The Residence Nil-Rate Band (RNRB)

This is an additional allowance in Inheritance Tax for married couples and civil partners and applies when they are leaving their property to “direct descendants”.

The maximum reliefs available (per person) are: 2017-18 +£100.000; 2018-19 +£125,000; 2019-20 +£150,000 and 2020-21 +£175.000

They will be reduced to the value of the property at the date of death if it is less. For example, in June 2020 Mr A dies and his property is worth £150,000 – then that is the value of the RNRB. However, if the value of his property is £250,000 then the relief would rise to £175,00 (maximum relief).

When valuing the property remember to deduct the value of any mortgage and also take in to consideration that if the deceased had more than one property, the Executors can elect which one is to be used for the purposes of the additional RNRB allowance.

 

EXAMPLE:- Mr C owns two terrace properties in Northampton, one is worth £80,000 and the other is worth £90,000 and both qualify as his residence. The Executors select the property worth £90,000 which maximises the amount of the available RNRB at £90,000.

EXAMPLE:- Mr B owns a farmhouse in Banbury worth £300,000. He realises that the value will limit the RNRB and so upsizes shortly before his death to a property worth £375,000. His Executors now have a full RNRB (£350,000 on his death) which is made up as £175,000 from his pre-deceased spouse and his own RNRB of £175,000

The Taper Restriction – There is a taper restriction applied to the above arrangement. It commences at £2m in 2020-21 and thereafter will increase with the Consumer Prices Index.

Please note that the fine detail of much of this legislation has yet to be announced but, as it becomes clearer, further posts will be made on this website.

When Do I Need to Alter My Will?

We recommend that you review the content and provisions made within your Will on a regular basis – every two years is ideal. As a matter of course, we contact all our clients on a two-yearly basis to offer this facility. The sorts of changes in circumstance which may result in a change in your Will having to be made are as follows:

  • If someone named within the Will has passed away
  • If your address (or that of any other person named within the Will) has changed. This is particularly important if there is a Trust within the Will
  • If you marry or enter in to a civil partnership following the signing of your Will, the Will is revoked, unless you have made the Will in contemplation of the marriage/civil partnership and included the relevant clauses within the Will
  • If any of the persons named within your Will change their name, either by marriage or otherwise
  • If your divorce, have your marriage annulled or declared void. This will result in the Will still being valid but being read as though the name of the divorced partner had been deleted. It does not however stop a claim from that person on your Estate, so a new Will being written to include an exclusion of benefit is vital
  • If you have your first child (or additional children) for whom you will need to appoint Guardians
  • If you no longer possess an item which you have bequeathed within your Will
  • If you have reconsidered the distribution of an asset or an amount of money
  • If you acquire additional assets which increase the value of your Estate and cause a potential Inheritance Tax or Capital Gains Tax liability you may need to seek advice regarding effective tax planning and/or protective measures and Estate Planning
  • If you initially wrote simple Wills but have now become concerned about issues such as sideways dis-inheritance, death and re-marriage causing assets to pass down another bloodline and sundry third party attacks such as Local Authority care charges, tax liabilities and the like.
  • If you acquire foreign assets or make a Will outside England and Wales

The above present just some of the situations which may require a revision of your Will, however it is by no means exhaustive. If you have any doubts whatever, please do not hesitate to contact us for advice.

Pre-Paid Funerals – Do They Give Value for Money?

Afternoon television in particular is laden with adverts for Insurances (usually aimed at the over 50’s) which, for a relatively small monthly premium, will pay the insured’s Estate a lump sum designed to fund his/her funeral costs. Such adverts are usually fronted by well-known personalities whose appearances impart a degree of respectability and trust to that product.

As always, care must be exercised when considering such offers. First, consider whether the monthly premium, when accumulated over a lengthy period of time of say 30 years, which is quite possible if the insured takes the policy out when aged 50 and lives til beyond 80, will actually exceed the guaranteed sum payable. Then consider that there is NO cash-in value to the plan, so if for example the insured were to fall on hard times financially, no longer being able to afford the premiums, there is no cash-in facility to recoup those monies which have been paid in. Finally, with the cost of funerals (like everything else) rising at a staggering rate, will the sum assured actually cover the whole cost or simply a portion of it?

Pre-Paid Funeral plans however are different from this. They do “exactly what they say on the tin”. You purchase a funeral “package” now, at today’s price and that funeral “package” is delivered for you, when you pass away – no matter how many years after you bought it.

There are several reputable Companies in the market place and again, due diligence is required, however we have considered many such plans and can recommend Safe Hands whose prices are amongst the most competitive in the market place currently (2016).

An average funeral costs £3,500 today. In ten years time, it is predicted that this figure will be close on £8,000. So, by buying today you have “saved” about £3,500 – £4,000. But, not only this, and perhaps more importantly, you have been able to tailor your own funeral “package” to include all the elements which are really important to you and exclude all the elements which you really loathe. You choose your preferred funeral director, the number of limousines, the type of hearse, the place of burial or cremation, the mode of dispersal of ashes and so on and so on. Most importantly, you take the onus of all the decision-making away from the ones you’ve left behind at a time which they are grieving and finding it difficult to cope.

Finally, by choosing a reliable and trustworthy Company such as Safe Hands, you can be sure hat the money you have paid for the funeral will be held in a safe high interest bond so that when the time does eventually come to fulfil the policy, there are no hidden extras for your surviving loved ones to have to fund and thereby worry about.

Please ask for further details and make an appointment to discuss this in greater detail.

Who Pays For Care?

It’s bad enough facing the realisation that someone you love can no longer look after themself and/or has a long-term medical condition which requires ongoing long-term care. It’s often heart-wrenching to make the decision that none of that loved ones relatives can help in their care because they simply don’t have the skills or the medical expertise or simply that they don’t have the facilities to offer accommodation or their time. Then of course there’s the question of whether that loved one can actually make any decisions for themself, or has either dementia or Alzheimers already robbed them of those faculties?

To add to all this, we then have the ongoing discussions in various quarters about who should pay for the care provided. Needless to say, the NHS given their current state of financial affairs is not anxious to pick up the cost, likewise the cash-strapped local authorities. So, it is often the person requiring the care who ends up paying. This is called “self-funding” and is currently paid by over 50% of all long-term care patients. Given the average cost of care in a care home these days is £800 per week, the average 18 months stay in that care home costs the individual about £62,400. Then consider when the individual concerned has very little in the way of “liquid assets” with which to pay for that care, but simply a property (average values currently stand at about £200,000), it can clearly and swiftly be seen that the value of such a property is quickly eroded – and even negated – by the costs involved, leaving nothing to pass on to the family as an inheritance. All this despite the fact that the individual concerned has worked all his or her life, paid all due taxes and N.I.

As many as 95% of those currently self-funding should be entitled to funding but due to bureaucratic errors and lack of understanding of the workings of a very complicated system, are not assessed correctly and therefore paying for care when they may not need to do so.

Also, where the patient has limited or no capacity, there is often not a Lasting Power of Attorney for Health and Welfare in place, therefore the family are unable to challenge any decisions made on that person’s behalf. This raises two issues – the need for a valid Lasting Power of Attorney for Health and Welfare and a thorough understanding of the care cost “leviathan” and how to check the system has been correctly applied. If not, then to know how to challenge the decisions made.

For further information, please contact us for an initial discussion.

 

 

 

Mirror Wills – The potential pitfalls……………….

Once upon a time, when most couple’s personal affairs were far less complex than they tend to be today, and both finally saw the sense of making a Will, they were advised to make something known as a “Mirror Will”.mirror wills This type of arrangement, still perfectly acceptable and often perfectly suitable and appropriate, was pretty much the “norm” for married couples in a “stereo-typical” family setting of first relationship, with children from that relationship only, and a stable marriage. The Mirror Will dictates that on the death of the first spouse, everything passes to the surviving spouse absolutely. Then on the death of the second spouse, everything passes to the children absolutely (but if under eighteen, in to a simple Trust).

So far so good? Well, yes………………but, and it can be a VERY BIG “BUT” INDEED! Consider first of all, that increasingly couples are NOT married, but still have children. They not only need to make a Will FAR more urgently than married couples because as single persons in the eyes of the law, under the intestacy rules they have NO RIGHTS of inheritance from each other whatsoever. Then consider the movement of the assets, where on the death of the first in the partnership, EVERYTHING owned by that person passes to the survivor. That means that all those assets are now owned outright (or absolutely), by the surviving partner, along with all the assets already owned by the survivor. In other words, that person now has two person’s Estates values – a potential disaster in Inheritance Tax calculations if they are NOT married (because there is no “spousal transfer”). But, most importantly, the assets are now owned outright by the survivor in their entirety, and as such, can be passed by that survivor to whomsoever the survivor chooses. Yes, despite the fact that the Mirror Will says that on the death of the second, all assets will pass to the children, the survivor, whilst alive, can alter the Will to reflect his/her wishes and/or circumstances as many times as he/she wishes.

So, what about when the first partner has died unexpectedly young and the survivor re-marries or co-habits with another and decides to give all or some of the assets from the deceased via a new Will to the new partner’s side of the family? What about if that scenario prevails and the new relationship brings forth more children which the surviving partner then decides to favour with those assets through a new Will?

Then of course there’s an increase in second, third and even fourth or fifth relationships where previous “baggage” needs to be considered. Uneven input of finance in to joint property purchases, one partner already has several children from previous relationships but the other has none, one partner has several children but the partner also has several. Maybe one partner has a property, but so does the other. Here, in the case of a Mirror Will, there would be sharing of assets after the death of the first partners, but would that be wise?

Increasingly, due to the complexities of the way we live today, Mirror Wills may not be an adequate solution to a couple’s needs. Indeed there may be further pitfalls than the ones mentioned. Please be sure to seek our professional advice before proceeding down this route!