting power of attorney (LPA) written a Will. To distribute their Estate or Tis is the actual gif that is lef to a person, or enduring power of attorney (EPA). Tey assets, certain laws will have to be followed. An organisation or charity in a Will. A person can are considered the owner or donor and are administrator will also need to be assigned. bequeath a legacy to someone in their Will. A authorising the other to work on their behalf. legacy can be given to someone of their own Intestacy (Partial) choosing, and it does not have to be a descendent. Estate Tis occurs when a person has written a Will but Your Estate is the total value of your assets when it has failed to cover all aspects of their Estate. Letter of Wishes you die. It can involve fne art and jewellery, Tis may occur when they have purchased real A letter of wishes is separate from your Will. It property, buildings, and fnancial assets. Te total Estate since writing the Will, or have had children states your wishes for your smaller assets, but GUIDE TO ESTATE AND TRUST PLANNING 21

that the Executor(s) or trustees do not have to Probate Registry can be a spouse, child or other type of relative. necessarily legally follow. Tis may include those Tis is a legal ofce, ofen located at the Usually, this designation is made within a Will. smaller household items you may own that have courthouse, where the Executor(s) must apply little value, or photographs, or papers. for permission to administer a deceased person’s Tenancies in Common Estate. It operates a lot like a court. Tis is one of two ways that two or more people Liabilities can own one property. Te other is a joint Liabilities are separate from assets. Tese are Residual Benefciaries tenancy. In a tenancy in common, each owner debts, bills or loans that will be paid from that Tese are the benefciaries that will beneft afer has an equal share of the property. Should one of person’s Estate afer they die. From there, the all other gifs have been made, and all debts, them die, then it will be lef to the benefciaries remainder of the Estate will be distributed to taxes, probate fees, administrative fees and court that they have designated in their Will. the benefciaries. costs have been made. Tey will beneft from any residual property that remains. Trust Lifetime Gif It is an arrangement where the legal interest in A lifetime gif is given before a person passes Residue/Residuary Estate the property is owned by trustees for someone away. It is not designated in the Will. Generally, it Tis is the property or assets that will remain in else’s beneft. For example, a parent can set up is given from parents to children, or at the point your Estate afer all gifs have been done, and all a trust for a child in the event that the parent when a person may have a terminal illness but debts, taxes and fees have been paid. dies. Te trustee will look afer the child until wishes to see their lifetime gif beneft their loved they are an adult. ones while they’re still living. Settlement Tis is in reference to a business trust. A business Trustees Power of Attorney trustee will administer or control a trust that Tis can be one person, people or an organisation An attorney is appointed to another person by contains business assets. It may also involve a that manages the trust. At the appropriate time, a living person who can no longer manage their resolution between two or more disputing parties. they will pass the assets to the benefciaries. own fnances or make healthcare decisions. Power of Attorney is one designation. Tey are Settlor Will (Last Will and Testament) appointed with a lasting power of attorney or Tis is the person who creates a trust. It may Ofcially called the ‘Last Will and Testament’, it enduring power of attorney document. be so that their survivors can avoid paying can also be shortened to just ‘Will’. Tis is a legal Estate taxes in the future. Tey are doing it for document that tells the Probate Court exactly Probate the benefciaries in a Will. Can also be known how the deceased’s assets are to be distributed Tis is the legal procedure that occurs afer a as a ‘Trustor’. upon their death. n person has died. It authorises the administration of an Estate according to what has been laid out Survivor in the Will. It must be done for every person A survivor is the last person within a marriage upon their death. or a family who survives their relative dying. It LOOKING TO PASS ON MORE OF YOUR WEALTH IN THE MOST TAX-EFFICIENT WAY?

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This guide is for your general information and use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

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