Will You Miss Out?
It is quite a while since I can remember as much political turmoil as we are currently experiencing. It seems as if a day is a long time in politics never mind a week. Given this background, this month I thought I would lighten the mood and focus on something a bit more certain – death.
In the last tax year Inheritance Tax (IHT) raised a record £5.4bn for the Exchequer, which is more than double the £2.4bn raised in 2009/10 and is the ninth successive year that the amount raised has increased. As the post-war baby boomers move further along their perches, you can expect these figures to rise dramatically in the years ahead and IHT to bring in an even greater percentage of revenue than it does at present.
Last year the government expressed “surprise” that the tax raised increased, as the introduction of the residence nil rate band (which, in simple terms, this year gives those with estates less than £2m, and own, or have owned, their home, and have children, a further £150,000 on top of their £325,000 nil rate band) was expected to bring a reduction in the amount raised.
However, I suspect there may be a reason why this was not the case.
In October 2007 the government introduced the transferable nil rate band. This meant that for a married couple, or those in a civil partnership, when the second of the couple died they would not only have their own nil rate band, but also whatever was unused from their deceased spouse.
This was a major change and meant that in the vast majority of cases, Will Trusts that had until then been the most effective way of using the nil rate band of the first to die, were redundant. If you are interested I wrote about this in my Informing You in October 2009, and at the time suggested anyone who had such a Trust in their Will purely to use the nil rate band have them re-written and in the vast bulk of cases simply leaving everything to the surviving spouse would make most sense.
I have since come across a number of cases where clients have believed their Wills left everything to the survivor only for me to find that a Discretionary Trust was still within the Will. Why is this so important? Well it can mean that it is not possible for the estate to claim the residence nil rate band (saving up to £60,000 of tax) as this is only claimable if the assets are left to a direct descendant which a Discretionary Will Trust is not.
As well as this, unless having a Trust in place is necessary to provide some sort of protection for the assets, or beneficiary, they are in general, a pain in the you know what, as any of you that have been involved in one can probably attest. If the same benefit can be provided without having a Trust structure and the additional costs and hassle they bring then I would advise avoiding them.
The problem is that some Wills are written in a language that anyone outside the legal profession finds difficult to follow. I have to say this is not always the case and I have come across a number of easily understood Wills which of course benefits everyone. However there are still too many that appear to have been written in Middle English.
In general if you have not updated your Will recently and looks as if it could have been written by Geoffrey Chaucer, it may be worth having a professional look it over. Who knows, spending a few hundred pounds on a new Will could end up leaving £120,000 more in your family’s pocket and not the government’s.