Estate Planning, Wills and Trusts

Research into the number of people in the UK who have made a Will is carried out regularly by organisations such as insurance companies. The data consistently shows a high proportion of adults don’t have a Will. In 2020 31 million people did not have a Will including over 51% of those aged 55-64. Reasons for not doing so include the belief that they have nothing worth leaving in a Will, that they had simply never considered making a Will or that they were just too busy. For those left behind this can be difficult to manage and it may mean that any assets you have may not go to the person/people of your choice.

At DMH Stallard we would always advise clients to make a Will – whatever stage of life they are at. There are many reasons to make a Will. These range from making things more straightforward for your loved ones when you die and a more efficient administration of your estate to being able to appoint guardians of your choice to look after your children. Chiefly however, when you make a will you avoid dying intestate when a strict set of rules are applied to the division of your assets. While the rules are perfectly adequate in certain instances, in our experience they can have unintended consequences and can result in your property being distributed in a way that might be contrary to your actual wishes. For example, if your estate is worth over a certain amount your spouse will not automatically inherit everything – assets will be divided between him or her and your children.

It might appear to go against the basic principle that executors have a duty to respect the last wishes of the deceased as expressed in his or her Will. However, in certain situations it is possible for a beneficiary of a Will to decide that his or her inheritance should go to someone else. The decision is normally formalised in a deed of variation (also known as a deed of family arrangement) but it can also be reflected in a letter sent to HMRC. In all cases the request to vary the terms of a Will must meet a series of conditions. These include:

• Beneficiaries left worse off by the changes must agree and sign the variation document
• The variation is dated within two years of death
• A clear statement of which inheritances are being altered and how they ae being altered is contained in the document
• There is statement as to whether the beneficiary whose inheritance is being reduced has been compensated in another way (with non-estate assets)
• Reasons for varying the terms of a will include:
• Reducing the amount of inheritance tax or capital gains tax payable – although to be tax efficient, precise conditions must be met
• To make provision for someone who was left out of the will
• To move the deceased’s assets into a trust
• Clearing up any uncertainty over the will
• To benefit a charity

It’s also possible for a beneficiary to reject or ‘disclaim’ his or her inheritance. In such cases, unlike under a variation, the beneficiary does not get to choose where to direct the share of the estate he or she would have inherited. Instead, the portion of the estate disclaimed goes to the next person entitled under the will.

Trusts are a commonly used legal vehicle to manage assets for named beneficiaries or class of beneficiaries. The trust assets are held and managed by the trustee(s) for the beneficiary in accordance with the powers given to them by the person who provides the assets and creates the trust (the settlor).

At DMH Stallard we advise on a wide range of trusts, including trusts set up in wills (will trusts).

Situations when you might wish to include a trust in a will include:

• When you are leaving your estate to younger members of your family, and you would prefer that they do not get control of their inheritance until they are mature enough to handle the assets sensibly
• When your assets are being left to children (those under 18)
• As a way to minimse your liability for care home fees
• When you have remarried or have a partner, but you want children from an earlier marriage or relationship to inherit the bulk of your estate
• When you are leaving assets to a vulnerable or disabled individual who is unable to look after the property in their own

Assets placed in trust are still subject to taxes, including inheritance tax, although the tax payable will depend on the nature of the trust, the beneficiaries and when the trust was set up.

When we are preparing wills and associated legal instruments like trusts and LPAs, the question of how to reduce inheritance tax liability often comes up. The portion of your estate above the ‘nil rate band (NRB)’ for inheritance tax (£325,000 in 2023) is subject to tax at 40%. Crucially, the inheritance tax regime is often subject to change, and our clients will always benefit from the most up to date and relevant advice for their situation. We provide specialist advice on the full range of inheritance tax reliefs and exemptions available to individuals, including;

• Spousal exemption – anything left to a spouse or civil partner is exempt from inheritance tax
• Transfer of any unused NRB to spouse
• Use of residential nil rate band (RNRB) by leaving a residence to a direct descendant
• Making gifts with favourable tax treatment such as gifts to charity
• Use of business relief (BPR) and agricultural property relief to reduce inheritance tax on qualifying assets

As part of our overall advice on inheritance tax and estate planning, we can also guide you on the most efficient way to dispose of property during your lifetime so that you reduce the value of assets that will be subject to inheritance tax.