Since Alistair Darling's Pre-Budget Speech on October 9
2007, there have been a number of reports in the press
stating that will planning using the nil-rate band of the
first of a married couple to die will no longer be
necessary as you can now transfer the nil-rate band between
spouses and civil partners.
(The Nil-rate Band is currently £300,000, and upon
death a tax rate of 0% applies to the estate value up to
this amount).
This is generally true, but there will still be a number of
occasions when you may want to establish a discretionary
will trust:
1. Where a partner wants to benefit their children from a
former marriage on first death.
This could be achieved using a life interest trust in the
will, with income payable to the surviving spouse and
capital to the children from the first marriage. The
downside to this route is that it lacks flexibility,
especially if there is an intention to make capital
payments to the widow or widower by way of an interest-free
loan.
2. Where there may be a desire to avoid assets being
available to the local authority in the event of the
survivor going into care.
By leaving assets to a trust on first death, those assets
will not count as part of the surviving spouse's resources
for the purposes of the local authority charge. Indeed, the
split ownership of certain assets between the trust and
surviving spouse may reduce the value of the asset in the
hands of the surviving spouse (for example in the case of a
private residence).
3. Where it may be desired to avoid children inheriting
assets outright.
By passing assets to them via a trust, it will mean that
they are protected from the claims of creditors and
ex-spouses.
4. Where further Inheritance Tax could be available by the
trustees of the will trust making loans to the surviving
spouse.
This creates a debt and so reduces the taxable estate of
the survivor on his or her subsequent death (however be
aware there could be a restriction on the ability to deduct
the loans from the survivor's taxable estate.
Summary
These are just some of the issues that need to be
considered when drafting a will and giving thought to
whether a nil-rate band trust should be inserted in the
will or assets left outright to the surviving
spouse/partner.
What if you have already set up a Discretionary Will Trust?
It is thought that the most flexible route will be to
retain the trust in the will and then review matters after
the first death.
The Financial Tips Bottom Line:
Tax and will planning can be quite a technical subject,
therefore it is VITAL that you get the right professional
advice from an expert who can guide you through your
options.
By being proactive you could soon be utilising estate
planning strategies that you didn't even know existed!
----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.
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