Main Residence & The Family Home
My wife and I signed over our home to our four children seven years ago. If either she or I have to go into a care home, will our children be forced to pay anything towards the fees?
The local authority will calculate the amount payable on the capital you have at the time you are taken into care. Your capital will include any buildings, land, shares and savings. If it adds up to more than £23,250 (£22,000 in Wales and £22,750 in Scotland) you will have to contribute towards the cost of your care. However, the local authority has the right to look at any assets you have given away and if they decide this was done to avoid future care fees, they can assess you as if you still owned the capital. If you gave your home to your children for another good reason, or at a time when you were fit and healthy and could not have foreseen the need to move into residential care, it is possible the local authority will not take any action.
WARNING: The seven year rule only applies to IHT and HMRC; the local authority can look back as many years as they want to see what assets the person in care owned and how and why they disposed of them. If it can be shown that you have deliberately disposed of assets to avoid paying for care fees then the assets can be reclaimed by the authority to pay for any care fees due.
We own our home in joint names?
Most couples when they buy their home on a mortgage find they own the property as ‘joint tenants’. The up-side to this is that the property will pass to the survivor by ‘automatic survivorship’ regardless of individual circumstances and need, and irrespective of what each Will may state.
The down-side is that it is impossible to plan for individual deaths, even via a Will, due to this survivorship situation.
This would be particularly important to know in a situation where a couple have been married or in a relationship before and have children of that relationship that they would want to benefit from their share and interest in their property.
To get around this, you need to consider ‘severing’ the joint tenancy (or ownership) to what is called ‘tenants in common’. This will ensure that you both hold your share of the family home in specific shares and as such you can ‘will’ your share to your children or other beneficiaries as you wish. The Will should also contain a simple but effective Property Trust, commonly called a Protective Property Trust, which guarantees that the survivor will have the security of being able to remain in the property and have full use of it but that the deceased’s share remains in the trust until the trust ends.
Contact us for further information on the Protective Property Trust.
Should my Guardians be Executors?
It is very common for the guardians to be executors. It normally follows that if you trust someone to take care of your children, then they should have some form of access to the assets of the estate to provide for your children. It should also be mentioned that there are some instances where the Guardian (e.g. a divorced parent) should not be allowed direct access to the assets, but use an alternative Executor.
Who can automatically become a Guardian?
Only a parent of the child or children who has ‘parental responsibility’.
Mothers automatically have parental responsibility, fathers don’t!
Fathers of children born before 1st December 2003 only have parental responsibility if they are, or were, married to the mother of that child or children.
Fathers of children born after 1st December 2003 only have parental responsibility if they are, or were, married to the mother of that child or children, or have been named on the birth certificate.
If you make a Will, ‘Parental Responsibility’ can be given through appointment of Guardianship to the birth father.
My partner and I are not married but have two children between us. How can he get parental responsibility?
As was stated above, the mother can name the father in her Will as one way. The other straightforward ways for the natural father to obtain parental responsibility are:
- The father marrying the mother;
- The father being named on the birth certificate if registered after December 2003;
- Completing a Parental Responsibility Agreement for each child in conjunction with the birth mother.
Executors & Trustees
Can my Beneficiaries be my Executors?
Yes they can if you want them to. Today it is often common that those who will get the estate have a role to play in the organising of the estate before it is given.
What’s the difference between an Executor and a Trustee?
In most estates today, it is common to appoint the Executors as Trustees. The main difference is that trustee is the person responsible for making the decisions that maintain the estate whilst it is held on trust before it is given to the beneficiaries, and the executor is the person that carries out (or executes) the actions and wishes of the Trustees during this time.
Do I have to appoint a Solicitor or Bank as my Trustees?
No, you can appoint anyone you like. It is likely however, that when your estate is going through Probate that you will in some part require some professional assistance. Our advice is to choose people you absolutely trust and ensure that the Will includes a statement that empowers them to employ any professionals that have not already been nominated. RJC do offer probate and executorship services.
Does it matter if my Executors live abroad?
No, although it is always prudent to have some executors in the country in which you are residing.
How many Executors can I choose?
You can have as many Executors as you like, but the Law only allows a maximum of four to act at the same time.
What does an Executor have to do?
It is difficult to go into great detail here, but the main role of an Executor is to carry out the wishes of the testator’s estate. For more details please get in touch with us.
Do I have to list everything that I own in my Will?
No, Wills are not shopping lists. If you want specific objects, collections or even amounts of money to go to particular people, then yes you should list these. However, what you do not identify in your estate (everything else not listed – whatever it is) is dealt with through distribution of your Residue.
Probate & Estate Administration
Can I/we avoid the lengthy, costly process of Probate?
It is possible to avoid this process by using an Asset Protection Trust / Family Trust because assets typically held in such trust do not require probate because there is never a change of ownership as the trust retains the assets.
Contact us for further information.
Gifts & Legacies
Do Gifts and Legacies have to be under a certain value?
Not at all, a gift can be any value you like (e.g. £10,000 or your house etc.)
Can I gift to charities?
Yes, but we need to know the full Name, address and Registered number of the charity. All gifts to charities are tax free – so they can be used to reduce any Inheritance Tax liability.
Can I set age limits when gifts can be received?
Yes, this is what Trustees are for – to see that the gifts you leave are preserved as best as possible until they should be given at the time or age you have specified.
Contact us for further information.
What are the Inheritance Tax (IHT) thresholds?
£325,000 – Individual Allowance. £650,000 – Married Couples / Civil partners
RATE OF TAX ON BALANCE: Chargeable lifetime transfers – 20% Transfers on or within 7 years of death – 40%
All lifetime transfers not covered by exemptions and made within seven years of death will be added back into the estate for the purpose of calculating the tax payable at the rate at death. This may then be reduced by taper relief.
Charge on Gifts Within 7 Years of Death
Years before death. 0-3 3-4 4-5 5-6 6-7
% of charge 100 80 60 40 20
What are the Main IHT Exemptions
- Most transfers between husband and wife
- The first £3000 of lifetime transfers in any tax year (husband and wife each have their own exemption)
- Gifts of up but not exceeding £250 p.a. to any number of persons
- Gifts made out of income that form part of normal expenditure and do not reduce the standard of living
- Gifts in consideration of marriage to bride and/or groom as follows: up to £5000 by a parent, £2500 by a grandparent or £1000 by any other person
- Gifts to charities whether made during lifetime or on death You should also ensure that any life assurance policies are written into trust for your family. This way the proceeds can bypass your estate.
Asset Protection Trust/Family Trust
Why create a Family Trust?
A Trust is a relationship which is recognised by the Courts, and the details of the Trust are contained in a formal Trust Deed which acts rather like your family legacy rule book. Creating the Trust has the advantages of being able to satisfy most of the reasons why you might wish to dispose of your property, namely:
- Formally recognising financial contributions of other family members that they may have made directly or indirectly to the property.
- Once in the Family Trust, the property can be sold quicker following your death. (No Grant of Probate is typically required for assets held in a family trust)
- Bloodline planning in the event of early death or divorce of a beneficiary avoiding estate dilution.
- By creating the Trust you can rest assured that you can remain in the property as long as you wish.
Who do I choose as my Trustees?
You will need to give careful thought to your choice of Trustees. A minimum of two and maximum of four people should be chosen, especially if you wish to place property or land into your trust. Whilst the Trustees must act in accordance with the Trust Deed, they also have certain discretions.
What are the Trustees Responsibilities?
The Trustees do not have any power to go beyond the terms of the Trust Deed. However, most things which a person would want to do with his own money or property can be done by the Trustees provided it is for the benefit of the beneficiaries.
The Trustees must:
- Disclose any circumstances where they might have a conflict of interest with one or more of the beneficiaries. For instance, if a beneficiary owes the Trustee money, then this should be disclosed.
- Not act in conflict with the interest of any of the beneficiaries or profit from their role as a Trustee.
- Ensure that they know exactly what the terms of the Trust are, and that the terms of the Trust are fulfilled.
- Ensure that they do not exceed the terms of the Trust or their powers granted in the Trust Deed.
- Ensure that good Trust records and accounts are kept and account to the Inland Revenue for any tax due.
- Take independent financial advice at appropriate times and ensure that the advice taken is in accordance with the Trustee Act 2000.
- Act impartially and fairly between all the beneficiaries.
- Take reasonable care in exercising their powers. It is worthwhile noting that Professional Trustees have a higher standard of care to meet than individual Trustees.
- Act jointly. As Trustees are jointly liable for any mistakes, it follows that they should therefore act together and not delegates tasks to each other.
- Not charge fees. Only Professional Trustees can claim the payment for acting on behalf of the Trust. Lay Trustees may only claim out of pocket expenses.
- Ensure that the beneficiaries of the Trust are kept fully informed. This helps avoid disputes.
What are the possible disadvantages of a Family Trust?
Once created, the property has to be transferred into the names of the Trustees. Whilst your right to remain in the property will be protected, you will no longer have legal ownership of the property and the Trustees will have certain discretionary powers which they can exercise in respect of the property. Should you need to use the capital in the property to support a loan such as an equity release scheme, then once the property is in the Trust, the number of potential lenders that will deal with a trust will be restricted.
What aboutCapital Gains Tax?
Because the principle private residence exemption to capital gains tax applies, when you transfer the property into the Trust, then there will be no capital gains tax charges. However, if you cease to live in the property for a length of time and then it is sold, there may be a capital gains tax charge. This is exactly the same as if you owned the property outright in your own name. If there are other assets also held in the Trust (other than cash), then the current capital gains tax rate will apply to any gains made on those assets. However, your own capitals gains tax annual exemption can be used to offset any Trust gain.
Contact us for further information.
Lasting Power of Attorney
What is a Lasting Power of Attorney?
A Lasting Power of Attorney (‘LPA’) is a legal document that enables you (‘The Donor’) to choose someone (‘The Attorney’) to make decisions on your behalf about such things as your finances, property and your personal welfare at a time in the future should you become physically or mentally incapable to deal with those affairs.
Are there different types of LPA?
Yes, there are two different types:
Property and Affairs: This allows your Attorney to make decisions on your behalf about your property and affairs including paying your bills, collecting your income and benefits or selling your home subject to any restrictions or conditions.
NB: if you own or manage a business, you may wish to make a separate Property and affairs Business Lasting Power of Attorney.
Health and Welfare: This allows your Attorney to make decisions on your behalf about your personal welfare, including whether to give or refuse consent to medical treatment on your behalf and deciding where you live.
Who can make an LPA?
Anyone can make an LPA as long as they are aged 18 or over, and have mental capacity to understand the meaning and the effects of the LPA.
Can I appoint more than one Attorney?
You can appoint as many Attorneys as you wish, but it is important that you consider how you are appointing them. You will need to specify whether you want to appoint your Attorneys to act jointly together which means that all your Attorneys have to sign relevant documents together. This acts a safeguard so all of your Attorneys must act in agreement. A disadvantage of this is that if one of the Attorneys cannot act or refuses to make a decision, then the power fails.
You can also appoint your Attorneys to act jointly and separately. This means that they can act on their own, or together. This is more flexible as it allows your Attorneys to act on their own should the other Attorneys become unavailable or are unwilling to act in the future.
What can my Attorneys do?
You can give as much power to your Attorneys as you like. You decide how much power they may have in relation to your affairs. You can give your Attorneys general authority to manage all your property and affairs or make all decisions regarding your personal welfare. For a Property and Affairs LPA, this means that they could sign cheques, pay bills, open and close accounts, make gifts and/or even sell your home. If you do not wish your Attorneys to have such wide powers, then you can place restrictions/conditions on them. For example; you can include a condition that your Attorneys must act in a certain way or cannot act until you have become mentally incapable.
When does my LPA have to be registered?
Your LPA can be registered after you have made it and cannot be used until it has been registered. The LPA is made when it has been completed and signed by all of those required to sign the forms.
Can I still make decisions if my LPA is registered?
Yes, if you have the capacity to make a decision, your Attorney can act for you in your best interests and on your instruction. If you disagree with your Attorneys actions and still have the capacity to do so, you can revoke the LPA by notifying the Office of the Public Guardian.
Is there a Registration Fee?
Yes, at the time that you register your LPA you will have to pay a registration fee to the office of the Public Guardian. A separate registration fee is payable for a Property and Affairs LPA and a Personal Welfare LPA when each application for registration is made.
Contact us for further information.