View more on these topics

Where there&#39s a will, there&#39s a weight off your mind

It is important that everyone should make a will and review it regularly.

Married couples should consider passing assets to beneficiaries other than the surviving spouse on the first death to take advantage of the inheritance tax nil-rate band although it is important that both spouses own sufficient assets in their own right if such a legacy is being contemplated.

Jointly-owned assets, other than those owned as tenants in common, will pass automatically to the surviving owner.

The legacy on first death can be absolute or in trust. Nowadays, it is more and more common for a discretionary or flexible power-of-appointment trust to be used, with the spouse as a possible beneficiary and one of the trustees.

It is not necessary to fully equalise estates. With only one IHT tax band of 40 per cent, the benefits of making a legacy of more than the nil-rate band are minimal.

Generally, anyone over 18 can make a will although in Scotland the age is 12 for a girl and 14 for a boy. Obviously, children in Scotland are much more mature than those in the rest of the UK. In practice, however, most children of this age do not make wills and their estates will be dealt with by the rules of intestacy.

Intestacy

The relevant rules of intestacy depend where you are domiciled. These rules will detail where a person&#39s estate passes when they die, which may not be what the deceased wants. It is important, therefore, that everyone makes a will and keeps it up to date.

In Scotland, there are also prior rights and legal rights which can be invoked even if a legal will is in place.

Deeds of variation

Beneficiaries under a will or under the rules of intestacy can effectively redirect their share of the deceased&#39s estate by a written variation within two years of death and an election in writing to the Inland Revenue within six months of the variation.

The written variation can incorporate an absolute legacy to someone or a legacy into a trust.

A deed of family arrangement, as these deeds are also known, has the effect for capital gains tax and inheritance tax as if the deceased had made the eventual legacy under his or her original will. Thus, in many circumstances, a deed of family arrangement can be used for IHT planning (see example opposite.

Deeds of disclaimer

A disclaimer is similar to a deed of variation but the effect is just to disclaim the legacy. The terms of the will or intestacy rules would need to be examined to discover who is to inherit in lieu.

The person making the variation or disclaimer should be the person or any of the people that would have benefited under the will or rules of intestacy.

While it is generally only necessary to have as a party to the variation those individuals whose share of the legacy reduces, it is preferable to involve all those individuals whose share of the legacy alters at all.

Income tax implications

For CGT and IHT purposes, the person who is deemed to have passed the asset to the eventual beneficiary under the deed of variation or disclaimed is the deceased. This is not the case for income tax, however. Here, the donor is deemed to be the original beneficiary under the will (see examples left and below).

It is essential that, if a deed of variation is being contemplated, legal advice be sought within sufficient timescales to enable the deed to be completed effectively.

Next week, I will round off this series of articles with a summary of things to consider in IHT planning.

Recommended

ScotLife powers ahead to push pension plans

Scottish Life is producing a new worksite marketing toolkit for IFAs and their corporate clients to raise awareness of company pension schemes among employees.Designed around the theme What are you doing after work?, it encourages employees to think about their life both in and out of work and when they retire.The toolkit contains literature IFAs […]

Widows takes another bite of Morillo cherry

Indignation at Scottish Widows Investment Partnership&#39s continuing boasts about the performance of its European fund nine months after the departure of star fund manager Albert Morillo shows the issue of past performance is still alive and kicking.The FSA stated in its recent report on past performance that: “Retail investors cannot increase their chance of choosing […]

Better times ahead

Back to sex and pensions again this week, but this time with regards to a successful claim for sex discrimination relating to the backdating of pension rights for part-timers.It may not be immediately obvious how financial advisers can and should become involved in this area of advice to the financial gain of themselves and their […]

Newton Fund Managers – European High Yield Bond Fund

Monday, 16th October 2000.Aim: Income and growth by investing in European high yield corporate bonds.Minimum investment: Lump sum £1,000, additional £250, monthly £50.Investment split: B-rated corporate bonds – 67 per cent, BB-rated corporate bonds – 9 per cent, AAA-rated corporate bonds – 7 per cent, BBB-rated corporate bonds 6 per cent, AA-rated corporate bonds &#45 […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment