Today I want to write on a topic that you may have either addressed recently or some years ago. Then again, you may not have even given it any thought whatsoever.

So, have you made a Will?

Let’s look at why this is such an important part of anyone’s financial plan.

Not Having A Will

From 1 February 2009, if a person dies domiciled in England or Wales without leaving a valid will then the law of intestacy applies and a surviving spouse will receive all of the personal chattels absolutely and a statutory legacy from the estate.

The statutory legacy will be £250,000 where the deceased leaves children, and £450,000 if there are no children but there are parents and / or siblings. To benefit the surviving spouse must survive the deceased spouse by 28 days.

What happens to the remainder depends on whether there are children or not. If there are children, they take one-half of the remainder absolutely. If the children are aged under 18, their one-half share will be held on statuory trusts for their benefit until they attain age 18.

The surviving spouse gets a life interest in the other half (the capital passing to the children on his/her death).

If there are no children, the other relatives in a prescribed order get the rest.

In Scotland and Northern Ireland the legislation is slightly different.

Practical Reasons For Making A Will

The first most obvious reason to make a Will is to ensure that those (and only those) you want to benefit from your estate after you die will in fact benefit.

Those entitled under intestacy (see above) may not be the same people that you would actually want to benefit.

The second reason is that, by making a will, your estate can be distributed to your beneficiaries faster and with fewer costs. This is because executors will have been named who can speedily apply for probate and deal with the estate in accordance with your wishes in the will.

Without a will, your (usually) next of kin will have to apply for a grant of letters of administration and distribute the estate in accordance with the law of intestacy.

In this respect, if your relatives have a disagreement, the chances are that the professional fees for dealing with the estate will also be higher as more work will be involved.

Another reason for having a will is specific to those whose intended inheritors include minor children. Here, whether there is a will or not, any funds that a minor child inherits will be held on trust for him or her until they attain age 18.

This means that someone will have to act as trustee and, by using a will, the testator can exercise control over who that person is.

If you don’t have a will, the terms of any trust arising on an intestacy will be specified by statute, including such old pieces of law as the Trustee Act 1925.

If you make a will, you decide the terms of any trust and any powers you want the trustees to have. Of course, trusts are not only made for the benefit of minor children.

If it is desired to specify successive interests, for example someone to have an income for life and after their death for someone else to benefit, this can only be achieved with a trust and, once again, it will be best to set out the terms of the trust in a Will.

Finally, many individuals these days acquire holiday or second homes abroad. Whilst leaving assets without a will in one’s home country is bad enough, it gets significantly worse if properties are owned in other jurisdictions.

There would be considerably more cost as well as the fact that in certain European countries the law prescribes who must inherit on a person’s death. A UK will is likely to be accepted in most European countries, although sometimes it is recommended that a local will is also executed in respect of any property situated in that country that mirrors the provisions under the UK will.

Tax Reasons For Making A Will

There are a lot of misconceptions about wills and inheritance tax (IHT). Generally speaking, IHT at 40% is payable on your estate in excess of the so-called ‘nil rate band’ (£325,000 in tax year 2010/2011) if it passes to persons other than your UK domiciled spouse (or an exempt person such as a charity).

It does not matter whether you leave a Will or not, just who inherits.

The transferable nil rate band provisions were introduced in October 2007. This means that if you leave a Will under which all your estate passes to your widow(er), as long as he/she is domiciled in the UK, there will be no IHT on your death.

When he/she dies, not only will his/her own nil rate band be available to set against the value of the estate to determine any IHT liability but also the proportion of the nil rate band that you did not use on the first death.

Thus, if you did not use any of your nil rate band the personal representatives of your surviving spouse/civil partner will be able to claim two nil rate bands.

If you die intestate, your widow(er)’s legacy is limited to the specified amount (currently less than the nil rate band) with the rest passing to your children or your other relatives.

Before 9 October 2007, this could also have resulted in some of your nil rate band being ‘lost’. However, any unused portion of the nil rate band on first death can now be claimed by the surviving spouse’s personal representatives.

Nil Rate Band Trust

To allow access to assets for the surviving spouse, whilst at the same time ensuring that the nil rate band available on the death of the first of them to die was not wasted, it was common for couples to include a nil band discretionary trust in their wills which would apply on the first death.

Under the terms of such a trust, assets of up to the deceased’s available nil rate band would pass to a discretionary trust and so utilise the deceased’s nil rate band. However, because the deceased’s widow/widower was a beneficiary under the trust, payments could be made to him/her as required.

In particular, payments by the trustees in the form of interest-free loans repayable on demand would have been very effective if the loan was spent by the surviving spouse because this would have usually built up debts on the estate of the surviving spouse.

Following the introduction of the transferable nil rate band on 9 October 2007, any unused proportion of nil rate band on first death can be claimed by the estate of the surviving spouse/RCP.

Thus, the nil rate band is not ‘lost’ and so the tax reason for using a nil rate band trust no longer exists. However, for many individuals there will be other reasons for still using nil rate band trusts in their will, for example if:

• There is a desire to protect the assets of the surviving spouse from a claim from the local authority if he/she goes into care
• One of the spouses had a former spouse who died and he/she has a transferable nil rate band from that former spouse. Here it is only possible to pass on a maximum of one extra nil rate band on death and so a nil rate band will trust would be appropriate for that person to use all available nil rate bands on his/her death (ie pass one on to the ‘new’ spouse and use one with the trust)
• The spouse who dies first wishes to keep control over who eventually benefits from his/her assets (eg because this is a second marriage and the deceased wants children from the first marriage to benefit)

Key Considerations

As you can see, making a Will is a key component of anyone’s financial plan. Without one, your next of kin may be disadvantaged financially when you’re long gone – which no doubt is a situation you’d rather avoid.

Action Point

Here’s a list of questions to ask yourself:

• Do you want to make sure that only those you want to benefit will benefit from your estate?
• Do you want to spare your loved ones hassle, possible arguments and extra cost after your death?
• Would you prefer to decide the terms of any trusts that will come into effect on your death yourself or leave it to others?
• Do you have any transferable nil rate band available as a result of the death of your former spouse?
• Do you know the potential IHT liabilities that may arise on your and your spouse’s death? You should! Would you rather that less money went to HMRC and more to your family?

If the answer is Yes to any of the above, you should seriously consider making a will. If you’d like to be referred to a good solicitor, just email us  and we’ll put you in touch with one.

We have all heard of surveys and reports about nearly or newly retired professionals stating with a smile on their face that they were going to ‘spend the kids’ inheritance’.

Many dreams were being fulfilled, involving travel to exotic far flung places, cruising, buying a boat or a Harley Davidson motorbike – or whatever appealed.

However, some latest research has revealed that many well off parents have decided that rather than simply knowing that the children will inherit when they die (if there is anything left!) they increasingly want to gift now.

Aviva, the insurance giant, have carried out a new survey on this subject. Results have shown that getting on for 50% of UK adults have been given a pre-inheritance gift from parents. This compared to a lower figure of just over a third who have been left money in their parents will when they have died.

They looked at which age groups benefited the most, and perhaps unsurprisingly the 18 to 25 group benefited most, followed by the 31 to 40 group. This is presumably because of the costs of university debt, getting on the housing ladder and then starting a family.

Of course, these financial gifts can make all the difference for their children, giving them a massive boost when otherwise they may well have struggled. As parents ourselves, this would be something that we would ideally like to do for our own children in the future.

A newspaper article that reported on this survey then queried whether having gifted money, there were any regrets, such as:

• were the monies spent wisely by the children?
• what if the child were divorced, as that money is now 50% lost?
• what about inheritance tax if you die early?
• do some parents gift too early or too much leaving them exposed?

All these are valid points, but let’s look at the last two.

If you gift a lump sum to help your children, it is known as a Potentially Exempt Transfer (PET), and if you survive 7 years there will be no Inheritance tax (IHT). Also, if you do not survive this period but your total estate (including the gift) is worth less than £650k (for a couple) then again there would be no IHT.

In practice, however, the majority of our clients have estates worth over £1 million if not a lot more. This means that gifting lump sums can be a very effective way of reducing potential Inheritance tax.

But before we advise this as a valid route, we always carry out an in depth cash flow model exercise – financial map – that ensures that the clients themselves will always have enough funds for their lifetimes.

This is something that the article did not even mention, even though several financial advisers were quoted commenting on various aspects of the article, and shows once again how comprehensive financial planning is still little known!

Another popular route, used with a cash flow forecast, is the often overlooked “regular gifts out of normal expenditure” allowance.

As long as these are “regular and habitual”, and do not affect the donor’s standard of living, they are totally free from IHT. It also means that you can monitor how these monies are being utilised as you go.

A further option is to also purchase a second death life policy for, say, an expected period of 10-15 years, with the children as beneficiaries. This means that if both of you were to die prior to your gifting programme being complete, there would be a plan B to help pay the tax.

If you are considering gifting to your children, it makes sense to first work out your current liability to IHT. IHT is only payable if the value of your estate exceeds the nil rate band for that tax year.

£325,000 per individual was the level for 2009/2010, and this has been frozen at this level for 2010/2011.

So a couple will have a £650k allowance, and IHT is payable on the second death. So, an estate worth £1m would attract a bill of £140,000 for the children, as a tax rate of 40% applies above this level.

Of course, a lot of wealth can be tied up in the main residence, and to be able to gift, say monthly, you really need cash. This means that some clients downsize in their 60s or 70s to release funds.

Also, the normal allowances you can use are:

• capital gifts of up to £3,000 per tax year per individual, and can be carried forward
• any number of small gifts up to £250 per year, can be given to any number of recipients
• £5,000 to a child, and £2,500 to a grandchild, as a wedding present.

Therefore, if you are wondering if you could manage both now and later in life without all your assets, and want to reduce the value of your estate and help loved ones, make sure you take good advice.

Please note that our aim here is not to cover Inheritance Tax in detail.

You can find other articles here and here.

Key Considerations:

If gifting is a route you feel you can take without jeopardising your own future security, then it is an option well worth investigating, as it reduces tax and therefore increases your family’s wealth.

Perhaps most of all though, it helps your children when they need it most.

Action Point

Before taking any firm action, take good financial advice from an adviser or planner you feel you can trust. It is also important that they use cash flow forecasts to be able to give best advice and charge fees (as there may well be no policy advice/sale).

Ask your adviser about this, or if you would like an totally separate and impartial opinion contact us.

With significant inheritance tax benefits for gifts between spouses or civil partners, it makes financial sense for married couples to leave everything to each other on death.

However, with the increase in second marriages and step-families, you could experience real tension between wanting to provide for your partner after their death and ensuring that you do not inadvertently disinherit their your children.

Outright Gift or a Trust?

Many people leave part or all of their estate to their spouse outright. This is certainly the simplest approach. But for many it may be more appropriate to leave your estate on trust for your surviving spouse.

Before looking at the reasons for using a trust, it is worth considering how a trust works.

If, for example, a married man leaves his estate on trust for his wife, the trust would provide her with income (and potentially also capital if the trustees choose to pay it to her) for the rest of her life.

The trust would be very flexible and other people could potentially benefit including the husband’s children and grandchildren and their spouses and civil partners. However, the wife would be entitled to receive all of the income from her husband’s trust unless the trustees decide otherwise.

The husband would create the trust, and appoint the trustees, in his will. He could give the trustees guidance in a letter of wishes covering how he would like his estate to be dealt with, after his death. The trustees would be expected to follow the husband’s wishes unless there were good reasons not to.

Reasons for using a trust

1. Protecting the husband’s children

The husband could specify that on his wife’s death the trust assets will pass to his children (or other chosen heirs), rather than to his wife’s family or any future partner she may have.

This is particularly important where second marriages and step-children are involved.

2. Tax efficiency and onward gifts

In terms of gifts from the trust during the wife’s lifetime, huge amounts of inheritance tax can potentially be saved by the trustees passing trust assets down to the husband’s children or grandchildren during the wife’s lifetime.

The assets would avoid inheritance tax provided the wife survived the transfer by seven years.

If the husband left his estate to his wife outright, he would be reliant on her to make such gifts herself. As a widow, she may be unwilling to do so. With a trust the husband can safely rely on the trustees to make the gifts after his death.

When making gifts by the trustees rather than by the wife, if the husband leaves his estate to his wife on trust, the trustees could still make tax efficient onward gifts to the husband’s children or grandchildren even if the wife was not capable of making decisions herself.

This would not be the case with an outright gift.

3. Protecting the husband’s assets

With a trust over the husband’s estate, the wife would not actually own the underlying capital for the purposes of means-tested benefits. This may offer protection against having to pay care home fees.

A trust would also provide protection against other family members (for example, the children) putting pressure on his wife to give them assets from his estate after his death. This is because the trustees may find it easier than the wife to refuse any inappropriate requests.

A trust will also protect against the possibility of the wife’s own profligacy after her husband’s death.

4. Making life easier for the wife

By leaving his estate on trust for his wife, the husband will relieve her of the burden of having to manage the investment of the assets, passing this responsibility to the trustees instead.

5. Avoiding tax on a sale of the husband’s home after his death

If the husband leaves his estate to his wife on trust, there could be valuable capital gains tax savings if the estate contains a second home or rental property.

6. Practical financial help on the wife’s death

On his wife’s death, the husband’s trust would continue to exist and money could immediately be paid out to the children or grandchildren from the trust. Money from this trust could be used to pay expenses and inheritance tax on the wife’s death.

Reasons for not using a trust

1. Potential claim by the wife under the Inheritance (Provision for Family and Dependants) Act 1975

The wife could have a potential claim against her husband’s estate under the 1975 Act on the grounds that she has not received reasonable financial provision on his death because she is only entitled to the trust income and not the capital.

Whether the wife would actually bring a claim in practice will depend on many factors including the particular family dynamics but where second marriages and step-children are involved, the risk is greater.

2. Complexity

An outright gift by the husband of his estate to his wife in his will would be simpler than creating a trust, as it would remove the time and expense involved with an ongoing trust after his death. With a trust, the wife may also resent not having sole control of her husband’s estate after his death.

This article has been provided by Andrew Goldstone, head of personal tax and estate planning and Victoria Turner, assistant, at Mishcon de Reya Solicitors. They can be contacted on 0207 440 7000.

This article first appeared in Financial Planner trade journal in 2009.

Key Considerations:

As Andrew and Victoria have pinpointed, it’s really important that you think through how you want your affairs to be managed after you’ve died. What do you want to happen? Have you discussed the issues with your loved ones?

Action Point

Regardless of how old you are, take the time to consider how you’d like your estate to be distributed. And if avoiding inheritance tax is an issue for you, research your options and above all, make sure you get expert advice (which is especially important when trusts are involved).

Q. I am a married 51 year old surgeon, and have several large pension funds which have built up over many years, with a combined value of around £400k. I dont intend to cash in my pensions until age 60 plus, and have recently turned my attention to the subject of Inheritance Tax.

Our estate is worth perhaps £2m, with the house and contents £900k of this, and various investments on top of the pensions worth another £700k or so. Using an online tool, my understanding is that if we both died the bill would be over £500k in tax for our children to pay.

Someone has told me that you can name children as beneficiaries on my pension plans, and therefore bypass our estate? My understanding is that this would mean we could save 40% of £400k, meaning a £160k reduction in this £500k tax bill?

A. What you have said is correct. It should be possible to name your children as beneficiaries of the pension funds’ fund value if you were to die before vesting your pensions.

Of course, it is important to check that your wife would not require these monies herself. Secondly, this strategy will only work if you were to die, and so although this is valid for now, you will need to think of other ways to mitigate this large tax hit.

One option is that you could simply insure yourselves on the second death for the amount needed to pay the taxman. In your case this could be quite cost effective for a 10 year period, when the life assurance would be reviewed and would likely become more expensive.

At this point you may wish to consider gifting money to the children, whilst ensuring you have enough for yourselves.

As ever we would recommend you seek professional advice to ensure that any decision you make is an informed one.

This week we have a guest article from specialist dental solicitor Edwin Ross. Edwin looks at a new twist for the sole practitioner – Who will get the practice if you die before retirement?

Take it away Edwin…

Are you a sole practitioner?  Have you ever considered what would happen to your practice in the event of your death?  Under general dental law, as a sole practitioner, on death your estate has three years to find a buyer.  But what if you have an NHS contract?

In those circumstances, your local primary care trust is obligated to provide continuing service for your patients. 

Your NHS contract is terminated seven days after your death, unless the PCT agrees with your executors to extend that time for three months.

The PCT can opt to extend this period to six months if they know of another contractor who can provide services you would have provided, but for your death.

To extend this PCT agreement, the BDA recommends: ‘In order to obtain this agreement, the personal representatives have to confirm in writing that they are employing or engaging another dentist or dentists, to provide units of dental activity, which would entail employing a locum.

This means that during an initial period of shock and grief, the personal representative(s) (which is likely to be the dentists widow or widower) will have to contact the PCT/LHB to gain their written agreement for continuance of contract.

For sole practitioners it is therefore recommended that their personal representatives are aware that they need to contact the PCT/LHB (include contact person and telephone number) within seven days and that the PCTs/LHBs written agreement needs to be obtained.

The PCT/LHB can also agree (but is not obliged to do so) that the contract can be continued for a further period of up to six months following the end of the three month period. 

The only reason for such an extension is that the PCT/LHB thinks that another contractor may wish to enter into a contract/agreement to provide the services. 

This obviously covers a situation where the practice is being sold and the PCT/LHB agrees that it will commission a service from the new owner (which may not necessarily be on the same terms).

In the event of your death, the continuance of the contract process is not at all geared to protect the goodwill value of your practice, or the interests of your family.  Organising a locum to cover your contract is a major responsibility but a short term palliative.

Making personal representatives (widow/widower or grown up children) aware they need to act quickly under tragic circumstances puts a huge responsibility upon the very people who need protecting.

To organise a locum, get PCT approval and decide how to proceed with the practice within three months is asking a lot of the family during a difficult time.

To avoid this situation, there are alternative possibilities available:

1. Set up mutual agreements with another trusted local NHS sole practitioner, either on a temporary basis to protect the practice on death or a binding agreement for the surviving dentist to purchase the deceased dentists practice (perhaps with each of them entering into a minority partnership in the others practice).
2. Forming a limited company to hold the NHS contract during your lifetime. This may not be acceptable to the PCT.  The PCT may require conditions to control the shareholding ownership of the dental limited company. Ensure a non-family member is appointed in your will to be a special executor, to appoint a locum and secure continuity of the practice, deal with the PCT and to seek the sale of the practice on the best possible terms.

The importance of making a valid will is abundantly clear.  By planning for your death, and appointing executors to ensure the continuance of your practice you are protecting your business, and your family.

Without a will, until the probate court has granted letters of administration to the next of kin, no one has legal authority to make decisions about your practice.  By the time letters of administration are granted, it may be too late to protect the family from losing the value of the asset, whereby the PCT would allocate your patients around other NHS practices in the area.

Edwin Ross is the founder of Edwin Ross Solicitors. You can contact him on 0161 720 7200 or email.

Key Considerations

Hi, it’s Ray again. I guess the easy part is reading this article. Just thinking about the implications should motivate all dentists into exploring their options and then to take action if necessary.

I encourage you to give Edwin a call to discuss your situation if you’re concerned at all. Edwin has kindly agreed to speak to any readers of this newsletter without charge, so it’s a great opportunity to pick his brain. Take action and call him today!

Not the most enlightening of subjects is it?

And not one you’ll probably discuss often, with either friends or family.

What’s that I hear you say?

Dying.

The good news is that I’m not going to take up the next few minutes of your life talking about how we might all eventually leave planet earth.

Instead, I want to spend the time talking about the financial impact upon your family and loved ones you leave behind.

What if you don’t have a Last Will and Testament? (and depending on which stats you believe, apparently 70% + of the UK adult population don’t have one). 

Law of Intestacy

This law dates back to 1925. If you die without having made a Will, your assets are distributed in accordance with this law and ‘statutory legacies’, which specify the amounts that are distributed to certain parties. The last time the amounts were reviewed was 1993.

The basic rule is that:

• the spouse or civil partner will receive personal chattels and the first £250,000 if there are children, plus a life interest on half the residue – the children receive a life interest on the remaining half and the surviving spouse’s half (capital) when they eventually die
• the spouse or civil partner will receive personal chattels and the first £450,000 if there are no children, plus half the balance
• parents/brothers and sisters receive the remaining half (in that order if they are alive, or the money goes to other relatives)
• make sure you check all the ‘small print’ of the law of intestacy as we have only covered the basics here (figures correct at 20 February 2009)

These amounts were actually increased on 1 February 2009 from £125,000 and £200,000 respectively. This followed a review by the Government that commenced in 2005.  

Last Will and Testament

Now, assuming you don’t want to leave things to chance your best option is to organise a Will. There are a few reasons for this:

• You can decide how your assets should be distributed and to whom they should go to
• if you have children you can appoint guardians to look after them if neither you or your spouse/partner are alive. You can also appoint trustees to look after your assets until the children are old enough to take responsibility for themselves

If you don’t have a Will, why not?

There may be a few reasons:

• it’s a bit of a depressing topic. Fair enough, it is. But we’re all going to die someday and actually making the Will won’t kill you!
• you think you’re too young. If you can vote or ask for a drink  (legally!) in a pub then you can make a Will
• it’ll take too much time. How can you know if it does unless   you’ve been though the process yourself? It’s quite straightforward to set one up so this excuse does not really  wash
• it’ll cost a fortune. Not quite. Depending on which solicitor you use you shouldn’t have to pay more than £100-200. If you are setting up 2 wills a discount may apply

One option is to set up a ‘DIY’ Will. This will be cheaper than going to a solicitor but if you get it wrong you’ll only have yourself to blame.

The most sensible option is to use a qualified solicitor. Yes you’ll have to pay a fee but at least you’ll have the peace of mind that it’s been set up correctly and in line with your wishes.

Key Considerations:

If you die without having made a Will you may end up leaving behind a ‘mess’ for your loved ones to clear up long after you’ve gone. If you see yourself as a responsible person (and don’t have a Will yet) maybe it’s time to get one set up.

Action Point

Contact your solicitor and ask them to begin the process of organising a Will(s) for you. If you don’t have a solicitor send an email and we’ll provide you the details of some reliable solicitors. 

Q. My brother and I am concerned about the Inheritance Tax situation regarding our mother. Her estate will be well in excess of £1.2 million, and although I am aware that she can now use our deceased fathers nil rate band allowance which helps, there will still be a tax bill of over £200k.

She is now in her 80s, and in good health. We have broached the subject, and she is keen to ‘stop the taxman taking her money’.

She has a very good pension which she does not spend, and around £400,000 in cash and various other investments. I have heard about a rule that means she can gift monies to us/grandchildren from the spare income she has.

Is this true?

A. Yes it is true, and those with income in excess of their needs should consider this option.

Regular gifts from after-tax income, such as a monthly payment to a family member, are exempt as long as the giver still has sufficient income to maintain their standard of living. 

These gifts need to be habitual, and you should keep a record of them compared to your mother’s expenditure to prove that she does not need this income. When making the calculation between what she needs and her post tax income, you can also build in the interest from any cash deposits.

These gifts also do not form what is known as a Potentially Exempt Transfer (PET). This is a rule whereby if your mother died within 7 years of making a gift, there would be some tax to pay. So she could make lump sum gifts in addition to these smaller gifts.

Taken together, you should be able to adopt a strategy whereby at the very least the problem is not getting worse, where her wealth is constantly rising as she saves her unused income.

You could also ask her to spend more!

As from 1st October 2007 the Mental Capacity Act 2005 came into force, affecting a large number of people, their families and advisers. In particular, one of the biggest impacts came with Lasting Powers of Attorney replacing Enduring Powers of Attorney. It is no longer possible to set up an Enduring Power of Attorney, although if you set one up before 1st October this should still be valid provided it was properly executed.

What is a Lasting Power of Attorney?

A Lasting Power of Attorney (LPA) is a legal document that enables you to appoint one or more persons of your choice to handle your financial affairs and property, either now or in the future.

You can also set up a separate LPA which appoints someone to deal with your welfare and personal affairs (i.e. where you live, the care you receive) and even to make decisions about the medical treatment that you receive should you lose your mental capacity. 

Why do you need one ?

Nobody knows what the future holds and situations can arise, such as failing health where you are no longer able to take care of your own affairs. If nothing formal is in place, your assets can go into limbo as no one would be authorised to access them and this can, of course, create difficulties where there are bills to be paid.

Similarly, if you lose your mental capacity, you may wish to nominate somebody to make decisions in relation to your welfare and/or healthcare to ensure your needs are properly looked after.

Who can act as my Attorney?

Anyone who is over 18 years old can be nominated. It needs to be someone you trust implicitly and who will put your needs first. It is quite normal to appoint a trustworthy and responsible member of your family who lives close enough to you to be able to give the necessary assistance. In certain circumstances it can be helpful to appoint solicitors to act as your Attorney, but this and the likely costs of their appointment need to be fully explored before a decision is taken.

Can I have more than one Attorney?

Yes, you can appoint more than one Attorney. If you appoint more than one person to act as your Attorney they can be appointed to act either “together” or “together and independently”.  If they are appointed to act “together”, then this will mean that they all need to act unanimously at all times (for example all signing cheques). If they are appointed to act “together and independently” then any of them can act separately or together. You can even stipulate that your Attorneys must act “together” in relation to certain decisions and “together and independently” in relation
to others.

Can you restrict the powers that you give to your Attorney(s)?

Yes. If you wish, you can restrict their powers to specific acts such as managing your investments, selling your house or simply paying routine domestic bills. Alternatively, if you choose to give them wider powers, the Attorney(s) can do anything which you would have been able to do yourself. You can also include guidance on how they should manage and look after your affairs.

Registration at Court

Your appointed Attorney(s) cannot act upon your behalf until the LPA has been registered at the Office of the Public Guardian (whether or not you are mentally capable). Once registered, your Attorneys are permitted to act upon your behalf should this be desirable or indeed necessary. 

What if you don’t make an LPA?

Your family would have to apply to the Court of Protection (which oversees the affairs of people who are not mentally capable of doing so themselves) for the appointment of a Deputy to look after your affairs. This is an inconvenient, long and costly business compared with the ease of thinking
ahead and preparing an LPA now.#

Key Considerations:

Establishing a Lasting Power of Attorney is relatively inexpensive when you look at the alternative of applying to the Court of Protection. Really, it’s simply a case of being prepared for what could happen to any of us at any point of our lives.

ACTION POINT

Setting up an LPA is relatively straighforward. Taking action is the key and knowing who to turn to for expert advice on setting one up is crucial. The cost of setting up an LPA is usually between £100 – £200, excluding registration fees. 

If you would like us to refer you to a solicitor, just contact us and we’ll give you the details.

# Thanks to Susannah Griffiths of Wall James & Davies solicitors for providing the main content for this article.

We have many clients who have either bought in Spain or the Balearics, or are thinking about doing so.

In the past few years, there have been some changes in how the Spanish government tax those who are UK based and have a Spanish property, although with a change of government this could alter again.

Here we will look at two aspects – Wealth Tax & Inheritance Tax.

Wealth Tax

This applies to ownership of assets less any allowable charges or debts. Assets include immovable property, cars, cash, shares, jewellery etc. Therefore wealth tax is calculated on the net wealth of an individual less properly registered mortgages, charges and loans.

Non-Spanish residents are liable to wealth tax solely on assets located in Spain. It also means that any allowances that Spanish residents qualify for do not apply to a non-resident. So tax commences on all the assets held in Spain for a non-resident.

The way the property is valued, and most wealth is normally held here, is based on the higher of:

- the rateable value
- the acquisition cost
- official valuation undertaken by the tax authorities

There are special rules for valuing bank balances as well as other assets.

So what are the rates of tax?

Well, they are annual and range from 0.2% (up to 167,129 euros) to 2.5% (exceeding 5,347,998 euros). Perhaps the most common bandings might be 167,123 to 334,246 euros where the tax is 0.3%, and 334,246 to 668,499 euros at 0.5%. The tax is graduated, so you do pay the lower amounts up to the next banding level and then the higher level on the next etc.

So if you have a property valued at say 400,000 euros, your annual tax bill would be 1165 euros. Not the end of the world, but important to keep in mind.

Inheritance Tax (IHT)

This tax is assessed on the recipient – the heir – and if a non resident would normally be taxable on Spanish assets only.

One of the main things to grasp here is that there is NO spousal exemption. So if you jointly own a property, and one of you dies, the surviving spouse is subject to tax on the half value!

Rates of tax range from 7.65% on up to 7,993 euros, to 34% above 797,555 euros. It is then subject to another calculation based on the heir’s relationship to the deceased as well as their own wealth.

So, as a rough example, if the deceased spouse’s share was worth 160,000 euros, then the IHT would be circa 23,000 euros.

A very important action point here is to ensure that you have a Spanish Will, and that you inform your UK solicitor of the fact to ensure the Wills are linked. Then Spanish law deals with Spanish assets and UK law with UK assets.

The main benefits of making a Spanish Will are:

- there would be delays, extra work and costs involved in relying on a UK Will for the disposal of your Spanish assets

- If you do not have a Will and die intestate, then the assets will be distributed as per the intestacy laws. This means that third parties decide who inherits your assets, and many countries favour children over spouses

- If you are a non-Spanish national your Spanish Will can also specifically state that you wish your Will to be regulated under your own nation’s laws

It should also be noted that having a loan held against the Spanish property would reduce the taxable IHT element.

This is based on our current understanding of Spanish Law.

The advice above is not meant to cover all aspects of buying in Spain, and please ensure you take reliable professional advice.

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Key Considerations:

If you plan to invest abroad, make sure that you take all factors into consideration – informed choice every time.

ACTION POINT

If you have a Spanish property, look to have any borrowings based in Spain, and if you do not have a Spanish Will, do it now and link it to your UK Will!

Since Alistair Darling’s Pre-Budget Speech on October 9 2007, there have been a number of reports in the press stating that will planning using the nil-rate band of the first of a married couple to die will no longer be necessary as you can now transfer the nil-rate band between spouses and civil partners.

(The Nil-rate Band is currently £300,000, and upon death a tax rate of 0% applies to the estate value up to this amount).

This is generally true, but there will still be a number of occassions when you may want to establish a dicretionary will trust:

1. Where a partner wants to benefit their children from a former marriage on first death.

This could be achieved using a life interest trust in the will, with income payable to the surviving spouse and capital to the children from the first marriage. The downside to this route is that it lacks flexibility, especially if there is an intention to make capital payments to the widow or widower by way of an interest-free loan.

2. Where there may be a desire to avoid assets being available to the local authority in the event of the survivor going into care.

By leaving assets to a trust on first death, those assets will not count as part of the surviving spouse’s resources for the purposes of the local authority charge. Indeed, the split ownership of certain assets between the trust and surviving spouse may reduce the value of the asset in the hands of the surviving spouse (for example in the case of a private residence).

3. Where it may be desired to avoid children inheriting assets outright.

By passing assets to them via a trust, it will mean that they are protected from the claims of creditors and ex-spouses.

4. Where further Inheritance Tax could be available by the trustees of the will trust making loans to the surviving spouse.

This creates a debt and so reduces the taxable estate of the survivor on his or her subsequent death (however be aware there could be a restriction on the ability to deduct the loans from the survivor’s taxable estate. 

Summary

These are just some of the issues that need to be considered when drafting a will and giving thought to whether a nil-rate band trust should be inserted in the will or assets left outright to the surviving spouse/partner.

What if you have already set up a Discretionary Will Trust?

It is thought that the most flexible route will be to retain the trust in the will and then review matters after the first death.

Key Considerations:

Tax and will planning can be quite a technical subject, therefore it is VITAL that you get the right professional advice from an expert who can guide you through your options.

By being proactive you could soon be utilising estate planning strategies that you didn’t even know existed!

ACTION POINT

If you would like to be referred to an expert in this area, email us and we will pass the contact details to you.

Contributions made to this article from John Woolley of Technical Connection.