Inheritance Tax Planning for Unmarried Couples

Inheritance Tax Planning for Unmarried Couples

By | Inheritance | No Comments

The legal position of cohabiting couples varies to that of a married couple and they do not receive some of the benefits that married couples receive. Inheritance tax planning that is common place and simple for married couples may not therefore be the best option when it comes to unmarried couples. A married couple can easily leave everything to each other IHT free and on the death of the second benefit from two Nil Rate Bands (NRB) (and potentially two Residential NRBs). Unmarried couples however do not benefit from either the spousal exemption for IHT or the transferable NRB. The estates of an unmarried couple leaving everything to each other would therefore be considered for IHT on both first death and second death and without the benefit of two NRBs on second death. This could lead to an unnecessarily high IHT charge on second death. Example John and Jane are…

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IPDI vs FLIT

By | Trusts | No Comments

Complex families often come with complex requirements to meet their long-term goals, and matters can be made more difficult when each testator has separate goals or concerns in mind. These goals usually revolve around the inheritance the children are to ultimately receive and when they receive it, and it certain cases, if they inherit at all. Using a Life Interest of the Residuary Estate can cater for most family needs for a number of reasons; On first death, the surviving spouse will be the Life Tenant. They will be entitled to all income generated by the trust and the trust can allow them access to the use of capital at the Trustees’ discretion if desired; All Life Interest Trusts allow the use of the Transferrable Nil-Rate Band (TNRB) between spouses; Each testator can appoint separate beneficiaries from each other; If the Trustees are given the power to advance capital, it…

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Replacement Attorneys on a Lasting Power of Attorney

Replacement Attorneys on a Lasting Power of Attorney

By | LPA | No Comments

Under an LPA, the donor can name specific replacement attorneys that will step in to act in certain situations. When the replacement attorneys step in will depend on how the original attorneys are appointed. Replacing a sole attorney Replacements attorneys will start acting as soon as the original attorney is no longer able to act (i.e. death, mental incapacity or disclaims). Unless the LPA says otherwise, the replacement attorneys will act jointly. Replacing attorneys acting jointly Replacement attorneys will step in to act as soon as one original attorney is no longer able to act. The remaining original attorneys will no longer be able to act. If multiple replacement attorneys are appointed, they will also act jointly, unless the LPA states otherwise. Replacing attorneys acting jointly and severally Replacement attorneys will step in as soon as one original attorney is no longer able to act. The replacement attorneys will act…

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Advance Decisions and Health and Welfare LPAs

Advance Decisions and Health and Welfare LPAs

By | LPA | No Comments

An advance decision is a decision made by a person refusing consent to the giving or continuing of certain medical treatments. This statement is made whilst they have mental capacity, in anticipation of a time in the future when they no longer have capacity. Advance decisions are also commonly referred to as an advance decision to refuse treatment, a living will or an advance directive. As they deal with medical treatment after a person has lost capacity, there is overlap between them and a health and welfare LPA. The exact relationship between the two documents depends on which document was created first. If an advance decision is created after a health and welfare LPA, attorneys cannot consent to any treatment refused in the advance directive. Being the later document, the advance decision will overrule authority granted to the attorneys over those specific decisions. If a health and welfare LPA is…

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Survivorship Clauses and Commorientes

By | Inheritance Tax | No Comments

Survivorship clauses between spouses will often include provisions so that the survivorship period will not apply if they both die in circumstances where it is uncertain who survived the other, for example in a plane crash. The reasons for this inclusion is a very specific inheritance tax advantage where spouses die together, and it cannot be determined which of them died first. In succession law, it is impossible for two people to die at the same time. Instead, S184 Law of Property Act 1925 provides that where the order of deaths are uncertain, a younger person is presumed to have survived an elder person. This is known as the Commorientes rule. This presumption applies to gifts by Will and assets passing by survivorship under a Joint Tenancy. It does not apply to assets passing by intestacy. For the purposes of calculating inheritance tax however, it is possible for people to…

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Potentially Exempt Transfers

By | Gifting | No Comments

Gifts made during lifetime may be considered when calculating IHT on death if they do not fall into any of the inheritance tax exemptions and allowances (see our previous newsletter). These are known as Potentially Exempt Transfers (or PETs). To be considered as a PET, the gift must be either a gift to an individual, to a disabled person’s trust or finally if an Interest in Possession (IIP) trust comes to an end but continues as a disabled persons trust. If the giver dies within 7 years of making the PET, the gift will become chargeable and be considered as part of their estate on their death. The deceased’s NRB will firstly be applied towards any PETs. If a person has made multiple PETs, NRB will be applied to the earliest PET first. If there is any NRB leftover, it will then be applied to the next PET until NRB…

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Powers to Carry on a Business

By | Business | No Comments

Clause 4.8 of the STEP Provisions (second edition) contain limited powers to allow the trustees to carry on the trading of any business interests which the testator may have at death. Where the testator was a sole trader, through these provisions the trustees have an implied power to continue the business in order that it is then sold. This power is only limited to realising the value of the business and through the implied power; this cannot continue indefinitely. Generally, the trustees running the business would be liable for any debts which they may sustain. If the business is only being carried on to realise the value then through the STEP Provisions the trustees have the right to an indemnity from the estate, which gives precedence to the testators creditors and also the beneficiaries. For this reason, it is recommended to include the Powers to Carry on a business clause…

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Inheritance Tax Review – An Update

By | Inheritance Tax | No Comments

Potentially changing the Inheritance Tax regime is big news at the moment and the past few weeks have provided some interesting developments. As mentioned in a previous article, the Chancellor of the Exchequer has requested that the Office for Tax Simplification carry out a review of the Inheritance Tax regime. Soon after this, the Office of Tax Simplification provided a scoping document for the review. On 27th April, the Office for Tax Simplification provided their call for evidence. This call comprises of two parts. Firstly, there is an online survey aimed at the public directly to access the public’s practical experience or understanding of Inheritance Tax. Secondly, the Office for Tax Simplification has also provided a set of consultation questions aimed at the public, professionals and business owners. These questions cover areas such as: Difficulties in completing IHT Forms Difficulties in administering an estate and completing probate Interacting between lifetime…

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Partial LPA Revocation

By | LPA | No Comments

After an LPA has been signed, it could be several months or years before the document is registered with the Office of the Public Guardian (OPG), or before they even need to be used. During this time the circumstances may change, and the donor may decide that he/she no longer wishes for one or more of their attorneys to act on their behalf, or an attorney may decide they no longer wish to act. In exceptional cases, an attorney may believe that another attorney is no longer trustworthy and does not wish that attorney to act. The solution to these issues can depend on the exact circumstances at the time, such as if the donor has capacity or not, or if the LPA is registered. If the donor still has the capacity to make decisions, and the LPA is unregistered, they have two choices. They could write a Partial Deed…

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Mutual Wills

By | Wills | No Comments

Mutual wills are wills made between multiple parties in which they are making some mutual benefit to the other parties and the parties involved agree that the wills cannot be revoked with the consent of the others. On the death of any of the parties the survivors will be bound by the terms of the mutual wills. Mutual wills are most commonly made between spouses, gifting assets to each other on first death and then over to children on the death of the second. Whilst all parties are alive, they can change their minds at any time and revoke the mutual wills. Once one party to this agreement dies and the others accept their benefit from the deceased’s Will, the agreement not to revoke becomes binding on the other parties. On the face of it, this seems beneficial, however mutual wills have numerous issues. There is no flexibility for the…

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