Making a Will

Issues that typically need to be addressed when making a will are:-

Appointment of executors

These are the people whom you trust to ensure that the terms of your will are carried out after the date of your death. It is usual for between one and four executors to be appointed. Your executors will need to:-

• Identify and value all of your assets and debts.
• Make an application, if required, for a grant of probate.
• Settle your income tax affairs and pay any debts.
• Pay any inheritance tax due on your death.
• Carry out your instructions set out in your will

Appointment of guardians

A person with parental responsibility is entitled to appoint a guardian in a will.

Specific gifts

Do you want, for example, to leave a specific item of furniture or jewellery to someone?

Pecuniary gifts

Do you want to leave a gift of cash to particular people?

Inheritance Tax Planning

- see Estate Planning

Residuary estate

To whom would you like to leave the rest of your assets? It will usually be sensible that a substitute appointment will also be made in case the first-named residuary beneficiary dies before you.

Should any trusts be created in the will?

Trusts

Why create a Trust?

A trust will typically be created in order to protect beneficiaries who may not be able properly to look after assets themselves e.g. because of their age or mental incapacity.

Trusts can also be created for tax-planning reasons. The most usual types of trusts which can be created are listed below:-

Bare Trust

This type of trust is not, strictly speaking, a trust at all. It arises where an asset is held in the names of trustees but the trustees only nominally own the assets within the trust - the real owners are the beneficiaries. Such trusts arise commonly when children are entitled to assets but they are not old enough to have legal authority to deal with those assets.

Interest in Possession Trust

Under this type of trust a person (normally known as a tenant for life) is entitled to the income from the trust but is not entitled to the capital. Such a trust might arise when, say, one spouse dies and wishes to leave sufficient funds to the surviving spouse for the rest of his or her life, but at the same time wishes to ensure that the surviving spouse cannot dispose of the capital assets.

Discretionary Trusts

The trustees of a discretionary trust have, as might be supposed, a discretion as to how they treat the assets within the trust. This discretion will apply both to capital and income in the trust. Although the trustees will have an absolute discretion, the person creating the trust will stipulate the people or charities in respect of which the discretion may be exercised. If a settlor is concerned about the way in which trustees can exercise their discretion then, in the case of a lifetime trust the settlor can be a trustee himself. In all trusts the settlor can also sign a letter of wishes, which gives non-binding instructions to trustees as to how the settlor would wish their discretion to be exercised in the future.

Trusts which are often included in wills are "Nil Rate Band Discretionary Trusts". See our comments under the heading "Estate Planning" in this connection.

Tax consequences of Trusts

People are frequently faced with the dilemma of providing for a spouse or a partner during that spouse's or partner's lifetime but wanting to ensure that what they leave on death will eventually be inherited by their children.

Such a trust gives the spouse or a partner a right to income from the capital but not the capital itself. The capital is eventually passed on to the children following the death of the spouse or partner.

It is possible to incorporate within a Trust an element of discretion. The trustees have the discretion but not an obligation, to use part of the capital for the benefit of the spouse of partner if the trustees so decide.

As the spouse or partner merely has the right to the income from the capital, the capital is protected and is not available as such for the payment of residential or nursing home fees of the surviving spouse or partner.

Such a trust however does have inheritance tax consequences depending upon the size of the trust and the value of the assets of the surviving spouse or partner on his or her death.

Probate

Executors who are appointed under a will, usually have to obtain a grant of probate before they have authority to deal with the assets in an estate. The procedure for obtaining a grant of probate will vary depending upon the nature of the assets and their value.

If the estate is taxable, then the executors will need to complete a detailed Inland Revenue account and pay any tax that may be payable on the death. There are stringent penalties imposed upon executors by the Inland Revenue if the executors fail to include in the Inland Revenue account full details of all assets and allowable deductions. This can amount to double the tax plus a fine.

Intestacy

If you die without having made a will then you are said to have died "intestate". If this happens then the laws of intestacy govern who is to inherit your estate and this can lead to unexpected and undesired results. For example, if you do not leave a will then:-

• If you are married or in a civil partnership, your spouse or civil partner will not automatically inherit all of your estate.
• If you are neither married nor in a civil partnership, your partner will not inherit your estate.
• You will not have made any provision for who should be appointed as guardians for your young children.
• You have not appointed anyone to act as your executor.
• The administration of your estate is likely to take significantly longer to complete than if you had left a will.

The levels of statutory legacy (the amount that surviving spouses or civil partners are allowed to inherit if their spouse/civil partner dies without leaving a will) increased from 1 February 2009 as below.

New limits: 

• £250,000 (from £125,000) where there is a surviving spouse or civil partner and children. 
• £450,000 (from £200,000) where there is a surviving spouse or civil partner and parents or siblings, but no children.

Statutory Limits - When they Apply

The statutory limits only apply when the estate exceeds the minimum. For smaller estates, the spouse or civil partner will inherit the entire estate. Where the intestate estate exceeds the limit, the rules are as follows:
 
1. If there is a husband, wife or civil partner, and children: 

• The spouse/partner gets the personal chattels, the first £125,000 (£250,000 after 1 February 2009) and a life interest in half of what is left 
• The children of the deceased, including illegitimate and adopted children, share between them half what is left straight away, if they are 18 or over; and the other half when the surviving parent dies.

2. If there is a husband, wife or civil partner, and relatives but no children: 

• The husband or wife gets the personal chattels, the first £200,000 (£450,000 after 1 February 2009) and half what is left. 
• The parents of the dead person, or if they have died, the brothers and sisters or their descendants, share the other half of what is left.

3. If there is a surviving husband, wife or civil partner, but no other relatives:

• The surviving spouse/partner gets everything.

4. If there are children, but no living husband, wife or civil partner:

• The children share everything equally.

5. If there is no husband, wife, civil partner or children:

• Everything goes to the next available group of relatives.

6. If there are no available relatives:

• The entire estate goes to the Crown.