If you’d like to leave something behind for your family, or maybe set up a charity, a trust could work for you. A family trust offers a way for people to pass their wealth on to others – they are a good way to control and protect family assets, avoiding the complications of estate administration, and preventing Will and Probate disputes.
There are other types of ‘non-family’ trusts. These can be set up for a variety of reasons – for example, to provide a means for employers to create a pension scheme for their staff.
Here is an overview of the different types of Trusts available, how they are created and administered, and what the next steps are.
Different types of Trusts
What is a bare trust? A bare trust (sometimes known as a ‘simple trust’) is one where the beneficiary, the person who benefits from the trust, has an immediate and absolute right to both the trust capital and the income received by the trust from that capital. Someone who sets up a bare trust can be certain that the assets they set aside will go directly to the beneficiaries they intend, because, once the trust has been set up, the beneficiaries cannot be changed. The trust assets are held in the name of a trustee (the person administering the trust), but the trustee has no discretion over what income or capital to pass on to the beneficiary or beneficiaries. Bare trusts are commonly used to transfer assets to minors. Trustees hold the assets on trust until the beneficiary is 18 in England and Wales. At this point, beneficiaries can demand that the trustees transfer the trust fund to them. Example This is a bare trust because Juliet is absolutely entitled to both the capital (the original money put into the trust) and the income (any interest earned). Bare trusts and Income Tax The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust property in their own name and the beneficiary is liable to Income Tax on income received. The beneficiaries of a bare trust need to account for any Income Tax or Capital Gains Tax on their Self Assessment tax return. They do this on the sections of the form SA100 that deal with income, not the SA107 Trusts etc supplementary pages. Although trustees can pay Income Tax on behalf of a beneficiary, it is still the beneficiary who is liable for the tax. Capital Gains Tax on a bare trust Capital Gains Tax is a tax payable on ‘gains’ (profits) above a certain level made from the sale of assets such as shares, property or possessions. It is charged on any gains greater than the ‘annual exempt amount’, which is set each year. In a bare trust, Capital Gains Tax is charged on the beneficiary, as if the trust did not exist. The beneficiary must declare any chargeable gains on their personal Self Assessment tax return. Inheritance Tax on a bare trust For Inheritance Tax purposes, assets placed in a bare trust are treated as ‘potentially exempt transfers’. This means that they are usually only subject to Inheritance Tax if the settlor who put the assets into the trust dies within seven years of doing so. In this case, since the capital and income of a bare trust belong absolutely to the beneficiary, the beneficiary is responsible for any Inheritance Tax that may be due.
Gary leaves his sister Juliet some money in his Will. The money is to be held in trust. Juliet is the beneficiary and is entitled to the money and any income (such as interest) it earns. She also has a right to take possession of any of the money at any time.
In a discretionary trust, the ‘trustees’ are the legal owners of any assets – known as ‘property’ – held in the trust. They are responsible for running the trust for the benefit of the beneficiaries. The trustees have ‘discretion’ about how to use the income received by the trust. They may also have discretion about how to distribute the trust’s capital. In many such trusts the trustees can also accumulate income – see the section below on accumulation trusts. Trustees may decide: Under the terms of the deed that creates the trust, there may be situations when the trustees are required to use income for the benefit of particular beneficiaries. However, they may still retain discretion about how and when to pay. The extent of the trustees’ discretion depends on the terms of the trust deed. Sometimes the person who sets up the trust – the settlor – will use a discretionary trust to set aside capital for: Example Mina puts money into trust, to be held in trust for twenty years for the benefit of her two ten-year-old grandchildren, Azra and Jaspal. The trustees can decide how to invest or use the money and any interest it earns to benefit the grandchildren. So, when the children are young, the trustees might decide to pay for piano lessons for them. As they get older, the trustees might pay towards a wedding. Accumulation trusts are a type of trust where the trustees can ‘accumulate’ income within the trust. They will often do so until the beneficiary becomes legally entitled to the trust property or the income arising from this property. Income that has been accumulated becomes part of the capital of the trust. In many such trusts the trustees can also pay income at their discretion. Accumulation trusts should not be confused with ‘accumulation and maintenance trusts’. The latter is a type of trust that received favourable Inheritance Tax treatment. The Finance Act 2006 ended this favourable treatment and made provisions for accumulation and maintenance trusts to become either ‘18 to 25 trusts’ or to be moved into the new ‘relevant property’ regime. Trustees are responsible for declaring and paying Income Tax on income received by the trust. They do this on a Trust and Estate Tax Return each year. In both discretionary trusts and accumulation trusts income is taxable at the special trust rates, apart from the first £1,000 of trust income, which is known as the ‘standard rate band’. Income that falls within the standard rate band that would otherwise be taxed at the higher rates (37.5 per cent for dividend income and 45 per cent for other income) is taxed at lower rates, depending on the nature of the income. (Please note, if the settlor has more than one trust, the £1000 standard rate band is divided by the number of trusts the settlor has. If the settlor has more than five trusts, the standard rate band is £200 for each trust.) Special rules apply to trusts with vulnerable beneficiaries – see the section on vulnerable beneficiaries below. Some items that are capital in trust law are treated as income for tax purposes when received by trusts. They are taxed at the trust rate (45 per cent) or the dividend trust rate (37.5 per cent), depending on the type of capital. When trustees make a discretionary payment of income it carries a tax credit at the trust rate (currently 45 per cent). This means it is treated in the hands of the beneficiary as if Income Tax has been already paid at 45 per cent. The beneficiary could claim some or all of the tax back if they are a higher rate, basic rate or non-taxpayer. Trustees of a discretionary trust – or an accumulation trust where they also have the power to make discretionary payments – need to make sure that they have paid enough tax to cover the tax credit given to the beneficiary. They do this using a mechanism called the ‘tax pool’, which keeps a record of all discretionary income payments made by the trustees, and the tax the trustees have paid at the special trust rates. Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the sale or transfer of assets such as shares, property or possessions. It is chargeable in the same way on all trusts. Trustees are liable to Capital Gains Tax on any chargeable gains above an amount set each year called the ‘annual exempt amount’. Beneficiaries are not taxed on any trust gains and do not get credit for tax paid by the trustees. There may be an Inheritance Tax charge when: It is worth noting that the Inheritance Tax regime sometimes uses its own classification for trusts. Discretionary trusts may fall within what are known as ‘relevant property’ trusts. A discretionary or an accumulation trust may be used to help a ‘vulnerable beneficiary’. A vulnerable beneficiary is someone who is: A trust set up for the benefit of a vulnerable beneficiary may qualify for special tax treatment. The power to make discretionary payments – need to make sure that they have paid enough tax to cover the tax credit given to the beneficiary. They do this using a mechanism called the ‘tax pool’, which keeps a record of all discretionary income payments made by the trustees, and the tax the trustees have paid at the special trust rates. Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the sale or transfer of assets such as shares, property or possessions. It is chargeable in the same way on all trusts. Trustees are liable to Capital Gains Tax on any chargeable gains above an amount set each year called the ‘annual exempt amount’. Beneficiaries are not taxed on any trust gains and do not get credit for tax paid by the trustees. There may be an Inheritance Tax charge when: It is worth noting that the Inheritance Tax regime sometimes uses its own classification for trusts. Discretionary trusts may fall within what are known as ‘relevant property’ trusts. A discretionary or an accumulation trust may be used to help a ‘vulnerable beneficiary’. A vulnerable beneficiary is someone who is: A trust set up for the benefit of a vulnerable beneficiary may qualify for special tax treatment.
What is a discretionary trust?
Accumulation trusts
Discretionary or accumulation trusts and Income Tax
Discretionary income payments to beneficiaries
Discretionary or accumulation trusts and Capital Gains Tax
Discretionary or accumulation trusts and Inheritance Tax
Discretionary or accumulation trusts with vulnerable beneficiaries
Discretionary or accumulation trusts and Capital Gains Tax
Discretionary or accumulation trusts and Inheritance Tax
Discretionary or accumulation trusts with vulnerable beneficiaries
From an Income Tax perspective, an interest in possession trust is one where the beneficiary of a trust has an immediate and automatic right to the income from the trust as it arises. The trustee (the person running the trust) must pass all of the income received, less any trustees’ expenses, to the beneficiary. A beneficiary who is entitled to the income of the trust for life is known as a ‘life tenant’ or as ‘having a life interest’. A beneficiary who is entitled to the trust capital is known as the ‘remainderman’ or the ‘capital beneficiary’. The beneficiary who receives income (the ‘income beneficiary’) often doesn’t have any rights over the capital of such a trust – instead the capital will normally pass to a different beneficiary or beneficiaries in the future. Depending on the terms of the trust, the trustees might have the power to pay capital to a beneficiary even though that beneficiary only has a right to receive income. Example Stanley is married to Kathleen. On his death Stanley’s Will creates a trust and all the shares he owned are to be held in that trust. The dividends (income) earned on the shares are to go to Kathleen for the rest of her life. When she dies the shares pass to the children. Kathleen is the income beneficiary. She has an ‘interest in possession’ in the trust as she is entitled to the income (the dividends) arising on the trust assets for the rest of her life. Kathleen has no right to the capital. When she dies the trust ceases and all the capital (the shares) passes to the children. Trustees are responsible for declaring and paying Income Tax on income received by the trust. They do this on a Trust and Estate Tax Return each year. There are different rates depending on the type of income. Interest in possession trusts are not normally taxed at the special rates of tax that apply to non-interest in possession trusts, which are 37.5 per cent for dividends and 45 per cent for all other income. But there are certain capital receipts that are deemed to be income and are taxed at these higher rates. Special tax rules apply to interest in possession trusts with beneficiaries who are disabled or who are children who have lost a parent through death. (see below) Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the sale or transfer of assets such as shares, property or possessions. It is chargeable in the same way on all trusts, apart from bare trusts. Trustees are liable to Capital Gains Tax on any chargeable gains above an amount set each year called the ‘annual exempt amount’. Beneficiaries are not taxed on any trust gains and do not get credit for tax paid by the trustees. From an Inheritance Tax perspective, an interest in possession may also include the right to enjoy a non-income producing asset, for example the right to live in a house. There may be an Inheritance Tax charge when:
What is an interest in possession trust?
Interest in possession trusts and Income Tax
Capital Gains Tax on an interest in possession trust
Inheritance Tax on an interest in possession trust
A parental trust for minors is one where a ‘relevant child’ (a child under age 18 who has never been married or in a civil partnership) of the settlor can benefit from a trust. In this case, the settlor must be one of the child’s parents. Parental trusts for minors aren’t a type of trust in their own right – they will be one of the following types of trust: With parental trusts for minors, the child’s income from the trust is deemed to be the income of the settlor for Income Tax purposes. This rule only applies to trusts where a relevant child can benefit and the settlor and any spouse or civil partner are excluded. The Income Tax rate applied depends on what type of trust it is. Where the income arising from all parental gifts made by a parent to a child is less than £100, the child’s trust income is not counted as the settlor’s for Income Tax purposes. Where the rules apply to treat the income of the child as the income of the settlor, the tax paid by trustees is available to the settlor and not the child. Each year, the settlor must enter on their personal tax return details of the Income Tax the trustees have paid (to the child) on their behalf. They do this using form SA107 Trusts etc – the trusts supplementary pages of the main SA100 Tax Return form. The settlor can set the amount paid by the trustee on their behalf against the amount of tax they have to pay and (depending on their overall level of taxable income) may qualify for a refund. Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the sale or transfer of assets such as shares, property or possessions. For the tax year 2008-09 and beyond, the trustees pay Capital Gains Tax on any chargeable gains they make above an amount called the ‘annual exempt amount’. There may be an Inheritance Tax charge when: The Inheritance Tax regime sometimes uses its own classification for trusts. Parental trusts for minors may fall within what are known as ‘relevant property’ trusts, which have to pay Inheritance Tax on anything above the Inheritance Tax threshold of £325,000.
Parental trusts for minors and Income Tax
Income Tax
Income payments below £100
Reporting the tax paid on the settlor’s return
Parental trusts for minors and Capital Gains Tax
Parental trusts for minors and Inheritance Tax
A beneficiary is anyone who benefits from a trust. A ‘vulnerable beneficiary’ is either: If a trust is set up for a vulnerable beneficiary, the trustees can claim special treatment for Income Tax and Capital Gains Tax if it’s a ‘qualifying trust’. It can’t be a qualifying trust if the person who sets it up can get some benefit from it. The property in these trusts can be used only to benefit a disabled person. The disabled person must be entitled to all the income or, if they are not, none of the income can be applied for the benefit of anyone else. These trusts are commonly set up: If there are other beneficiaries who aren’t vulnerable, the property and income that’s for the vulnerable beneficiary must be identified, kept separate and used only for the vulnerable beneficiary. Only that part of the trust gets special tax treatment. To claim special tax treatment, trustees must fill in form VPE1 (Vulnerable Person Election) and send it to the HM Revenue & Customs (HMRC) Trusts Office that deals with their trust. They must sign it, along with the vulnerable beneficiary – or someone who can legally sign for the beneficiary. Trustees have to give details of all the property in the qualifying trust, including anything used only partly for the vulnerable beneficiary. They’ll also have to show how the trust income is shared out. (As mentioned earlier, it can’t be a qualifying trust if the person who sets it up can get some benefit from it.) The election applies to both Income Tax and Capital Gains Tax – you can’t claim the treatment for only one tax. A separate form VPE1 must be completed for each beneficiary. The election takes effect from the date on the form VPE1. You must make the election no later than 12 months after 31 January following the tax year when you want the election to start. Any income or gains before the date the election takes effect are taxed under normal trust rules – even if the election takes effect part way through the same tax year. You must tell HMRC if the vulnerable person dies or is no longer vulnerable. The special tax treatment is no longer effective after this date. Where a trust has a vulnerable beneficiary, the trustees are entitled to a deduction of tax against the amount they would otherwise pay. This is calculated in the following way: Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the disposal of assets. Capital Gains Tax is paid by the trustees. They can claim a relief, which is calculated in a similar way to the Income Tax Relief: This special Capital Gains Tax treatment does not apply in the tax year when the beneficiary dies. Trusts for vulnerable beneficiaries get special Inheritance Tax treatment if they’re ‘qualifying trusts’ for Inheritance Tax. A qualifying trust for a disabled person is one where: A qualifying trust is made on the death of a parent for their child, who must take all of the capital and income at (or before) becoming 18. A gift or transfer into a qualifying trust for a disabled person is treated as a ‘potentially exempt transfer’ (PET) – this means that there is no Inheritance Tax charge on the transfer if the person who made it survives seven years from the transfer date. There is no Inheritance Tax on transfers made out of either type of qualifying trust to the vulnerable beneficiary – but when the beneficiary dies, any assets held in the trust on their behalf are treated as part of the their estate and may be liable for Inheritance Tax. There are no ten-year Inheritance Tax charges on trusts with vulnerable beneficiaries.
What is a ‘vulnerable beneficiary’?
Trusts that qualify for special tax treatment
Qualifying trusts for a disabled person
Qualifying trusts for a relevant minor
More than one beneficiary
Making a ‘vulnerable person election’
Making an election if there’s more than one vulnerable beneficiary
Deadline for making a vulnerable person election
If the vulnerable person dies or is no longer vulnerable
Income Tax for trusts with vulnerable beneficiaries
Capital Gains Tax for trusts with vulnerable beneficiaries
Inheritance Tax for trusts with vulnerable beneficiaries
Qualifying trust for a disabled person
Qualifying trust for a ‘bereaved minor’
Special Inheritance Tax treatment
If any of the following people benefit from income or gains from a trust, it is regarded as settlor-interested: There are additional rules for trusts that are not settlor-interested but from which a relevant child of the settlor may benefit. Settlor-interested trusts aren’t a type of trust in their own right – they will be one of the following types of trust: Example of a settlor-interested discretionary trust Dave Green has an illness and can no longer work. He decides to set up the Dave Green Discretionary Trust to ensure he has money in the future. He places some of his money in the trust. This makes him the settlor, but he also benefits from the trust, so he ‘retains an interest’. This is because the trustees can make payments to him. As a result, Dave can be taxed on income received by the trustees – more on this below. If instead Dave’s parents provide the money for the trust, they are the settlors. Dave is not a settlor, therefore the trust is not regarded as settlor-interested. With settlor-interested trusts, the settlor is liable for all Income Tax due on income received by the trustees, even income that is not paid out to the settlor. However, the trustees are required to pay the tax, as the recipients of the income. The Income Tax rate applied depends on how the trust has been set up. If it operates as an accumulation or discretionary trust, the rate for that type of trust applies. If it operates as an interest in possession trust, the rate for that type of trust applies. Settlor-interested trusts can also be partly settlor-interested. Trustees can hold distinct funds within the trust, some of which the settlor (and spouse or civil partner) are excluded from. With partly settlor-interested trusts, the settlor pays tax only on the income arising from the part of the trust from which they, their spouse or civil partner may benefit. Although the settlor is liable for all the tax due on income from a settlor-interested trust (or the settlor-interested element of a partly settlor-interested trust), the trustees must still complete a Trust and Estate Tax Return and pay tax on all of the income they receive from the trust. Each year, the settlor must then enter on their personal tax return details of the Income Tax the trustees have paid on their behalf. They do this using form SA107 Trusts etc – the trusts supplementary pages of the main SA100 Tax Return form. The settlor can set the amount paid by the trustee on their behalf against the amount of tax they have to pay and (depending on their overall level of taxable income) may qualify for a refund or have to pay more tax. Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the sale or transfer of assets such as shares, property or possessions. For the tax year 2007-08 and earlier, settlors pay Capital Gains Tax on any chargeable gains made by the trustees. These gains are added to the settlor’s personal gains. For the tax year 2008-09 and beyond, the trustees pay Capital Gains Tax on any chargeable gains they make above an amount called the ‘annual exempt amount’. There may be an Inheritance Tax charge when: Settlor-interested trusts may fall be clarified as ‘relevant property’ trusts, which have to pay Inheritance Tax on anything above the Inheritance Tax threshold of £325,000.
How settlor-interested trusts work
Settlor-interested trusts and Income Tax
Partly settlor-interested trusts
How the settlor reports and pays Income Tax
Settlor-interested trusts and Capital Gains Tax
Settlor-interested trusts and Inheritance Tax
If you would like to discuss the above please get in touch.
Unfortunately, we can’t predict the future. Accidents happen, and people become unwell. If you are unable, even just temporarily, to make decisions for yourself, no one, not even your spouse, would be able to access your accounts, pay your bills, proceed with your business or make decisions on your behalf without making an application to the court. It can be a long and expensive process.
That’s why it’s so important to appoint a trusted person as your Power of Attorney (POA). A POA authorises a person of your choice to make decisions and take certain actions on your behalf if you are unable to do so yourself.
This guide gives you an overview of how a Lasting Power of Attorney works and the options available, along with information about our approach, and what the next steps are.
It is a cruel fact of life that 1 person in 20 over the age of 65 will develop dementia. Further, any one of us could have an accident, suffer an injury or develop an illness at any time and therefore steps need to be taken to ensure your finances, the wellbeing of your family and your medical wishes are respected. What is the issue? If you were to suffer an illness and were unable, even temporarily, to make decisions for yourself then without the correct paperwork in place no one would be able to access your accounts, pay your bills, proceed with your business or make decisions on your behalf without making an application to Court. Such an application can take a very long time and can prove rather expensive. With a bit of forward planning and taking the time to prepare a Lasting Power of Attorney this can all be avoided. You may also want to consider end of life decisions with an Advance Decision and a separate Lasting Power of Attorney for your business. What is a Lasting Power of Attorney (“LPA”)? An LPA is a legal document that enables you to appoint someone to act on your behalf in relation to your should you not be able to deal with such matters yourself at some point in the future. The person appointed is called an “Attorney”. When can an LPA be used? An LPA is essential should you suffer from an injury or illness. Before being used, both types of LPA have to be registered with the Office of the Public Guardian. Unless you have put a restriction in the LPA preventing it, the financial LPA can then be used at any time it is required, whether or not you have capacity (this can be very useful should you suffer a physical injury and not be able to get to the bank for example, your attorney can go for you with full legal authority). The health and welfare LPA can only be used when you are unable to make a decision for yourself. When should I make an LPA? As soon as possible! We recommend that everyone, whatever their age or state of health, takes out an LPA to ensure that their affairs can be managed and looked after in the future. We are married, and all of our money is in a joint account, why do we need an LPA? Many people do not realise that your spouse will not be able to access your finances or make decisions on your behalf without further legal authority. If both you and your spouse are unwell or if your spouse passes away, no one else will be able to access your accounts or manage your money. The banks are also under a legal duty to safeguard the funds of someone who has lost capacity and have the power to freeze a joint account if this happens. If you retain any accounts in your sole name, such as an ISA, your spouse will not be able to access this and will have no control over the funds within that account. If you own a property (even one owned jointly), an LPA is necessary should this need to be sold. I already have a Will, why do I need an LPA? The Executors appointed in your Will can only act after your death. They have no legal authority to act during your lifetime, even if you are severely unwell. An Attorney’s authority under an LPA ceases upon death and at that time the Executors of your Will are responsible for your estate. Can I have my spouse and children as my attorneys? Yes. You can have as many Attorneys as you wish and you can appoint them to act jointly, which means they must act together at all times or jointly and severally, which means any one of your Attorneys can act and make decisions without the other Attorneys being present or involved. You can also specify that they act jointly for certain decisions and jointly and severally for others. Your Attorneys must be people you trust completely. What is the Office of the Public Guardian (“OPG”)? The OPG is the government body set up to protect people who lack mental capacity. It keeps a register of all LPAs and can investigate complaints against Attorneys in appropriate cases when there is a concern and the person making the LPA has lost capacity. Do I lose control of my money and finances by making an LPA? No. Whilst you have mental capacity you remain fully in control of your finances and can deal with your own affairs at any time, even if the Attorneys have been dealing with things on your behalf. Your Attorneys must do as you tell them. It is only if you have lost capacity that your Attorneys can make decisions on your behalf. If you have an accident or require some assistance temporarily, your Attorneys can assist you and then you can take over full control again when you are able to. What decisions can my Attorneys make on my behalf? Unless you decide to restrict their power, your Attorneys can manage your bank accounts and investments, they can pay money in, make withdrawals, transfer funds, pay bills, make birthday or Christmas gifts on your behalf (subject to some restrictions), sell and buy shares and sell or buy property. Essentially they can do anything with your money that you are able to do. Can my Attorneys sell my home? Unless you have restricted this, your Attorneys can sell your property should it become necessary and be in your best interests. Similarly your Attorneys can arrange to let your home to tenants should you no longer be in occupation of the property. Do I have to register my LPA straight away? It is not necessary to register the LPA immediately; however, given that registration takes approximately 3 months to complete, we strongly recommend that you register the document at the same time that it is prepared. Further, if there are any problems with your LPA these can be rectified whilst you have capacity but not afterwards. In other words if you delay registering the LPA and there is a problem with it, it cannot be registered and will not be able to be used. What happens if I do not have an LPA in place and I lose capacity? In these circumstances, you have lost the ability to choose someone to act on your behalf. The banks will not talk to anyone about your financial affairs and no one will be able to assist you with such matters or make any decisions in relation to medical matters. A relative or other suitable person can make an application to the Court of Protection for a Deputy Order. This is an Order giving someone authority similar to that of an attorney in relation to your financial affairs. However, the process can take a very long time (usually a minimum of 6 months), and in the meantime no one can assist you with such matters. Further, this application is far more expensive than creating an LPA, there are supervision costs that must be paid annually and an insurance bond is required and must be paid for annually. The Court of Protection is reluctant to appoint someone to have full authority over another person’s health and welfare decisions. Instead they prefer to consider matters on a “decision by decision” basis. This could mean that every time there is an issue that needs resolving an application will need to be made to the Court, causing both delays and further expense. What other safeguards are there within the LPA? When making an LPA you have the choice whether or not to name one or more person in the document to be notified about the existence of the LPA. This gives the person(s) notified the opportunity to raise any concerns they may have with the OPG. Can I cancel my LPA? You can change your mind and cancel your LPA at any time, as long as you retain mental capacity. I already have an Enduring Power of Attorney (EPA); do I really need an LPA as well? An EPA works in a similar way to an LPA but since October 2007 it has not been possible to make a new EPA. If you had an EPA in place prior to that date then this can still be used. However, an EPA cannot be used when someone starts to lose capacity. In this circumstance your Attorney must register the EPA and this can take some time. In the meantime they will be able to do very little on your behalf – just at the time when it is needed the most! We therefore recommend a new LPA be put in place and any old EPA be revoked. Further, an EPA gave no power to make health and welfare decisions and therefore this type of LPA should still be made despite the existence of an EPA. Do I need to have both types of LPA? We strongly recommend both types of LPA are prepared, but they are both separate documents so it is not necessary to make both should you decide not to do so. Who would make decisions about my Health and Welfare if I didn’t have that LPA? Your next of kin would generally make these decisions or your doctors. If you are not married for example, this could mean that your partner does not have the legal right to make decisions or have any say in your care. By having a health and welfare LPA in place, you can appoint each other as your Attorney. This would give you the same decision making powers in respect of decisions in relation to care, life sustaining treatment and so on. What about end of life decisions? A health and welfare LPA can include a statement authorising your Attorney to make end of life decisions on your behalf but often it is important for them to consider your wishes. Further if your Attorney is not present in the event of an accident it may be necessary for the hospital to be aware of your wishes in advance. For this reason it is worth considering making an Advance Decision which is essentially a document where you can set out your refusal of certain specific treatments or give details of circumstances in which you would not want treatment to be offered. What about my business? It is possible to make a financial LPA limited to your business. This may be appropriate where your spouse, children or other trusted relatives who you have appointed to deal with your personal affairs would not be suitable or would not have the expertise to look after and advance your business affairs. In these circumstances a business LPA should be considered.
Incapacity and Lasting Powers of Attorney
If you would like to discuss the above please get in touch.
A Will is arguably the most important legal document you will ever make, since it’s the only certain way to ensure that your wishes are carried out when you die. Ensuring the validity of your Will is crucial, which is why it should be professionally drafted.
When the time comes, it’s important to seek professional advice and consider all eventualities. This is where our highly qualified Wealth and Estate Planning team come in. We are members of the Society of Trust and Estate Practitioners, so we can ensure you get only the very best advice.
This ‘Will Factsheet’ aims to provide some supplemental information to explain, in more detail, what the different aspects of a will include, the decisions you will need to make when creating or amending your will and what you may want to consider when making these decisions. Previous Wills It is important for us to know if you have an existing will or have ever made a will in the past, if you do have a previous will, we will ask that you bring this to our initial meeting or send us an electronic copy. At the very start of your will, it will state that it revokes any previous wills. This can exclude certain wills, for example if you have a foreign will that you would like to ensure is not revoked. The main reason we need to know details about your old or existing will is so that we can record why your wishes have changed. This is useful in the event a dispute occurs. Challenges to your will after death We will ask if there are any close family members i.e. spouses or children, any person that you support financially or anyone included in a previous will that does not benefit from your new will. We ask this to assist with any challenges that may be made to your will after your death. If we have this information written down it will be beneficial to argue against any claim on your estate and will show that you gave consideration to this prior to making your will. In some circumstances, it may even be necessary to include a statement within your will regarding such exclusion. Financial Information We will discuss with you your financial situation including whether you have any life insurance policies, any pension plans, investments, bank accounts, digital assets, inheritance you’ve received, trusts you’re a beneficiary of, debts you owe, debts owed to you and any gifts made in the last 7 years. We ask this information to ensure we structure your Will in the best way possible. Domicile and Scope For most people this will be straightforward and will simply be where you live but if there is any doubt your will should contain a declaration as to your domicile and will state what assets the will attaches to. Domicile is very important as it is usually what dictates which countries inheritance tax rules apply and so if you are unsure we would recommend that a domicile report is conducted. In addition to this your will should include a statement confirming which assets your will attaches to. Generally we would advise that it only attaches to your assets in England and Wales. Any other assets you have should be dealt with by a will governed by the laws of the jurisdiction relevant to those assets. We would always strongly recommend that you make a will in any country that you have assets, noting the above, that you will need to ensure any additional Will made does not revoke your UK will. Funeral Wishes When drafting your will we aim to include any wishes you have about your funeral to ensure that your executors and trustees are aware of them. Wishes can be anything you like and often include wishes about the funeral itself, burial or cremation and where you would like your body to be buried, or your ashes scattered. Executors and Trustees These are the people who will be responsible for the administration of your estate, managing any trusts set out in your will and carrying out any wishes that you specify in your will. You should consider carefully about whom you would like to act as executors and trustees; ideally people who are able to act objectively when distributing your estate, however this does not mean that a beneficiary/guardian cannot be an executor or trustee. It is also a good idea to appoint at least one substitute executor and trustee who will act if your first choices are unable or unwilling to act for any reason. Guardians for children If you have children, under the age of 18, we would ask that you provide the name of someone to assume legal responsibility for them. This is likely to be in the event of both parents death. This can be one person, a couple or a number of people however; we would advise that you consider carefully where your children are to live. If they are to live with one particular person it may be preferable to simply make that one person their guardian with any others as replacements. This appointment will only come into effect if, at your death, there is no-one else with parental responsibility. As with trustees, it is a good idea to appoint a substitute guardian who will act if your first choices are unable or unwilling to act for any reason. When considering guardians you should also consider what funds should be made available to the guardians to enable them to look after your children. This may fall from a lifetime provision of maintenance or a trust held for the children. You can also provide us with a separate letter for your guardians outlining any other wishes you want them to consider. This may include religion, schooling, hobbies, contact with various family members and anything else of importance to you. We can provide a template letter to assist with this. Distribution of your estate There are 4 broad options when distributing your estate; gifts of your personal possessions, specific gifts of other assets (shares, properties for example), specific gifts of set amounts of money and then finally the division of the remainder of your estate. There is no need to list everything you own as any items not referred to will fall into the remainder of the estate. This also prevents you having to update your will every time you buy or sell something. Minor Beneficiaries If you wish to leave anything to a minor you will need to state which age you want them to inherit the gift. Generally, if you do not specify, this will be 18 but you may consider this too young an age to inherit so other options are typically age 21 or 25. This will then be held on trust until the beneficiary reaches the specified age. Your trustees will have power to advance funds to this beneficiary early should they need to do so. For example if you would like someone to have a share of the estate upon reaching 25 but they are wanting to buy a house or pay for education before this date, your trustees will be able to give part of the trust early for this purpose. The same applies to school fees and upbringing costs. Charity This is a good time to make charitable donations either by way of a gift of money of a share of the residue as they are all tax free and leaving more than 10% of your estate to charity will be advantageous for tax purposes as the 40% rate can be reduced to 36% on all chargeable items in your estate. Gifts of personal possessions This includes all of your chattels for personal use (the list is long and non-exhaustive, but may for example include vehicles, boats, furniture, clothes, jewellery, wine, household goods, electronic items, etc). Items you use for business purposes (if any) are not included here; neither is money or currency, which may for example include gold coins. Valuable collections of items may or may not fall under the statutory definition, depending on specific circumstances. When drafting your will we will state that all personal possessions will be distributed by your trustees with reference to any wishes you make known to them prior to your death (or which come to their attention within 3 months of your death). Whilst you do not have to set out those wishes in writing, it is a good idea to do so, to avoid potential conflict after your death. You can write a letter of wishes setting out how you would like your possessions to be distributed; this letter should be stored with your will, and can be changed without making a new will. However, any request or letter of wishes will only be a request and your trustees will not be legally bound to do this and so, if you have any particularly valuable items or family heirlooms which you would like to gift to someone it may be worth individually describing these items. You will be able to state whether these items are free or subject to tax and you can also choose to charge the remainder of the estate with any delivery costs. Specific Gifts of other assets This can include (but is not limited to being) any properties, any share of a property, items used for business purposes or valuable collections. If you would like any particular asset to be gifted to someone you must list them here, any asset not listed here will fall into the residue. It is important to note that any assets that you own jointly with someone are likely to pass to that person by survivorship and therefore do not need to be listed. As with personal possessions, you will be able to state whether these items are free of tax and free of any charge, for example free of a mortgage, and any amount owed will be paid out of the residue. For tax purposes any business interests should be included as a legacy not left to the remainder of your estate. Gifts of money Within your will you can gift an amount of money to specific people, as above, you will be able to state whether these items are free of tax and any amount owed will be paid out of the residue. Division of the residue You will then need to consider how the rest of your estate is to be divided – percentages normally work best as the value of the remainder of your estate may vary at the time of your death. Disaster We will discuss with you what you would like to happen should your first choice of beneficiary predecease you.
What to Consider When Making a Will
The Will Content
Next Steps
Please contact us to discuss the above should you have any queries, require further explanation or wish to discuss your circumstances.
If you do not have a Lasting Power of Attorney (LPA) in place, no one has the legal authority to make decisions on your behalf. Which means, if something unforeseen happens, for example an illness or losing capacity, the only option for your family will be to make an application to the Court of Protection for a Deputy to be appointed to manage your financial affairs.
The application can be time consuming and is more expensive than making an LPA.
It is very rare for a Deputy to be appointed for Health and Welfare matters as the Court prefers to consider applications on a one-off basis whenever there is disagreement. We can assist with these applications, ensuring it runs as smoothly as possible, and guiding you through the process. In appropriate cases, we can also act as a deputy either solely or alongside a family member.
Once the order is made our involvement can continue and we can continue to assist you in carrying out your responsibilities, making sure all relevant insurance is in place, completing annual reports, preparing for supervision and inspections, compiling accounts and completing annual tax returns.
For expert guidance on your duties as an attorney please contact us to make an appointment.
