Thursday, 26 September 2013

The Reasons why you might want to update your will

The good news is that more of us are likely to have a will – but if you haven’t got one you still know what you need to do – so this month we look at the top reasons that mean you would need to review your wills.
  1. THE CHILDREN HAVE GROWN UP – you may have made your will whilst your children were young, if you did you appointed Guardians and Executors who may not be the appropriate people to be involved now that your kids have grown up.
  2. YOU HAVE HAD MORE CHILDREN – Ensuring that all of your children are treated appropriately by your will is important. If the child is your first child then you will need to appoint guardians to look after them in the event of your death.
  3. YOU HAVE GOT MARRIED – Many people don’t realise that getting married automatically revokes a Will, so if you have tied the knot since you made your will you probably need to do it again.
  4. YOU HAVE GOT DIVORCED OR YOUR RELATIONSHIP HAS SPLIT – Whilst the law does make provisions for dealing with a former spouse within a Will, it is always better to make a new one. If you have split from a partner that you were not legally married to and have not updated your Will then things are potentially even worse as there is nothing to stop them from inheriting.
  5. YOUR FINANCIAL CIRCUMSTANCES HAVE CHANGED – Let’s be positive, you may have won the lotto or have received an inheritance which could impact the tax planning in your will. On the other hand if your wealth has decreased you might need to review gifts and beneficiaries who you named in better times. 
  6. SOMEONE NAMED IN YOUR WILL HAS DIED – The loss of a loved one is a difficult time, but if that person was named in your will as an Executor or Beneficiary then you will need to update your Will. 
  7. SOMEONE NAMED IN YOUR WILL IS ILL - If your beneficiaries, executors or guardians become ill or lose capacity it is important that you review your Will, any gifts you might give could affect benefit or care packages. Your executors or guardians may not be able to act because of their incapacity. 
  8. YOU HAVE STARTED A NEW BUSINESS – Planning in your Will for what happens to your business can be very important, most businesses attract significant benefits when it comes to taxation and it is important that your Will reflects this.
  9. YOU HAVE ACQUIRED FOREIGN ASSETS - Assets overseas are likely to be treated differently to your UK assets when you die, your will may well need to reflect this.
  10. YOU HAVE MOVED – Whilst it is not the most compelling reason to review your will, the people who drafted it for you need to know where you are in case they need to contact you to advise about changes in legislation. If you have any property gifts or trusts in the Will we need to check the basis of ownership on the new property to ensure the gifts are still effective.

If you need to review your Wills, if one of the issues above affects you or if your documents are simply out of date call Will & Probate Services on 01778 382723 for a free opinion on what needs to change in your will. See our site for more

Friday, 13 September 2013

HMRC Publishes Guidance on non deductible estate debts.

From STEP - The society for trust and estate practitioners

Thursday, 12 September, 2013

HMRC has published guidance on s176 of the Finance Act 2013, which prevents executors deducting certain liabilities of an estate from its taxable value.
The surprise measure was introduced in the Finance Bill 2013 without prior consultation. The liabilities affected are, briefly, debts incurred by the deceased in order to purchase inheritance tax (IHT)-exempt assets; and debts that his executors do not pay off on his death.
According to HMRC, the measure was necessary to counter certain IHT-avoidance schemes, but professional bodies have sharply criticised it because it may cause serious problems for existing arrangements that were not set up to avoid tax. They are also disappointed that there was no consultation before the legislation appeared, though HMRC claims the period between publication of the Finance Bill and its enactment into law was an adequate substitute for a formal consultation.
In a document issued last week, HMRC stated that the inheritance tax manual will be updated to take account of some of these objections; in the meantime interim guidance has been issued.
One of the main criticisms voiced noted that the legislation required that a liability can only be deducted from the taxable estate if it is discharged from the deceased’s estate. This could give rise to a situation in which a testator set up a life policy written in trust to pay off his mortgage on death, but HMRC refuses to allow the mortgage to be deducted from the estate because the estate funds are not used to repay it. This would hit those who have incurred liabilities on purely commercial terms just to buy a home, and with no IHT avoidance in mind.
HMRC’s reply to this is that the deduction for the mortgage would indeed not normally be allowable. However, it adds, there is no reason why the trustees could not refinance the debt so that the estate passes to the beneficiaries encumbered with a new liability.
Retrospection was a further widely expressed criticism, as the measures apply to pre-existing liabilities, affecting many businessmen and farmers who had borrowed in the past to expand their business and secured the loan against their personal property. HMRC disagrees that the provisions are retrospective, but says it recognises that borrowers who have done this may not be able to restructure the loan or unwind the arrangements quickly. Thus the commencement provisions have been amended so that they will not apply to liabilities incurred to acquire IHT-exempt (relievable) property before 6 April 2013 ‒ although the retrospective action continues to apply to the other types of liabilities.
The original text was also unclear about whether the status of the property (i.e. whether it was excluded as a liability) should be considered at the time of purchase, or when the tax charge occurs. Section 162A of the Act has now been rewritten to clarify that the status has to be considered when the liability is taken into account, and also to deal with situations where property ceases to be, or becomes, excluded property.
Other critics noted that it was not clear whether the term ‘estate’ meant just the free estate or whether it included the wider meaning of estate for IHT purposes, for example settled property, or lifetime gifts with reservation of benefit. Accordingly the Bill was amended to state that ‘estate’ has the wider meaning for the purposes of repaying the liability.
Another criticism was that the Bill did not state how a liability should be treated on submission of the IHT400 form ‒ that is, whether it should be allowed in the initial computation, to be disallowed if not discharged subsequently. There were also concerns that personal representatives would have to produce evidence that any liabilities were repaid in all cases. HMRC has now stated that its assumption will be that a liability will be repaid, and PRs will only need to provide evidence of repayment if HMRC enquires into the liability.