Mills Chody - solicitors LLP

 

Wills and Estate Planning

WHY MAKE A WILL?
INTESTACY
MAKING A WILL
EXECUTORS
INHERITANCE TAX
CHILDREN
UNMARRIED COUPLES
GIFTS OF HALF-SHARE OF HOUSE
SECOND MARRIAGE
LASTING POWERS OF ATTORNEY
AND FINALLY …
ANSWERS TO FREQUENTLY ASKED QUESTIONS

Mills Chody is an established legal practice. Based in Harrow and Pinner we act for clients throughout Middlesex and North West London. We provide a comprehensive range of legal services to business and private clients - Wills, Estate Planning and Executorship services are but one area of our expertise. Our traditional professionalism combined with the latest technology enable us to provide an exceptional service to our clients.

Hugo Hodge is the partner in charge of our Wills, Probate and Tax Department and is your immediate contact.

WHY MAKE A WILL?

For most of us, working or retired, leading busy lives, making a Will does not appear very urgent. There is every expectation of living for years and no sense of urgency about arranging our affairs. However, no one regrets writing a Will - but thousands regret that someone close didn't. Quite unintentionally, many people die without a Will leaving behind legal problems for their families and dependants which may take years to resolve - problems that are largely avoidable. The dependants may face a period of financial hardship and uncertainty; in some cases the family home may be at risk.

You need to be aware that if you do not make a Will stating your intentions, the law will decide for you. Your estate may pay inheritance tax unnecessarily and your surviving spouse or children may have to share the estate with someone that you do not wish to benefit.

Save for this operation of law, nothing happens "automatically". Husbands and wives assume, quite wrongly, that the surviving partner as next of kin will inherit everything. This will be true only with a particular kind of jointly-owned property or a modest estate. In any other case, in order to ensure that your wishes and intentions are carried out, you must make a Will.

The future guardianship of your children is another consideration. In the unfortunate circumstances of both parents dying before your children reach the age of eighteen, it is important that legal guardians have been appointed with appropriate financial provision until the children reach eighteen. All of this should be embraced in a Will.

Even if you have no immediate family, it is still important to leave a Will so that you, not the law, decide who will inherit your property.

INTESTACY

If a person dies without making a Will, this is called "intestacy". The person who dies without a Will is called "the intestate".

Where you leave no Will the law provides that certain people who survive you will be entitled to your "estate". Your "estate" is everything you leave on death; for example your house, car and all your belongings.

Whilst these rules are reasonably fair they can cause problems within a family, particularly where the surviving spouse and children are sharing the estate. Trusts for minor children can arise and cannot be broken until the children are over eighteen. A similar situation exists where there are no children but surviving parents share the estate with the surviving spouse.

Further, those who live together, but are not married, have no automatic rights if there is no will. Conversely, if a couple are separated but not divorced, someone may have rights which are no longer desirable.

Finally, there is the job of finding distant relatives where they are to benefit. This can be time consuming, expensive and frustrating for those awaiting a final settlement. It can mean hardship, unnecessary expense and friction. In short, without a Will your money can go to those who did not expect it at the expense of those most entitled but with no legal claim to it.

MAKING A WILL

Mills Chody LLP have many years experience in dealing with all aspects of wills and Executorship and can provide independent advice on how you can best plan your Will to suit your needs. We can advise you in the kind of solutions that have been developed for common problems. Our experience and clarity of thought can assist you in finding solutions to what are sometimes quite complex family problems.

We can discuss these services with you at the office or by appointment in your own home, without obligation. The discussion includes a review of inheritance tax and advice on how to avoid it within current legislation. Fees are realistic and competitive, and the service provides the necessary combination of flexibility and personal service.

EXECUTORS

When making a Will, you need to decide who will be responsible for carrying out your wishes.

Those appointed are your Executors. By appointing the right Executors you can ensure that your dependants will receive support and advice both immediately and in the longer term.

Administering an estate is a complicated blend of the highly personal and the deeply legal. It is usual, therefore, to appoint at least two Executors, one from the family circle - probably the main beneficiary - and one professional.

The Executors work as a team. Initially, their role involves tracing all the assets and liabilities and getting them valued to the satisfaction of the Inland Revenue. The personal Executor will probably concentrate on dealing with personal possessions. The professional will concentrate on the more official duties of obtaining share valuations, claiming insurance and pensions and, the maintenance of accounts. The professional will also deal with the probate application forms and liase with the Inland Revenue. In such cases it is generally the professional Executor who establishes the estate (everything you own), pays inheritance tax, obtains probate, collects what remains of the estate, sells the assets, finds the beneficiaries and accounts to them for the estate.

Perhaps surprisingly, some people leave this burden to other members of their family, saddling them with heavy responsibility at a time when, emotionally, they are least able to cope. Personal and career commitments as well as the stress of bereavement may make a family member, or a close friend, an unwise choice as a sole Executor. Most will lack the necessary experience to deal with a substantial estate, finding themselves quite out of their depth.

In addition appointing a professional Executor has the following benefits:

  • Continuity

Personal Executors or Trustees may be subject to absences, travel abroad, changes in health and advancing years. Such problems are resolved by appointing the senior partners of a firm of Solicitors, or a trust company, and thus ensuring that there is uninterrupted service throughout the period of administration.

  • Security and Reliability

Assets are safeguarded against both fraud and negligence. A professional firm holds in custody or under its control all investments, title deeds and other documents relating to estates and trusts which it administers.

  • Personal Attention

When Mills Chody LLP are appointed as Executors, the services provided are firmly based on personal contact, from the initial enquiry to the eventual handing over of capital to beneficiaries. It is this firm's policy that as a professional Executor we should meet and become personally acquainted with all persons connected with the estate or trust wherever possible. Decisions concerning their welfare are made only after careful consideration and full consultation.

  • Impartiality

Personal conflicts sometime arise between interested parties. Professional Executors can be called upon for an objective opinion or decision thus defusing potentially embarrassing situations.

  • Experience and Specialised Knowledge

A private individual acting as sole Executor can hardly be expected to keep abreast of the many changes relating to Trust Law, Income Tax and the constantly changing Capital Taxes. The appointment of a professional Executor ensures decisions are made in the full knowledge of legislation appertaining at the relevant time. Furthermore, the professional Executor can call on other members of this firm for specialist advice in dealing with such matters as taxation, investment, insurance and financial planning.

INHERITANCE TAX

Despite an increased level of awareness of the impact of Inheritance Tax on the estates of the moderately wealthy, many remain blissfully unaware of their liability.

Similarly, those who are aware may not always be aware of how the tax burden can be reduced or avoided.

The corner stone of all Inheritance Tax planning is inter vivos tax planning, or giving consideration during your lifetime to reducing the value of your estate, perhaps by way of creating a Discretionary Trust

The potential beneficiaries of the discretionary trust fund might be, for example, the surviving spouse, children and grandchildren. If the discretion is exercised in favour of the donor or their spouse then there is said to be “reservation of benefit” and the tax will not be saved. However, when the donor has sufficient resources the discretion can be exercised in favour of the children and the tax saved accordingly. This is regarded as one of the simplest yet most effective means of saving Inheritance Tax. Professional trusteeship is recommended because of the nature of discretionary trusts, the need for investment management of a substantial sum and for complete impartiality when it comes to distribution.

Inheritance tax is a tax paid on assets which you own at the date of your death. Not everyone pays Inheritance Tax. It is only due if your estate - including any assets held in trust and gifts made within seven years of death - is valued over the current Inheritance Tax threshold (£325,000 in 2009-10). The tax is payable at 40 per cent on the amount over this threshold Consideration can be given to reducing the impact of inheritance tax.

You can make exempt gifts to your spouse or civil partner as long as they have a permanent home in the UK or UK charities

You can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from Inheritance Tax when you die.

Wedding (or civil partnership ceremony) gifts are exempt from Inheritance Tax, subject to certain limits. Parents can each give cash or gifts worth £5,000, grandparents £2,500 and anyone else £1,000

You can make small gifts up to the value of £250 to as many people as you like in any one tax year.

Any regular gifts you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax if you have enough income left after making them to maintain your normal lifestyle.

Other common areas for review are pension and insurance funds, Business Property Relief and Charitable Gifts.

CHILDREN

If you have children under the age of 18, care must be taken to appoint someone to take on the responsibility of their welfare if both parents (or a single parent with sole responsibility) were to die. The most common method for appointing a Guardian is via a Will. Whatever your individual circumstances, we can offer advice relating to the Guardianship of children, so you can have the real peace of mind by knowing your choice of Guardian would act, not the choice of a Court.

Children cannot inherit until they reach age 18. However, many parents consider 18 too young to deal with the responsibility of an inheritance. Most would prefer to hold any inheritance on Trust until an older age but with the provision that funds can be released to benefit the child via a Trustee.

Whilst drafting your Will we can also draft an appropriate Trust to financially protect your children whilst maximising the value of the Trust Fund until a specified age.

UNMARRIED COUPLES

It is essential that couples living together consider the financial implications of their circumstances. Partners need to consider carefully what arrangements they want to make with regard to their home, its contents, the mortgage or rent, pension and life assurance. Partners should make such written arrangements and agreements as are necessary to define the position as clearly and accurately as possible.

As part of that documentation, it is essential that couples living together both make Wills.

Areas for particular attention are:

  • A husband or wife who dies without a Will is intestate and the estate will be divided in accordance with the Rules of Intestacy. However, the survivor of an unmarried couple does not come within the intestacy rules and may be entirely dependent on the discretion of a Court for their protection.
  • Gifts between husband and wife during lifetime or on death are exempt without limit. The same exemption does not apply to an unmarried couple. This can result in a significant Inheritance Tax liability on the separate deaths of the couple, and a sizeable reduction in the value of the estate passing to surviving children
  • The legal ownership of the home requires serious consideration so that an appropriate arrangement is made for the survivor's continued occupation of the original property or alternative accommodation if the former must be sold.
  • Guardianship for young children.

GIFTS OF HALF-SHARE OF HOUSE

The manner in which the family home (and/or other landed property) is owned is frequently a source of confusion. However, a clear understanding is important particularly in relation to estate planning.

There are two ways in which freehold or leasehold property can be jointly held in this country. These are:

"Joint Tenants"

This is an undivided form of joint ownership. On death the deceased's share in the property passes automatically to the surviving joint owner; the deceased's share can not be gifted elsewhere by a provision in a Will. Despite this, the deceased's half share remains part of their estate for tax purposes. Beneficial joint ownership is the most common form not least because it is protective of the original intention when the property was acquired.

"Tenants in Common"

This strange legal title represents the divided form of joint ownership. Because a 'division' has already been created the deceased's share in the property can (and should) be dealt with by a provision in a Will. Further, the division need not be equal; it can represent either contributions made when the property was acquired or a determination to leave a proportion of the property to someone other than the co-owner. For this reason, a tenancy in common can be a useful tool in Inheritance Tax planning.

The above rules not only relate to residential property. Partners in commercial property should also consider their effect and plan accordingly. It is a relatively straightforward matter to change from a Joint Tenancy to a Tenancy in Common, an essential step if the survivor of the joint ownership is not to become the sole owner.

SECOND MARRIAGE

There is an increasing incidence of second marriages where either or both parties have children from their first marriage. In many cases the parties to such marriages wish to ensure that the assets that they have acquired during the course of the first marriage go to the issue of such marriage rather than passing to their new spouse or the issue of their new spouse.

These requirements can be catered for by the use of appropriate trusts which will give both appropriate protection to the "new spouse" and at the same time ensure that assets ultimately pass by the bloodline.

LASTING POWERS OF ATTORNEY

Who will look after your affairs if you are unable to do so because of physical or mental illness?

If you are unable to manage your affairs it may be necessary for a Receiver to be appointed by the Court of Protection. This can be a time consuming and expensive process, but one which can be avoided by taking early action.

Before June 1985, a Power of Attorney became invalid if you lost your mental capacity. The Enduring Powers of Attorney Act 1985 (EPA 1985) changed this and enabled a Power to be given which survived the mental incapacity of the donor, provided that the appropriate steps are taken to register it. This was adapted by the Mental Capacity Act 2005 (MCA 2005) which introduced the Lasting Power of Attorney.

The MCA 2005 repealed the EPA 1985 and it is no longer possible to create a new EPA. However, EPAs which were executed before the MCA 2005 came into force on 1 October 2007, whether they have been registered or not, will continue to be valid.

The MCA 2005 provides a statutory framework for adults who lack capacity to make decisions for themselves, or who have capacity and want to make preparations for a time when they may lack capacity in the future.

A Lasting Power of Attorney enables a person aged 18 or over (the donor) to appoint another person or persons (their attorney) to act on their behalf, following the principles of the MCA 2005, if they subsequently lose capacity. This has replaced the EPA as the type of power of attorney that can operate after a person ceases to have capacity. Unlike EPAs, a person can choose to delegate decisions affecting their personal welfare - including healthcare and medical treatment decisions - as well as decisions concerning their property and financial matters to their attorney(s).

All you need to do is complete a form. The signed LPA can be held by us, in case of future need, with your other important documents, such as title deeds and your Will.

The following are answers to FAQ relating to Lasting Power of Attorney for Property and Financial Affairs:

Q Who needs a Lasting Power of Attorney for Property and Financial Affairs?
A Lasting Power of Attorney are generally considered by or for the elderly, although mental incapacity, for example brought about by a stroke or accident, can strike at any age. It might be said that everyone should have one, but only after careful thought as the powers are extensive and as the forms are lengthy their creation is not without expense.
Q Who should I appoint as my Attorney?
A The Lasting Power of Attorney can be given in favour of any one or more persons who may be close relatives, friends or professional advisors.

n cases where there are family differences, it can often be more satisfactory for an outsider to be appointed. You could consider the appointment of a firm such as Mills Chody LLP who will take an impartial view and whose actions are less likely to be criticised than those of one of the family.
Q What can my Attorney do?
A If you give your Attorney general authority to act on your behalf in relation to all your affairs, your Attorney will be able to do almost anything that you could have done, for example sign cheques, buy or sell shares, sell your home, make gifts etc. However if you wish, you can restrict the authority of your Attorney to specific actions.
Q Can my Attorney use my assets to benefit himself or others?
A Unless you restrict your Attorney, they will be able to benefit themselves or any other people for whom you might have been expected to make provision. If you are concerned that the Power of Attorney may be misused, whilst you still have the mental capacity to deal with your own affairs you can restrict it so that it will not come into effect until it has been registered with the Court of Protection, or until some other condition specified by you has been satisfied.

All in all, a Lasting Power of Attorney is an extremely useful protection in the light of circumstances as yet unforeseen. It is not, however, something that should be left until the last moment as the donor must be fully capable of understanding the nature of the document which he or she is signing.

AND FINALLY

Mills Chody LLP is dedicated to providing its clients with innovative solutions to estate planning never losing sight of the fact that such solutions must be practical and above all cost effective.

ANSWERS TO FREQUENTLY ASKED QUESTIONS

Q HOW MUCH DOES IT COST TO MAKE A WILL?
A Will drafting costs vary according to the complexity of your affairs but for the majority of clients it is around £120 for a Single Will and £170 for Mirror (joint) Wills (+ VAT).
Q CAN AN EXECUTOR ALSO BE A BENEFICIARY?
A Contrary to popular belief, the answer is YES. However, it is recommended that you also appoint a Professional firm such as Mills Chody LLP as a joint Executor to deal with the more official and technical duties.
Q WHAT WILL A PROFESSIONAL FIRM CHARGE TO ACT AS MY EXECUTOR?
A Fees vary from firm to firm with some Banks charging as much as 5% of your Estate value. However, Mills Chody LLP have invested in the very latest technology to ensure its Executor fees are much lower and extremely competitive. When we are instructed to act as an Executor we provide an estimate of the costs involved prior to undertaking the actual task but currently the total fees charged equate to approximately 2% of the value of your Estate. Fees are paid out from your Estate after your death.
Q CAN I ALTER THE TERMS OF MY WILL?
A YES. Significant alterations should be made by drafting a new Will, which includes a clause cancelling (revoking) all previous Wills. However, if any alterations are fairly minor ones, a Codicil can be drafted. A Codicil is a separate legal document that changes specified wording in an existing Will.
Q CAN I PREVENT MY SPOUSE FROM CHANGING HIS/HER WILL?
A As a general rule NO. Some 'joint' Wills called Mutual Wills include a clause stating that neither party shall change his/her Will without the others knowledge and consent. However, this does not prevent either party from changing a Will but under Contract Law may provide redress for any person that 'lost out' due to a change.
Q WHAT SHOULD I DO IF I AM SEPARATED FROM MY SPOUSE BUT NOT DIVORCED?
A In this situation it is likely that you would wish to prevent your estranged spouse from inheriting part or all of your Estate. You should draft a Will 'in contemplation of your divorce' which protects your Estate up until and after divorce.

If you have any Questions relating to the subjects covered by this pamphlet, please do not hesitate to contact us