Your will - Keeping it within the family
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| Giving to relatives – keeping it in the family |
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| Introduction |
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| This article is one of a set about wills. While some of the information pages explain various pieces of legislation which are relevant to making a will, others explain a particular aspect of will writing that you might like to consider. |
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| This article explains how best to maximise your life long earnings and assets by keeping them within your family. |
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| Here are some pointers from Net Lawman: Gifts to older people |
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| Most of our friends are of similar age to us. Often we would like to benefit old friends through our will. However, consider what are the financial needs of your friends, particularly if you yourself are in advanced years. How will their quality of life be improved if you give to them? Do they already have cash assets they are simply accumulating? Of course, consider too, that whatever you give may increase the value of their own estate on which inheritance tax may ultimately be payable. Ask yourself whether you would not prefer to skip a generation and give to younger people. |
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| Gift of the matrimonial home |
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| We do advise that you try to keep your spouse secure in his home, free of any mortgage or charge. It often happens that when a share in (or all of) “Mum’s or Dad’s house” comes into the hands of younger family members, it gets charged against personal or business debt and subsequently sold by a creditor. You need to be very sure of your children’s intentions and financial stability before leaving some or all of your home to them and not to your spouse. For obvious reasons, this is even more important if you have a second spouse or life partner who is not the parent of your children. But fear not, there are ways in which this situation can be “managed”, which we explain in connection with specific wills. |
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| Keep your will out of court |
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| If you foresee a situation where someone may be sufficiently disappointed to instruct their solicitor to claim under the Inheritance (Provision for Family and Dependants) Act 1975, it helps if you have explained in a side letter, placed with your will, why you have given that person little or nothing. If your reasons are sound, your wishes are more likely to prevail. Better still; take into account what entitlements certain people may have, at the time you make your will. |
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| Can parents say no? |
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| Parents may not be good at saying “no” when a child wants the money for an educational trip to learn about cannabis in Ibiza. But who wants to wait until the ripe old age of 25 before they can lay hands on their inheritance? Perhaps you can invent some suitable compromise whereby you specify in precisely what circumstances the money can be distributed. The more precisely you specify, the easier it will be for your trustees to refuse an offer in contravention of your wishes. Common examples of such occasions and purposes are: |
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- Reach age 18, 21, or 25;
- On marriage;
- On birth of a child;
- On buying a house;
- On going on “expedition”, usually abroad;
- On attending university or other higher education facility;
- On leaving universityand so on.
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| Discretionary trusts |
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| Trustees can hold money and property either at their discretion as to distribution of capital and income, or on behalf of some specified beneficiary, either outright, or subject to a condition, such as the attainment of a particular age. The first is a “discretionary trust”. The second is an “interest in possession” trust, even while the condition remains unsatisfied. |
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| In law, a beneficiary can demand to be paid his entitlement immediately the trust conditions are satisfied, or at age 18 if none are specified. However, legal actions to enforce this are few and far between. Eighteen year olds are not likely to sue a trustee aunt or parent! |
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| These are possible advantages: |
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- To prevent a spendthrift from having access to all of the capital at once. A “spendthrift” may simply be a young person who has never previously had access to a large sum of money;
- To prevent a large amount of cash falling into the hands of an ex-spouse, through the divorce courts. Because there is no interest in possession, a beneficiary cannot be said to “own” any part of the fund. Accordingly, none of it can pass to an ex- spouse (or trustee in bankruptcy). However, the divorce judge, in considering the division of other assets, will take account in broad terms of the likelihood of the beneficiary receiving a distribution in the future;
- To provide flexibility and freedom to the trustees to use the money in what they see as the best interests of the children. Capital can be distributed over many years. . . . And possible disadvantages:
- Trusts are no longer subject to the tax advantages of former years. Successive chancellors tighten the tax net. You must take professional financial advice on how a trust will be taxed before you set it up. However, it is unlikely that tax will ever be greater than that payable by a higher rate tax payer.
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| Trust for disabled person |
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| A trust specifically for a disabled person might qualify under section 89 of the Inheritance Tax Act 1984 for certain tax advantages. A qualifying trust will be treated as an interest in possession trust and, for example, receive a full capital gains tax allowance instead of the half allowance normally accorded to trusts. |
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| To qualify as a disablement trust the disabled beneficiary must also be incapable by reason of mental disorder within the meaning of the Mental Health Act 1983 of administering his property or managing his affairs, or in receipt of attendance allowance or disability living allowance. Remember to provide for what is to happen to any capital which is left on the handicapped beneficiary's death. |
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| Terminate the trust |
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| You are not permitted, by law, to accumulate money in a trust for ever. The “Rule against Perpetuities” could make a provision in your will void, if incorrectly drafted. However, most errors on drafting come within the (very convenient) “wait and see” provision, so this is not an area which needs great attention unless you wish to depart from the Net Lawman drafts. |
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| When you are considering who is to get what, consider giving the assets with the greatest growth potential to younger rather than older people because in the normal course of things they will have longer to live before inheritance tax is payable on their death. |
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| Related documents: power of attorney - legal wills - general power of attorney |
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