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There is often a lot of confusion in people’s minds about whether or not they need to make a Will, what will happen if they die without one, and how they should go about having a legally valid Will created.

There are lots of good financial reasons for making a Will:

  • You can decide how your assets are shared out - if you don't make a Will, the Government says who gets what (The Intestacy Rules). This could mean that your partner or children receive less than you intended, or that the money goes to distant family members who may not need it, at the expense of those that do
  • If you aren't married or in a civil partnership your partner will not inherit automatically – accordingly drafting a Will means that you can make sure your partner is provided for
  • You can make sure you don't pay more Inheritance Tax than necessary

To find out how our wills solicitors can help you with your will, call us today on 0151 236 5000 for our Liverpool office or 020 8209 0166 for our London office or complete our online contact form for more information.

A brief explanation of each ‘type’ of will is as follows:

1.      Standard Will

The most ‘common’ will for married couples is to gift everything to each other, with a substitutional gift upon second death to the children.

The Advantages include:

  • Simplicity in drafting
  • Immediate use of Spouse exemption avoiding any Inheritance Tax on first death
  • Complete freedom for surviving spouse to ‘do as they please’ with the combined estates (i.e – the survivor can spend 100% of the estate before death or rewrite their will to provide for completely different beneficiaries)

The Disadvantages include:

  • Upon second death the combined estate, if exceeding twice the Nil Rate Bands (i.e. £650,000.00) and two Residential Nil Rate Bands (i.e. £350,000.00 by 2020-21 (but subject to very strict pre-conditions)) will be taxed at 40% (subject to any available reliefs)
  • Assets attracting Business Property Relief may have lost the available relief
  • The surviving spouse has complete freedom to ‘do as they please’ with the combined estates (i.e – the survivor can spend 100% of the estate before death or rewrite their will to provide for completely different beneficiaries)

2.      Life Interest of Family Home

Often the most valuable asset within the estate is the family home. The essence of this type of will is to reduce the value of the estate in the name of the surviving spouse should they end up in care. By ‘ring fencing’ the home, it is removed from the financial equation and ensures at least 50% of the value of the family home is preserved for the children as ultimate beneficiary. The remaining assets are gifted to each other, with a substitutional gift upon second death to the children.

The advantages include:

  • Immediate use of Spouse exemption avoiding any Inheritance Tax on first death, both through the Life Interest over the family home and the absolute gift of the remaining residue to the surviving spouse
  • Ring Fencing of the deceased’s half share in the family home for the protection of the children’s future inheritance
  • The surviving spouse has complete freedom to ‘do as they please’ with the remaining combined estates (i.e – the survivor can spend 100% of the estate before death or rewrite their will to provide for completely different beneficiaries)
  • Flexibility in the Life Interest Trust to enable the surviving spouse to relocate or if desirable to ‘break’ the trust and ‘reclaim’ the wealth tied up in the family home (subject to Trustee approval)

The Disadvantages include:

  • More complicated drafting and increased legal fees (including costs of severance with HM Land Registry)
  • Upon second death the combined estate, if exceeding twice the Nil Rate Bands (i.e. £650,000.00) and two Residential Nil Rate Bands (i.e. £350,000.00 by 2020-21 (but subject to very strict pre-conditions)) will be taxed at 40% (subject to any available reliefs). From an IHT point of view the creation of the Life Interest over the family home of the deceased is tax neutral. The surviving spouse is deemed to own 100% of the family home which is combined with their remaining wealth.
  • Assets attracting Business Property Relief may have lost the available relief
  • The surviving spouse has complete freedom to ‘do as they please’ with the combined estates (i.e – the survivor can spend 100% of the estate before death or rewrite their will to provide for completely different beneficiaries)
  • The survivor can influence the Trustees to break the trust and return the wealth to them
  • The surviving spouse fails to influence the Trustees and is thereby deprived from ‘regaining’ the value of the estate to spend as they wish.

3.      Life Interest of Whole (Immediate Post Death Interest in Possession) – the IPDI Will

When an individual has wealth both in the family home and other substantial assets, the advantages of option 2 above will have only been secured for the home and nothing else. Accordingly, a Life Interest over all the wealth (an IPDI will) of the deceased ensures that the entire estate can be ‘ring fenced’ and protected for the benefit of the ultimate beneficiaries (i.e the children). Under this arrangement, the entire estate is held under a Trust which grants a Life Interest over 100% of the wealth for the surviving Spouse with a final gift upon their death to the ultimate beneficiaries.

The advantages include:

  • Immediate use of Spouse exemption avoiding any Inheritance Tax on first death.
  • Ring Fencing of all the deceased’s assets for the protection of the children’s future inheritance
  • Flexibility in the Life Interest Trust to enable the surviving spouse to utilise all the wealth, relinquish any part of the estate as an advance gift to the children or if desirable to ‘break’ the trust and ‘reclaim’ the wealth tied up in the Trust (subject to Trustee approval)

The Disadvantages include:

  • More complicated drafting and increased legal fees
  • Upon second death the combined estate, if exceeding twice the Nil Rate Bands (i.e. £650,000.00) and two Residential Nil Rate Bands (i.e. £350,000.00 by 2020-21 (but subject to very strict pre-conditions)) will be taxed at 40% (subject to any available reliefs). From an IHT point of view the creation of the Life Interest over the entire estate is tax neutral. The surviving spouse is deemed to own 100% of the estate which is combined with their remaining wealth.
  • Assets attracting Business Property Relief may have lost the available relief
  • The survivor can influence the Trustees to break the trust and return the wealth to them
  • The surviving spouse fails to influence the Trustees and is thereby deprived from ‘regaining’ the value of the estate.

4.      Discretionary Will

This is effectively the same as 3 above (in fact the Life Interest Will for the Spouse is designed around the structure of a Discretionary Will Trust) but is primarily for when the ‘potential beneficiaries’ of the Trust fund comprise a more diverse group of people. It is often used for second marriages when an individual has children from different relationships and needs to ‘balance’ the competing needs and requirements of a ‘new’ spouse with children from a past relationship and children of the new relationship. It is also used when stepchildren need to be catered for or where wider family members (e.g. nephews and nieces) are to be included. The Discretionary Trust is also utilised for protecting ‘vulnerable’ beneficiaries who may have learning difficulties, addictions, financial problems, State Benefit issues or are on the brink of divorce.

The Trust establishes a group of potential discretionary beneficiaries who may or may not receive a benefit from the Trust. Subject to any payments made to a beneficiary, an overall Life Interest (that can be terminated by the Trustees) is granted to the surviving spouse in order to obtain Spouse Exemption with immediate effect upon first death (thereby avoiding any initial IHT liability).

The advantages include:

  • Immediate use of Spouse exemption avoiding any Inheritance Tax on first death.
  • Ring Fencing of all the deceased’s assets for the protection of the numerous potential beneficiaries future inheritance
  • Flexibility through an Expression of Wishes to give guidance to the Trustees upon how to balance the needs of various beneficiaries and how to ‘operate’ the Trust

The Disadvantages include:

  • More complicated drafting and increased legal fees
  • Upon second death the combined estate, if exceeding twice the Nil Rate Bands (i.e. £650,000.00) and two Residential Nil Rate Bands (i.e. £350,000.00 by 2020-21 (but subject to very strict pre-conditions)) will be taxed at 40% (subject to any available reliefs). From an IHT point of view the creation of the Life Interest over the entire estate is tax neutral. The surviving spouse is deemed to own 100% of the estate which is combined with their remaining wealth.
  • 10 yearly Charge applies if the Trust is retained long term
  • Assets attracting Business Property Relief may have lost the available relief
  • The survivor can influence the Trustees to break the trust and return the wealth to them
  • The surviving spouse fails to influence the Trustees and is thereby deprived from ‘regaining’ the value of the estate.
  • The Trustees can ‘ignore’ the Expression of Wishes

Every client’s personal and financial circumstances differ. It is imperative that your situation is properly assessed so that you can be offered the right Will for you and your family – not simply the cheapest or the most ‘straight forward’ rom a drafting point of view.

Our Private Client Department offers fixed fees. Please refer to Table 1 within our Costs Table.

See our guides on the following:

Contact our specialist will lawyers in Liverpool & London today

Our experienced private client solicitors can guide you through the process of preparing a will to provide for the financial security of your family and save Inheritance Tax and Asset Protect against care home fees. Contact us today on 0151 236 5000 or complete our online contact form for specialist advice.

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