Charitable Benefits - How to Save 4% IHT

From 6^th April 2012 the government is introducing new IHT legislation in the form of the Finance Bill 2012 that could affect anyone planning to pass a proportion of their estate to charity. Gifts to charity are already exempt from IHT but the new rules mean that the rate of IHT on the rest of the estate can be reduced from 40 per cent to 36 per cent. So, although the charity will receive the same amount, the non-charitable heirs should be better off under the new measures.

However, the new rules are complex and careful advice should be given as to how they will apply in each client’s circumstances. On death an estate will be divided into different components for tax purposes – each of which needs to be looked at separately. These are: property held jointly as joint tenants; property held in a trust that is treated as part of the estate for IHT purposes; and a general component – which is essentially everything else.

Within each of these components any reliefs or exemptions, such as the available proportion of the nil-rate band, which will be deducted first to ascertain the chargeable element. The charitable gift is then added back in to reach the “baseline amount”. If more than 10 per cent of the amount (after exemptions) within one component passes to charity then the reduced rate of 36 per cent will apply to the rest of the assets within that section.

Example 1

Let’s assume the survivor of a married couple dies after April 5 2012 leaving an estate of £1m, and that person’s Will leaves £50,000 to charity and the rest of the estate to their children.

After the combined nil-rate bands of £650,000 are taken into consideration the “baseline amount” here would be £350,000. This means that the £50,000 charitable gift comes to more than 10 per cent of the baseline amount so the reduced 36 per cent rate of IHT will apply to the bequest to the children.

As a result, the IHT liability is reduced to £108,000 instead of £120,000; the charity receives £50,000; and the children receive £842,000 – which is £12,000 more than they would have received under the current rules.  Even though the amount passing to charity is less than 10 per cent of the overall estate the reduced rate applies because it is more than 10 per cent of the “baseline amount”.

An added complication is that even a charitable gift under the survivor’s will of say £25,000 (which is less than 10 per cent of the “baseline amount” of £350,000 for the estate) could trigger the reduced rate of IHT if the estate consisted of more than one component.

Example 2

For example if, rather than passing outright, the assets of the first to die were held in trust for the surviving spouse (a common scenario to offer asset protection and tax savings) the estate would be split into two components. This means each component would be £500,000 and the “baseline amount” for the general component would be £175,000. As £25,000 is more than 10 per cent of £175,000, the reduced rate would apply to the rest of the assets passing under the survivor’s will.

It should be noted that the residuary beneficiary will always receive less as a result of the charity legacy both under the present and the proposed systems, but the reduction in the rate of inheritance tax will no doubt encourage more charitable giving which is part of the Government's background policy.

Lasting power of attorney for businesses

I just read this great article on EN the magazine for Entrepreneurs website http://www.enforbusiness.com/smetoolkit/lasting-power-attorney-businesses
it explains why as business owners we need to put provision in place to make sure our businesses can continue should we loose mental capacity.  Call me to discuss in more detail.

Linda Cummins, head of wills at legal firm Goldsmith Williams, explains that company owners should make arrangements to ensure their business continues to operate in the event that they become incapacitated.
If there are no plans in place for someone to have the legal authority to sign cheques and oversee the running of the business, there is every possibility that by the time the Court appoints someone to run it on behalf of an incapacitated owner-manager, the business will failed.
A lasting power of attorney, often referred to as an LPA, is a legal document that enables a selected person, or persons, to take over the day-to-day running of a business should the owner be either mentally or physically unable to do it themselves.
A common mistake many people make is to assume that because they have a will, everything is in order. In fact, a will only takes effect on death; it has no bearing on your business if you lose the capacity to run it but are still very much alive.
Accidents and illnesses that leave people incapacitated or hospitalised for extended periods can strike at any time and any age. According to the Department of Transport Road Casualties Annual Report, 22,660 people were seriously injured in road traffic accidents in 2010.
Over 130,000 people in England and Wales suffer a stroke each year, with around 10 per cent of those being under retirement age. One person in every 500 has Parkinson’s and, of those diagnosed, one in 20 is under the age of 40, while more than 16,000 younger people in the UK are living with dementia.
A lack of knowledge or "ostrich syndrome" is putting businesses at risk of being left in limbo or going under. People tend to think things like this will never happen to them or they have to be old before they suffer a debilitating illness, but "thirty somethings" are no more immune to injury or illness than the rest of us.
And it’s not just the business that will be affected either. The family of the company owner will be left unable to access funds to live off, adding considerable financial worry at an already very distressing situation.
By Linda Cummins

Need a Will but not sure how to go about it?

Do you want to tackle sorting out your Will but don’t know where to start?

Worried about the best way to go about it?

These are the worries of a lot of my clients have until they realise that the process is not as daunting as they first think.

I will visit you at a time and place that suits you, we will then talk about what you have and who you want to leave it to. 

You need to make some decisions about who will carry out your wishes – your Executors and who will look after your children should both parents die before they are 18 – your Guardians. 

But it is my job to guide you through this decision making process and advise you on the best way to express your wishes in your Will.

I have made it sound simple because with the right Will writer guiding you it can be a simple process and give you peace of mind and leave you with the feeling of “Why didn’t I do this years ago”.

Contact me now to discuss your individual needs and get your Will sorted out because without it the law dictates who gets what and Social Services will decide who will look after your children.

Worried about your kids losing out if your spouse remarries after your death.

A Solution - Flexible Life Interest Trusts

A Life Interest Trust (LIT), also known as an Interest in Possession Trust, is a document that names one or more beneficiaries to an estate and their entitlement to an income from assets held in trust over their life time.

This person is known as the Life Tenant. If that asset is a house or property, then the

Life Tenant is entitled to either the rental income on the property, if it is rented out, or to live in the property if they wish to.

However, a Life Tenant is not entitled to receive any of the remaining capital from the Trust. The Trust can also name other beneficiaries who are entitled to the assets in the Trust once the Life Tenant has died. They are known as Residuary Beneficiaries or Remainder men. However, while the Life Tenant is alive they do not receive anything

from the Trust unless the Life Tenant agrees to a distribution of the assets. LITs are designed to protect the children of a marriage or Civil Partnership in the event

that one partner dies and the other remarries.

You can also make specific requests or instructions on a Life Interest Trust. As a Trust is overseen by Trustees, you can give them specific instructions as to how you

would like the Trust to be managed. For example:

You can give the Trustees the power to either give or lend capital from the estate to

the Life Tenant at their discretion. Where a property is involved, you can specify

that if the Life Tenant wants to vacate the property they can then direct the Trustees to

sell that property and buy another for the Life Tenant to occupy and you can give

specific instructions as to how you would like any capital in the Trust to be invested.

Taxation A Life Tenant is treated as owning all of the assets held in Trust. Any income (such as rent) from the Trust belongs to the Life Tenant and is therefore taxed according to the beneficiary’s personal income tax rate.

No additional income tax is paid by the Trust. One major advantage of the LIT is that it protects the assets in the Trust from being used up during the lifetime of the Life

Tenant. So if a Life Tenant goes into full time nursing care, the local authority cannot take the assets in the Trust to pay for the care of the Life Tenant.

A Life Interest Trust is particularly useful if a couple have children and want to make sure that they benefit from the estate of either partner.

This can be contrasted with a trust which simply gives a right to reside in the property.

A trust of this nature does not give the occupant a right to income from the trust and is not therefore taxed as an income in possession trust.

Family Planning

Been advising a clients family the best way for them to protect family assets and make sure they are available to pass down the generations. 
So many families are worried about losong assets to the tax man or the local authority to pay for long term care fees. 
If you are also worried about this lets have a chat about the best way for you to protect your assets for your children and grandchildren.

Your Will needs to deal with Your BUSINESS!!

Your hard work and dedication to your business has meant that over the years you have built up a business for the benefit of your family, and on death you want to ensure that your family and loved ones are provided for.

But who would actually be entitled to your share of YOUR BUSINESS?

Certain restrictions may apply dependent upon whether the business is operated as a Sole Trader, Partnership or as a Limited company.  In the case of a Limited company, what happens may be pre-determined by the memorandum of articles. They could state that other shareholders have the right to buy out your interest. If you wanted one of your children to inherit your interest in the company this may not be possible without further planning.

As a Sole Trader you may wish to leave your business to your child who works with you, and then divide the rest of your assets between your other children. Unless this is set out within your Will a family dispute could quickly arise if the other children feel they ought to be entitled to a share in the family business too.

If you die without a valid Will, your share of the business would be subject to the Laws of Intestacy and the person who inherits may not be the person you intended or may be someone who is unsuitable to carry on your business.

It vital that your Will clearly defines what happens to your interest in your business on death.  Your Will needs to ensure your beneficiaries are able to inherit your interest, your company can continue to operate and this is dealt with in the most tax efficient way.

It is essential that you have a Will and that the Will reflects your own business situation.  Ideally you should have put in place a succession plan that does not depend solely upon your death but which provides for the situation where you are unable to manage the business due to ill health or infirmity.

Gifts to Children - a Cautionary Tale

When writing a Will it is highly possible that the client will want to make a gift to a minor, or there could be the possibility of a minor inheriting under a per stirpes clause. It is very important to consider what actually happens with such a gift and who should act as a trustee in such circumstances.

Money can bring out the worst in people as Claire Sproston found out after discovering her father and stepmother had stolen the inheritance she had been left in her grandfather’s Will.

Miss Sproston’s grandfather, Benjamin, passed away when she was just 13 and had made a Will naming his six grandchildren as Beneficiaries, each receiving an equal share of his £50,000 life savings.   Miss Sproston’s inheritance was placed in trust until she turned 18.  When she reached the landmark age, Miss Sproston enquired about the money only to be told by her father, Nigel, that he changed the trust and she would have to wait until she was 21 to receive her inheritance.

It was only after Miss Sproston consulted her cousins that she realised something was afoot and that her father would not have been able to alter the terms of the trust. She promptly went to see a solicitor who discovered the sad truth; her inheritance had gone.

Nigel Sproston and wife Jane were found guilty of fraud at Cardiff Crown Court and jailed for ten and nine months respectively.  The couple lied to solicitors and an investment company as well as forging Miss Sproston’s signature in order to get their hands on the £13,000 inheritance.

The Telegraph reported that Nigel Sproston, who pleaded guilty to fraud, told police he “spent £2000 of it paying off debts, £5000 on a holiday for myself, gave £1500 to charity and the rest just got frittered away.” His wife denied the charge but was found guilty nonetheless. Speaking after the verdict, mother-of-one Miss Sproston, now 22, said: “I’m still denying to myself, really, that either of them could have done what they did. When I first found out what my father had done, he told me he did it out of anger because we were naughty as kids.” “My dad has never told me what he did with my money. I don’t know if I will ever get it back.”

Although the subject can sometimes be a difficult one to raise with clients there should always be a discussion about the suitability of the trustees. If there is any doubt they should consider appointing a professional trustee to manage the fund.