APPENDIX A: MAKING A WILL - FREQUENTLY ASKED QUESTIONS



1. What is a Will?

2. What can I do in my Will?

3. Can a letter be as legal as a Will?

4. What happens if I don't make a Will?

5. What is included in my estate?

6. Can I make provision for my children (and future children)?


7. Should I appoint Guardians?

8. Can I change my Will?

9. Can I cancel my Will?

10. Does marriage or divorce affect my Will?

11. Can my Will be changed after my death?

12. What happens if I leave someone out of my Will?

13. What are Executors?

14. What are Trustees?

15. What do Executors do?

16. How many Executors can I appoint?

17. Do Executors get paid?

18. What are trusts and how do they work?

19. What happens to property in joint names?

20. What about Inheritance Tax?

21. What is a gift made "free of tax"?

22. Can I leave with my Will a hand-written list of gifts of my personal belongings?

23. What does it mean if I give someone a "life interest" in my Estate?

24. What's the best way to provide for my disabled child?

25. How can I avoid the council selling my home if I'm taken into care?

26. Can I choose anyone to witness me signing my Will?

27. What should I do with my Will after I have signed it?


Appendix B: Rules of Intestacy - England & Wales

Appendix C: Rules of Intestacy - Northern Ireland

Appendix D: Rules of Intestacy and Making a Will in Scotland

Appendix E: Inheritance tax and how to avoid the Taxman (more details)

Appendix F: Glossary of Legal Terms



1. What is a Will?


A Will is a legal document in which you state what you would like to happen to your estate. Your estate consists of your house (less any outstanding mortgage or other loans secured on it), cash and savings, your car, household and personal effects, proceeds from any life assurance policies and pensions where there isn't a named beneficiary or the plans are not written in trust LESS any outstanding loans, credit card balances, household bills, funeral expenses, etc.

If the gross value of the total estate is less than 5,000 (England, Wales & Northern Ireland) or 25,000 before debts (Scotland) it is called a "small estate" and can be distributed without a Grant of Probate or Confirmation of the Estate.

However, it doesn't matter how little you think you are worth, it is important that you make a Will. Without a Will, your relatives and friends could face severe difficulties. And, although you may not like it, if you don't make a Will the law will decide for you, which may not be what you would have wished. You must sign and date your Will in the presence of two witnesses (England, Wales and Northern Ireland) or one witness (Scotland).

You must appoint an executor in your Will to ensure the terms of your Will are carried out. Sometimes one executor is sufficient but where there are potential beneficiaries who are not yet 18, then two executors are advisable. The executor's role is explained further below.

Your Will is an invaluable opportunity for you to clearly let your intentions be known relating to:

  1. Who you wish to act as executor of your Will
  2. Who you wish to act as guardian of your children and how you wish to provide for your children's upkeep
  3. How you would like your funeral conducted
  4. Whether you wish to donate your organs or donate your body for medical research
  5. Provisions to reduce death duties (Inheritance Tax)
  6. How to provide for your pets or favourite charity
  7. Who you wish to receive what of your personal items, investments and or property. Whether the gift has real value like your house or only has sentimental value like a watch or wedding ring.

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2. What can I do in my Will?

Most people choose to keep their Will as simple as possible and so gift all their estate (as one lump - called the "residue of my estate") rather than try to break it down into individual amounts or items. However, you may, if you wish, gift:

a) property - either as an outright gift or to give someone the use (only) of it for a period, say, until they remarry with the instructions that once they have remarried the house is to be sold and the proceeds shared among other members of your family nominated by you

b) all your house contents (chattels) or individual items

c) specific sums of cash - with or without an inflation adjustment

d) specific investments e.g. shares, peps, tessas

e) businesses - either an outright gift or the first option to buy it from your estate

f) residue i.e. what's left after all other gifts have been made and all your outstanding liabilities have been settled, including your testamentary expenses which are funeral costs, probate fees and Inheritance Tax.

You can say exactly what you want to happen to your property. You can make "thank you" gifts of money. You can make gifts of personal belongings that are special to you and the person to whom they are given. You can make gifts to charities that are free of Inheritance Tax (death duties). You can appoint Guardians to look after your young children. You can choose who you want to be your Executors and Trustees. Fundamentally, your Will is a record of your instructions on how you want your estate to be distributed and can, if you wish, include your directions regarding your funeral.

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3. Can a letter be as legal as a Will?

Yes, a letter could be a legal Will. However, it would need to be signed, dated and witnessed in accordance with certain legal rules and would be invalid if otherwise. In addition, it could be contested if the wording of the Will is ambiguous. It is always better to have your Will professionally written. Solicitors and Barristers make a lot of money each year from disgruntled family members defending or attacking DIY Wills that were badly drawn up.

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4. What happens if I don't make a Will?

If your estate is worth more than £5,000 (England, Wales and Northern Irelan) or £25,000 before debts (Scotland) then your next of kin must apply to the courts for the power to deal with your estate - they must apply for 'letters of administration'. If you had a Will then your executors would apply to the Probate Registry office for a 'grant of probate'.

When there is no Will the 'rules of intestacy' (i.e. the government) states who should get what amount depending on the total net value of your estate.

See Appendix - Rules of Intestacy for:
England and Wales | Northern Ireland| Scotland

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5. What is included in my estate?

Your estate is everything you own at the time of your death (that is in your sole name) after all your outstanding liabilities have been settled, including probate costs, inheritance tax (if applicable) and funeral expenses.

Your estate doesn't include money in a joint account or property or shares owned jointly. Also not included, life insurance policies in joint names and those where you have already nominated who the beneficiary should be on your death.

From your employment, your death in service benefit and pension is also not normally included as these are held in trust for whomever you may have already nominated. It is, however, sometimes recommended by trustees that you mention in your will who you would like to benefit - although trustees are not legally bound by your expressed wishes in your Will.

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6. Can I make provision for my children (and future children)?

Yes. 'Children', however, by legal definition, are your natural children, including illegitimate, plus any that you have legally adopted. Stepchildren are not included in this definition so, if you wish them to be provided for, they Will need to be mentioned by name.

If you have children at the moment and wish us to include others not yet born then we can include those words..." and any other children of mine not yet born"

If you don't have any children at present but wish to include the possibility then again we can do that, however, it is wise to make further provision in case at the time of your death you don't have any children.

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7. Should I appoint Guardians?

If you have children under the age of 18 you should appoint a Guardian or Guardians. They could be appointed to act on your death or only once you and your partner have both passed away.

If you and your partner are unmarried and have joint children then if the father is not on the children's birth certificate then the mother of the children will need to appoint the father as her first choice of guardian as, under current law, he does not have any automatic rights to the children if she passes away first.

If you have children over 18 while one or more are under 18 then you can appoint an older child as guardian of the younger.

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8. Can I change my Will?

Yes, but only by writing a new Will or signing a document called a Codicil. A Codicil (like a Will) must also be prepared, signed and executed in a particular way. You do not need to rewrite your Will or have a Codicil if you or any person named in your Will changes their address.

Will Drafters recommend that when changes are necessary you rewrite your Will. For our clients who take advantage of our comprehensive WillPlus service this will not cost anything and is safer than writing a Codicil.

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9. Can I cancel my Will?

You can cancel your Will by making a new Will, or simply by tearing it up and burning it.

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10. Does marriage, divorce or a civil partnership affect my Will?

In England, Wales and Northern Ireland, your Will is cancelled automatically if you get married or enter into a civil partnership after you have signed it unless the Will contained a sentence stating otherwise, for example if it had been drawn up just prior to you getting married. If you get divorced or your civil partnership in annulled after you have made it, any gifts in favour of your wife, husband or partner will be cancelled (unless the Will states otherwise) and therefore your Will would be read as if they had already died. It is essential that you consider writing a new Will if there are major changes to your circumstances. If in doubt, please ask. We'll be only too happy to advise.

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11. Can my Will be changed after my death?

Normally no. However a Deed of Variation may be exercised within two years of the Testator's death to alter the terms of a Will with the agreement of all the residuary beneficiaries. There may also be instances where the court could make a judgement. See the next question for more details.

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12. What happens if I leave someone out of my Will?

If you have not properly provided for any of your dependants who are unable to maintain themselves, or if you have not been fair to your wife, husband or civil partner (or even an ex-wife or ex-husband who has not remarried), the Court can alter your Will. Your reasons for not having provided for someone should be given in your Will or in a separate letter, which can be referred to in your Will. The Court will consider these reasons but they will not bind them. For Scotland, children and spouses have prior rights and legal rights - for details click here.

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13. What are Executors?

One very important part of your Will is the naming of who you would like to act as your executor. Your executor is the person who will administer your Will after your death. They can be anyone you choose, for example:

  • Your husband, wife or partner
  • Your son or daughter (if over 18 at the time of your death)
  • Your brother or sister
  • A close friend
  • A beneficiary in your Will
  • Will Drafters Ltd
As a courtesy, it is always best to ask the person whom you wish to appoint whether they are willing to act. The duties of an executor are varied and can be very time consuming. As a result, people chosen to be executors, when called upon to act, often appoint a professional firm to help. The costs and expenses incurred by executors, including the professional firm's fees, however, can be recouped from the estate.

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14. What are Trustees?

Trustees are the people appointed in your Will to look after your property until for example, a child is old enough to inherit or where there is a life interest (see "What does it mean if I give someone a 'life interest' in my Estate?). Executors and Trustees are usually the same people.

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15. What do Executors do?

  1. Finding out what assets, property and investments the deceased had
  2. Having any valuables and property professionally valued
  3. Listing them and their current value
  4. Making sure the funeral takes place and arranging payment
  5. Gaining details of outstanding debts and bills
  6. Establishing pension entitlements and other monies due
  7. Determining Income and Inheritance Taxes due and making any necessary tax returns
  8. Completing and submitting all Probate Registry forms
  9. Calling in assets
  10. Paying off debts
  11. Transferring gifts to beneficiaries
  12. Drawing up clear accounts to present to the main beneficiaries
If the Will creates any trusts, for example if there are minor beneficiaries, it is usual to appoint two trustees (they can be the same as the executors unless the trust is an IOU Discretionary Will Trust in which case we recommend that the trustees should not also be executors).

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16. How many Executors can I appoint?

You can appoint up to four Executors, but you should appoint at least two. You can appoint alternative Executors in case when you die your first choice decides not to take the position or dies before you.

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17. Do Executors get paid?

Where individuals (family or friends) are appointed they are not normally paid although you may give them modest cash gifts in your Will as a "thank you", if you wish. They are usually allowed to reclaim any expenses incurred by them in the administration of an estate, including Probate fees.

When professional executors are appointed (individual people or organisations), clauses are usually included in a Will to provide that they be paid their normal fees. They would not act otherwise. A solicitor will often charge 2% to 3% of the value of the estate while a bank sometimes charges 4% to 6%.

The total charge for executor work carried out by solicitors or banks will not be known until all the work is completed. They will invoice their charges based on the total time taken and therefore they will not give you a fixed quote in advance.

Will Drafters offer a low-cost probate service. A fixed price quote will be provided in advance of any work being carried out and is guaranteed to save your estate at least 20% on a quote from any solicitor or bank.

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18. What are trusts and how do they work?

Accumulation & Maintenance Trust
If you have young children (under 18) who you wish to provide for in the event that you (and your partner, if you have one) pass away, then we will include in your Will(s) an Accumulation & Maintenance Trust for no additional charge. The Trustees appointed by you can then provide your nominated children's Guardian(s) with sufficient funds to care for your children until they reach 18 (changed in Budget April 2006) when they will inherit. You may choose a later age at which they should inherit although, from April 2006, if your child is not disabled there may be additional taxes to pay on the trust fund, subject to the amount held in the trust fund.

Discretionary Trust
Although not exclusively, a Discretionary Trust is often used by families who have a relative with a learning disability. Discretionary trusts are a way of putting in place financial arrangements to help support that relative. These trusts are particularly suitable for disabled people.

A Discretionary Trust can also provide a way of owning property. Sometimes families decide that in the long-term they would like to be able to set up arrangements that allow their relative to continue to live at home with the necessary support.

In summary, Discretionary Trusts are used:
  • As a way of paying for the things the statutory services may not be able to give, for example a holiday, a new coat or even additional care
  • As a means of owning, managing and maintaining a property
  • As a way of arranging an inheritance
  • So there is a way of managing money or other assets
  • To avoid benefits and care funding being stopped
Income Support - and possibly other benefits such as Housing Benefit - stops being paid if a person has more than a certain amount of money. Benefits are withdrawn or reduced until savings fall below the relevant level for the benefit. If Social Services fund a residential care place or care package they may also begin to charge for the care service or stop funding it. A Discretionary Trust can avoid this.

Once assets are put into the Trust they belong to the Trust not the person intended to benefit. He or she may get gifts or even payments from the Trust but they cannot be said to have any assets themselves. Trusts hold and invest assets. This can include the family home. It may provide a means of managing and maintaining a property. This is particularly useful when the person lacks legal capacity i.e. sufficient understanding to enter into a contract. Trusts are normally set up as part of drawing up a Will.

Trustees operate trusts. These can be other family members, friends or professionals. The key points about a Discretionary Trust are:
  • Trustees have discretion as to how the assets are used - the trustees are free to make all the decisions
  • The person to benefit from the Trust must not have a right to the income or capital
  • The intended beneficiary must not be the only person named in the Trust i.e. must not be the 'sole' beneficiary

Without these features the Discretionary Trust is not properly constituted and the person may be treated as though they own the house or have the money.

Conclusion
If you want to make some financial provision for a close relative who is dependent on welfare benefits and/or supported by Social Services do not say in your Will, "I hereby leave my worldly goods to x". This will not provide a long-term nest egg. Consider instead including in your Will a Discretionary Trust - ask your Will Adviser for further details.

Protective Property Trust
If a person is taken into care then, under the Community Care Act 1990, the local council have the right by law to seize their home, put it up for sale and use the proceeds to support their long-term care costs. Obviously, if this happened then it might mean that when they eventually die there could be very little of their estate left for their surviving family.

How can you avoid this happening?
It is illegal to deliberately transfer your own property to relatives or trusts if your prime motive is to avoid paying long-term care costs. However, it is not illegal for you and your partner to each make a provision in a Will, that upon the first death, the deceased's half-share of the family assets and/or home, is placed in trust for their children or other beneficiaries, instead of passing direct to the surviving partner.

The Protective Property Trust Will has been specially designed for this purpose. It keeps the assets and/or share of the home owned by the deceased partner away from the council's reach while at the same time allowing the surviving partner to continue benefiting from the assets and/or share of the home within the trust. On their death the assets and/or share of the home owned by the trust together with whatever is left of the assets of the second partner can be given to the surviving family.

IOU Discretionary Will Trust
For unmarried heterosexual couples and same sex partners who are not civil partners - If you and your partner are collectively worth over 325,000 ('Nil Rate Band' at 2009/10) and would like to save up to 130,000 in Inheritance Tax once both of you have passed away then you may wish to include in both Wills an IOU Discretionary Will Trust.

For a more detailed explanation of Inheritance Tax and how an IOU Discretionary Will Trust works together with an example of the potential savings click here.

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19. What happens to property in joint names?

People who are "co-owners" of property hold it either as "joint-tenants" or as "tenants-in-common". Husbands and wives are usually, but not always, joint-tenants. This means that when one of them dies the other one automatically becomes the owner of the whole of the property. It also means that a joint-tenant cannot make a gift in a Will of his or her share of the property. Partners who have been married before often prefer to own the property as tenants-in-common. This means that when one of them dies his or her interest in the property forms part of his or her Estate. This then means that they can separately make a gift in their Will of their share of the property, perhaps to their own children from a previous marriage.

A joint-tenancy can easily be converted into a tenancy-in-common and Will Drafters can arrange this for youdraw up this notice for you. Such a notice should be placed with the deeds of the property. If you don't know whether you are joint-tenants or tenants-in-common, you should consult the solicitor who acted for you on the purchase of your property.

These principles also apply to other jointly owned assets such as bank and building society accounts and other investments.

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20. What about Inheritance Tax?

If the value of your Estate after payment of your debts and any gifts to your husband or wife or to charity is worth more than £325,000 (from 6 April 2009), then Inheritance Tax will be payable at 40% on the value over this amount. However, if when you die you are a widow/widower or bereaved civil partner your allowance is £650,000. For more information on Inheritance Tax and how to avoid the taxman - see Appendix E .

Although the information provided is of a general nature if you wish to receive individual advice then we suggest you seek the advice of an independent financial adviser. Will Drafters will be happy to refer you to one if you wish.

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21. What is a gift made "free of tax"?

A gift is free of tax when any Inheritance Tax, if it is payable, is to be paid out of your Residuary Estate and not to be deducted from the gift itself. In Wills drawn up by Will Drafters all gifts, except the Residue, are free of tax unless you instruct us otherwise. All gifts to charities are by law totally exempt of Inheritance Tax.

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22. Can I leave with my Will a hand-written list of gifts of my personal belongings?

You can do this if you have said so in your Will. You can state in your Will that your executor is to distribute your personal belongings according to a separate list that you will keep with your Will (although you mustn't attach the list to your Will). You can then make changes to your "gift list" at any time thereafter without the need to change your Will.

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23. What does it mean if I give someone a "life interest" in my Estate?

If your responsibilities are "divided", e.g. you wish to ensure that your partner is adequately provided for but feel you have a duty towards, say, children from an earlier marriage, then you may wish to consider giving your partner a "life interest" in your Estate. This restricts the partner's inheritance to the income (interest earned) on your capital or specified sum. If you own your home outright or own a share as tenants-in-common then you may also wish to give your partner the right to live in your home rent free until they die, remarry or for only, say, a specified period. Once they die or after the specified event has taken place then your home and/or the capital sum will pass to whoever you have specified in your Will, such as your children.

You should, however, bear in mind that unless your Estate is fairly large, the income from it may be insufficient to support your partner. A gift of a life interest also causes the duties of the Executors and Trustees to be more onerous.

When considering a gift of a life interest, it is very important to remember that the recipient does not own the property or capital sum and therefore cannot dispose of it in his or her own Will. It is also important to remember that the prime duty of your appointed Trustees is to keep a fair balance between income for the person getting a life interest and capital growth for those who will be ultimately entitled to your Residuary Estate.

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24. What's the best way to provide for my disabled child?

Although not exclusively, a Discretionary Trust is often used by families who have a relative with a learning disability. Discretionary trusts are a way of putting in place financial arrangements to help support that relative. These trusts are particularly suitable for disabled people.

A Discretionary Trust can also provide a way of owning property. Sometimes families decide that in the long-term they would like to be able to set up arrangements that allow their relative to continue to live at home with the necessary support.

In summary, Discretionary Trusts are used:

  • As a way of paying for the things the statutory services may not be able to give, for example a holiday, a new coat or even additional care
  • As a means of owning, managing and maintaining a property
  • As a way of arranging an inheritance
  • So there is a way of managing money or other assets
  • To avoid benefits and care funding being stopped
Income Support - and possibly other benefits such as Housing Benefit - stops being paid if a person has more than a certain amount of money. Benefits are withdrawn or reduced until savings fall below the relevant level for the benefit. If Social Services fund a residential care place or care package they may also begin to charge for the care service or stop funding it. A Discretionary Trust can avoid this.

Once assets are put into the Trust they belong to the Trust not the person intended to benefit. He or she may get gifts or even payments from the Trust but they cannot be said to have any assets themselves. Trusts hold and invest assets. This can include the family home. It may provide a means of managing and maintaining a property. This is particularly useful when the person lacks legal capacity i.e. sufficient understanding to enter into a contract. Trusts are normally set up as part of drawing up a Will.

Trustees operate trusts. These can be other family members, friends or professionals. The key points about a Discretionary Trust are:
  • Trustees have discretion as to how the assets are used - the trustees are free to make all the decisions
  • The person to benefit from the Trust must not have a right to the income or capital
  • The intended beneficiary must not be the only person named in the Trust i.e. must not be the 'sole' beneficiary
Without these features the Discretionary Trust is not properly constituted and the person may be treated as though they own the house or have the money.

Conclusion
If you want to make some financial provision for a close relative who is dependent on welfare benefits and/or supported by Social Services do not say in your Will, "I hereby leave my worldly goods to x". This will not provide a long-term nest egg. Consider instead including in your Will a Discretionary Trust - ask your Will Adviser for further details.

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25. How can I avoid the council selling my home if I'm taken into care?

If a person is taken into care then, under the Community Care Act 1990, the local council have the right by law to seize their home, put it up for sale and use the proceeds to support their long-term care costs. Obviously, if this happened then it might mean that when they eventually die there could be very little of their estate left for their surviving family.

How can you avoid this happening?
It is illegal to deliberately transfer your own property to relatives or trusts if your prime motive is to avoid paying long-term care costs. However, it is not illegal for you and your partner to each make a provision in a Will, that upon the first death, the deceased's half-share of the family assets and/or home, is placed in trust for their children or other beneficiaries, instead of passing direct to the surviving partner.

The Protective Property Trust Will has been specially designed for this purpose. It keeps the assets and/or share of the home owned by the deceased partner away from the council's reach while at the same time allowing the surviving partner to continue benefiting from the assets and/or share of the home within the trust. On their death the assets and/or share of the home owned by the trust together with whatever is left of the assets of the second partner can be given to the surviving family.

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26. Can I choose anyone to witness me signing my Will?

No. They must not be a beneficiary in your Will nor married to a beneficiary.

In England, Wales and Northern Ireland: They must be over 18 years of age, of sound mind and not blind. You will need two witnesses who must both be present when you sign and date your Will. They don't need to see the contents of your Will, only you signing it.

In Scotland: They must be over 16 years of age, of sound mind and not blind. You will only need one witness who must see you sign and date your Will. They don't need to see the contents of your Will, only you signing it.

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27. What should I do with my Will after I have signed it?

You should leave it in a safe place and ensure your executors and/or family know where it is being kept. Your Executors will need the original Will, not a copy. Will Drafters has a comprehensive WillPlus service, which includes looking after your Will and giving you free Will updates for life. It is designed to save you time, money and inconvenience when your wishes or circumstances change and you need to draw up a new Will. It will also save your family further distress from not being able to find your will when you die - because if it can't be found it'll be presumed not to exist. WillPlus may also save you and your family £1,000s in probate legal fees.

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APPENDIX B - RULES OF INTESTACY - ENGLAND & WALES



Dying without leaving a Will could mean...

In the absence of a signed Will the government dictates who gets what of your estate, depending on your domestic circumstances:

Married with Children (separated people are treated under these rules as still being married)
  1. Your spouse gets:
    1. car and house contents, plus
    2. first 250,000 of your estate (prior to 1st Feb 2009 was 125,000), plus
    3. 6% interest on half of any surplus (only interest, your spouse cannot touch the capital)
  2. Your children (stepchildren get nothing) get:
    1. half of any excess over 250,000 outright, plus
    2. the other half of the excess when your spouse has also died
Married with No Children but with Parents and/or Brothers and Sisters
  1. Your spouse gets:
    1. car and house contents, plus
    2. first 450,000 of your estate (prior to 1st Feb 2009 was 200,000), plus
    3. half of any excess over 450,000 outright
  2. Your parents or (if none alive) your brothers and sisters get:
    1. Balance i.e. half of any excess over 450,000 outright
Married with No children and No Parents or Brothers and Sisters
Your spouse gets everything

Single, Widowed or Divorced (but not separated)
Everything goes to your children (if any), otherwise to your parents (if alive), otherwise to your brothers and sisters (or their children), otherwise your grandparents (if alive), otherwise your uncles and aunts (or their children), otherwise to the government!

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APPENDIX C - RULES OF INTESTACY - N. IRELAND



Dying without leaving a Will could mean...


In the absence of a signed Will the government dictates who gets what of your estate, depending on your domestic circumstances. From 1st January 2008 the rules are:

Married with Children (separated people are treated under these rules as still being married)

1) Your spouse gets:

a) car and house contents, plus
b) first £250,000 of your estate, plus
c) if only one child or their issue survives - one half of any surplus
d) if more than one child or their issue survives - one third of any surplus

2) Your children (stepchildren get nothing) get:
The remainder of any surplus (subject to 1c or 1d above)
Married with No Children but with Parents and/or Brothers and Sisters (whether of the whole or half-blood) or the issue of a deceased brother or sister

1) Your spouse gets:
a) car and house contents, plus
b) first £450,000 of your estate, plus
c) half of any excess over £450,000 outright
2) Your parents or (if none alive) your brothers and sisters (whether of the whole or half-blood) or the issue of a deceased brother or sister get:
a) Balance i.e. half of any excess over £450,000 outright
Married with No Children and No Parents or Brothers and Sisters (whether of the whole or half-blood) or the issue of a deceased brother or sister
Your spouse gets everything
Single, Widowed or Divorced (but not separated)
Everything goes to your children (if any), otherwise to your parents (if alive), otherwise to your brothers and sisters (whether of the whole or half-blood or their children), otherwise your grandparents (if alive), otherwise your uncles and aunts (or their children), otherwise to the government!
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APPENDIX D - RULES OF INTESTACY AND MAKING A WILL IN SCOTLAND



Definition:

Moveable estate is money, shares, cars, furniture and jewellery. Heritable estate is land and buildings

Note: Any share of the "moveable estate" is after debts have been paid and any "prior rights" of a spouse have been settled.

Intestacy Rules for Scotland

Where there is no Will, the spouse has "prior rights" to the estate. This is a first legal claim on the estate before "legal rights" as below. The spouse and children then have "legal rights" to shares of the deceased's moveable estate.

Deceased survived by spouse and children

  1. Prior rights, spouse gets:
    1. Property (value up to £300,000)
    2. Furniture and furnishings (value up to £24,000)
    3. Legacy (value up to £42,000)
  2. Legal rights, moveables (balance remaining) are shared:
    1. One third to surviving spouse
    2. One third to children (or their issue) equally
    3. One third (known as dead's part) to Free estate
  3. Free estate i.e. all estate remaining after debts, prior rights and legal rights
    1. All to children (or their issue) equally
Deceased survived by spouse but no children
  1. Prior rights, spouse gets:
    1. Property (value up to £300,000)
    2. Furniture and furnishings (value up to £24,000)
    3. Legacy (value up to £75,000)
  2. Legal rights, moveables (balance remaining) are shared:
    1. One half to surviving spouse
    2. One half (known as dead's part) to Free estate
  3. Free estate i.e. all estate remaining after debts, prior rights and legal rights
    1. If parent(s) and brothers/sisters alive:
      1. One half to parent(s) jointly
      2. One half to brothers/sisters, otherwise
    2. If brothers/sisters alive but no parents:
      1. All to brothers/sisters equally, otherwise
    3. If parents(s) alive but no brothers/sisters:
      1. All to parent(s) jointly, otherwise
    4. If no parents and no brothers/sisters:
      1. All to spouse
Deceased survived by children but no spouse
  1. Prior rights (not applicable)
  2. Legal rights, moveables (balance remaining) are shared:
    1. One half to children (or their issue)
    2. One half (known as dead's part) to Free estate
  3. Free estate i.e. all estate remaining after debts, prior rights and legal rights
    1. To children (or their issue) equally
Deceased with no spouse and no issue
  1. 1) Prior rights (not applicable)
  2. Legal rights (not applicable)
  3. Free estate i.e. all estate remaining after debts, prior rights and legal rights
    1. If parent(s) and brothers/sisters alive:
      1. One half to parent(s) jointly and
      2. One half to brothers and sisters equally, otherwise
    2. If brothers/sisters alive but no parents:
      1. All to brothers/sisters equally, otherwise
    3. If parents(s) alive but no brothers/sisters:
      1. All to parent(s) jointly, otherwise
    4. If no parents and no brothers/sisters:
      1. All to uncles/aunts, but if none
      2. All to grandparents, but if none
      3. All to grandparents' brother/sisters, but if none
      4. All to remoter relatives, but if none
      5. To the Crown
If the deceased has made a Will (Scotland) then:

1. Prior rights (as above) do not apply

2. Legal rights (as above) do apply (even if the Will is to the contrary)

3. However, a spouse or child exercising their "legal rights" cannot have a gift from the Will plus their "legal rights". They must choose, one or the other.

The Will is only concerned with the estate after "legal rights" have been settled unless those "legal rights" have been relinquished, perhaps in favour of a larger gift from the Will.

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APPENDIX E - INHERITANCE TAX AND HOW TO AVOID THE TAXMAN


Current UK legislation (as of April 2009) allows for the first £325,000 of your estate to be free from Inheritance Tax. However, although this may sound considerable, when you add up the value of your house, savings and investments and your personal affects, you may be very surprised by how much you are actually worth. With house prices rising as fast as they are, the value of your estate is likely to be a great deal more than the £325,000 Inheritance Tax threshold.

If at the time of your death you are a widow/widower or bereaved civil partner then this allowance is 2 x £325,000 = £650,000.

Consequently, under current legislation, the taxman will take 40% of everything you leave over the current £325,000 or £650,000 limit.

Many financial advisers believe that this tax can be reduced if not eliminated with some straightforward planning. We do not propose to offer in depth Inheritance Tax advice here as your best course of action would be to sit down with an independent financial adviser who can do a full fact-find of your situation, take account of all your current and likely future circumstances and advise you as to your best course of action.

ALLOWANCES

Your Personal Allowance
Each person currently has, on death, an allowance of £325,000 called the nil rate band, which includes: properties, personal effects, cars, savings, investments and insurance - collectively known as your Estate. For widows/widowers and bereaved civil partners this is increased to 2 x £325,000 = £650,000.

Spouse Exemption
It is important to note that there is no Inheritance Tax on transfers (gifts), whatever the value, between married couples or civil partners. However, if your spouse or civil partner is non domiciled then the allowance is limited to £55,000.

Annual Exemption
Everyone can give away up to £3,000 per tax year, say, to one child or shared between other children. Obviously, for a couple these would mean a maximum of £6,000.

Marriage Gifts Exemption
Parents can make wedding gifts of up to £5,000 to each of their children. Other relatives e.g. grandparents, can, however, also make gifts. They can give up to £2,500 to each marrying grandchild. Also, you can give up to £1,000 as a wedding gift to anyone else. The gifts must be made before the wedding day, not after.

Small Gifts Exemption
You can make any number of gifts to different people up to a value of £250 each in any tax year.

Other Gift Exemptions
You can make any number of gifts of any amount out of your surplus income. In other words, as long as the gift is not coming from your capital or savings and your income can be proven to have funded the gift then it is permissable. Other gifts that are permissable are gifts to charities and political parties. Also acceptable are gifts to Trusts for the vulnerable.

Business and Agricultural Relief
Interest held for more than 2 years in a business, farms or shares in qualifying unlisted companies and let farmland held for more than 7 years qualifies for 100% relief. Assets used by a qualifying company or business, or a controlling holding in a listed company qualifies for 50% relief.

Potentially Exempt Transfers (PET)
In most cases any amount over the exempt gift allowances, as previously mentioned, is a Potentially Exempt Transfer (PET). PETs can be given to the person concerned directly or as an investment for them.

This means that the donor, needs to live at least 7 years, from the date when the transfer is made, for this gift to fall outside of the estate. During the 7-year period the amount of Inheritance Tax payable reduces the longer the time after the gift has been made. This is known as Taper Relief.

Taper Relief, however, does not apply to any gifts below the nil rate band, i.e. £325,000, but is applied to gifts over the nil rate band. In other words, taper relief is given on the part of a gift over £325,000.

Period of Years before death % reduction (i.e. tapering relief)
0-3 years NIL
3-4 years 20%
4-5 years 40%
5-6 years 60%
6-7 years 80%
More than 7 years No tax

Will Trusts

For unmarried heterosexual couples and same sex partners who are not civil partners ONLY - If each spouse of a couple were to include in their Will a gift to anyone other than the other spouse then this would be an excellent way of reducing Inheritance Tax. This is because it uses the first spouse's nil rate band.

Consequently, done this way, both spouses could together leave their children 2 X £325,000 resulting in a total of £650,000 free of Inheritance Tax.

However, if the surviving spouse feels they may need an income from the monies that may be willed to the children, then they may be reluctant to give monies outright.

One method, increasingly popular, is a Will Trust arrangement. On first death monies are placed in Trust for the children, with the surviving spouse allowed interest free loans from it.

IOU Discretionary Will Trust

For unmarried heterosexual couples and same sex partners who are not civil partners ONLY - Most couples leave their estate to each other when they die. Then, when the second one dies, the taxman takes his share of 40% on everything over £325,000 (tax year 2009/10).

However, with an IOU Discretionary Will Trust written into both partner's Wills it could mean that they could collectively pass on to their family up to twice that amount (£650,000), thus saving a current maximum of £130,000 in Inheritance Tax.

Who is the IOU discretionary Will trust suitable for?
It is suitable ONLY for unmarried couples and same sex partners who are NOT civil partners that are looking for the following:

  • A way of reducing their liability to inheritance tax (Inheritance Tax)
  • Access and control over their capital during their lifetime
  • A way of making use of their nil rate band on first death
  • Protecting capital for their beneficiaries, following their death

How does the Trust work?
By including within each partner's Will the wording for an IOU Discretionary Will Trust the estate (up to the nil rate band) of the first person to die will pass to the trust with any balance over this amount commonly going to the surviving partner. See example below.

Use of the family home
For such an arrangement to be effective it may require the ownership of the home to be either in one of the couple's sole name or under a tenancy in common arrangement allowing them both to leave a fixed share of the home to whoever they wish in their Wills. Your Will Adviser can usually arrange the change to tenants-in-common if necessary.

However, there are still problems to be overcome if the surviving partner wishes to continue living in the property after the first partner has died otherwise the whole Inheritance Tax effectiveness of the trust would be undermined. Here below is a popular solution.

A way to use the family home
Within the Discretionary Will Trust, wording must be included giving special powers to the trustees appointed to take a legal charge over the assets that pass to the survivor on first death or to accept an "IOU" from the survivor, as an asset of the trust. With the use of an IOU, the estate (and their share of the home) of the first person to die can go wholly to their surviving partner with the trust simply consisting of the IOU provided by the survivor.

Therefore, on the second death, the trustees would redeem their charge or IOU and this would be funded from the survivor's estate.

Caution: For couples where one partner has never contributed financially to the purchase of the family home For couples in this situation, including the family home in an IOU Discretionary Will Trust may not work should the non-contributor die first. This is following a ruling won by the Inland Revenue in April 2007 concerning the late Mrs Phizackerley and her husband Dr Phizackerley.

As Mrs Phizackerley had never worked or contributed financially to the purchase of the family home then, in spite of the property being owned as tenants-in-common and on her death her gifting her share to an IOU Discretionary Will Trust, it was deemed that for IHT purposes the home should be regarded as belonging wholly to Dr Phizackerley who died last and therefore subject to IHT as part of his estate.

However, in the Daily Mail's Moneymail supplement 18th April 2007, IHT expert barrister Emma Chamberlain of 5 Stone Buildings is quoted as saying that to avoid this you need to make sure the debt created on the first death is in the form of a charge or mortgage against the property rather than take on any personal liability for it. The debt is repaid on the second death.

An example of an IOU Discretionary Will Trust Showing a saving of £130,000 in Inheritance Tax

Mr Jones and Ms Smith jointly have assets worth £650,000. To maximise the Inheritance Tax savings, they have to "equalise" their estate so that they each own assets at least equalling the current nil rate band of £325,000 (tax year 2009/10). For this example, this includes transferring joint investments into their sole names and changing the ownership of their house from joint-tenancy to tenants-in-common. This example presumes Mr Jones dies first.
Mr Jones' Assets: £325,000
Ms Smith's Assets: £325,000
On Mr Jones' death:
All assets pass to Ms Smith in return for an IOU for £325,000 which she gives to the Trust
Ms Smith's Assets: £325,000
Plus Mr Jones' Assets: £325,000
Total: £650,000
Less IOU Outstanding: £325,000
IOU Discretionary Will Trust:
Contains IOU for £325,000
On Ms Smith's death:
Assets less tax pass to the children
On Ms Smith's death:
IOU is repaid by her estate & the money in the trust is now paid Inheritance Tax free to the children
Ms Smith's estate gross: £650,000
Less IOU Repaid: £325,000
Less Tax: NIL
Balance left to children: £325,000
Once both Mr Jones & Ms Smith have died:
Children receive proceeds of Trust when IOU repaid: £325,000
Plus balance from Ms Smith's estate: £325,000
Total: £650,000
Taxman receives: NIL



Flexible Trusts, Discounted Gift Schemes and Life Assurance

There are other methods of giving while you are alive which can reduce your Inheritance Tax liability on death. For further details on these options you should speak to your independent financial adviser.

If you do not have an independent financial adviser at present then Will Drafters will be able to introduce one to you, so please don't hesitate to ask.

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APPENDIX F - GLOSSARY OF LEGAL TERMS



Administrator

A person appointed when either no Will can be found or there is no executor to carry out the intentions of the Will.

Administration, Letters of
Granted by a court to administrators (usually the next of kin) to give them the authority they need to act and to administer/distribute the estate where there is no Will.

Assets
Generally everything that you own.

Beneficiary
Someone who will inherit from the Will, a trust or under the intestacy laws.

Bequest
A gift left in a Will.

Chargeable gift
A gift on which Inheritance Tax may be payable.

Codicil
A document executed by a testator subsequent to the Will which alters, cancels or adds to the provisions of the previously drafted Will.

Devise
A gift by Will of freehold property.

Executor
A person appointed in the Will to administer the estate.

Guardian
Someone appointed to look after the interests of a child under the age of 18.

Inheritance Tax
Tax payable on the transfer of assets either during an individual's lifetime or on his or her death.

Intestate
A person who dies without making a valid Will.

Legacy
A gift of a specific item left in a Will, apart from land.

Life Interest
The right to enjoy for life (or until a specified time period has elapsed or an event has occurred, like someone remarrying) either money or property which will eventually revert to the original estate in some way on death - instructions are included in the Will as to what should happen to the gift when the life interest ends.

Moveable Property
Anything other than buildings or land.

Pecuniary Legacy
A gift of money under a Will.

Potentially Exempt Transfer (PET)
A gift made during ones lifetime that is exempt from Inheritance Tax if the donor lives for seven years after making the gift.

Predeceased
Someone who dies before the person who has made the Will.

Probate, Grant of
The document which confirms to executors that they have authority to act, and which validates the Will.

Residue
What is left of the estate after the payment of all debts, taxes, administration expenses, legacies and bequests under the Will.

Reversionary Interest
Interest in trust property.

Specific Legacy
A gift of a specific object under a Will.

Testator/Testatrix
The person (male/female) who makes the Will.

Trust
An arrangement by which property is handed over to trustees to be applied for the benefit of other people known as beneficiaries.

Trustee
The person who holds property on behalf of another person and is responsible for administering the trust assets.

Variation, Deed of
An arrangement whereby certain provisions under a Will may be varied by consent of the beneficiaries.

Will
A form of instructions as to how someone wishes to dispose of their assets on death.

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