Strategies that look to the future
Wills
A Will is a vital document in making clear what we want to have happen to our hard-earned assets. If we do not write one, then the law lays down what is to happen and the result can be capricious, extremely upsetting for those left behind and may cause great hardship – all at a time when people least need added upset. When writing a Will, we need to keep asking “what if?” and to provide for as many eventualities as possible. A well-written Will can be a highly flexible instrument and can save the family both inheritance tax and unnecessary upset.
Lasting Powers of Attorney
Lasting Powers of Attorney are particularly useful in allowing somebody to appoint trusted people to look after their finances and to make decisions concerning their welfare if a time should come when they are unable to do so themselves. They replaced Enduring Powers of Attorney although pre-existing Enduring Powers of Attorney remain valid. Lasting Powers of Attorney are proving so popular that, whereas the registration process with the Office of the Public Guardian is meant to take seven weeks, there is currently a backlog which means that Lasting Powers of Attorney currently take approximately four months to be registered. The moral? Act sooner rather than later!
Pre-nuptial Agreements
These are entered into prior to marriage to agree how assets will be divided in the event of subsequent divorce and have recently received judicial recognition. They are becoming increasingly popular. There are formalities which have to be followed in order for these to be valid. Do consult us well in advance of the wedding so that we can give you the necessary advice.
Capital Gains Tax main residence elections
A main residence election for capital gains tax purposes can be a useful tax planning tool. Once a dwelling has been the only or main residence at any time during ownership, the last 36 months of ownership will be exempt from tax. Did you know that, each time you acquire another property (whether this is owned or rented), you have another two-year window within which to make an election as to which property is to be regarded as your main residence – and it does not have to be the one that you use most? If you do not elect, HMRC will choose for you.
Regular expenditure out of income exemption
The exemptions from inheritance tax in terms of lifetime gifts of capital are quite limited (£3,000 per individual donor per tax year or just £250 per separate donee). On the other hand, for clients with an income considerably in excess of their outgoings, the use of regular expenditure out of income exemption can allow you to give away very significant sums of money entirely exempt (the usual 7 years survivorship period does not apply). As you would expect, there are rules to be followed in order to benefit from this valuable exemption and there are record-keeping requirements. Do contact us for further details.
Charities
It is the age of the “Big Society” which has increased our focus on charitable giving. At Goodman Derrick we can assist with setting up or merging charities and administering charities. The regulatory framework has changed quite considerably since the Charities Act 2006. Charitable giving can of course be tax-efficient too. Did you know that Gift Aid can be claimed for donations of clothes and other goods for sale through a charity shop? The impact may be small unless you are donating an entire wardrobe of designer clothes, but every little helps!
Unforeseen Eventualities
A contested Will
Whether it is due to an increase in the litigious society or an effect of the recession, it is true to say that there has recently been a huge increase in the number of Wills being contested in Court. This might be on the ground that the person making the Will did not have sufficient mental capacity or that he or she was under some form of undue influence; or a disappointed beneficiary may claim that he has not received reasonable financial provision. While English law allows someone to write a Will in whatever terms they wish (unlike, say, French law which reserves portions of the estate for particular relatives), even estranged adult children have in recent cases been able to make a claim on their parent’s estate in certain circumstances.
Lack of mental capacity
We regularly prepare Wills and Trusts on behalf of parents who have a child with special needs. Ensuring that that child will have appropriate ongoing care and appropriate financial provision is of course a major concern for parents. We also make applications to the Court of Protection for permission to make gifts for tax planning purposes from the estate of a person who lacks mental capacity but where it can be regarded as in his interests and those of his family for a significant gift to be made while he lives.
Some adults do not lack mental capacity but are vulnerable. The recent Mental Capacity Act does not apply to them and yet they need safeguarding and to ensure that their voice is heard. We are aware of these issues and are keen to assist.
Terminal Illness
If somebody has been given warning of the fact that their life is limited, sad as that is, it does give rise to opportunities to plan ahead. Just one example of a possible strategy is to transfer an asset pregnant with capital gain from one spouse to the spouse who is terminally ill. When he or she dies, the other spouse can inherit the asset back free of inheritance tax and with an uplift for capital gains tax purposes such that the gain is wiped out. If you or someone you care about is in this situation, we can help.
If you would like any further information about the issues raised in this newsletter please contact a member of Goodman Derrick LLP’s Private Client Team on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
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