The Cost Of Dying Is Increasing

The Government is introducing a new fee structure that will affect the cost of accessing an estate when someone dies.

Fees for Applications for Grant of Probate or Letters of Administration (for when someone dies intestate) will be changing and could eventually impact you and your family when you’re no longer around.

The new fees will take effect from May 2017. At the moment, the fees are set at either £155 if probate is applied for by a Solicitor or £215 if it is applied for by friends or family. There are no fees if the value of the estate is less than £5,000.

The first change is that estates below £50,000 will no longer have to pay any probate fee. This significantly increases the number of estates exempt from the fees. Unfortunately, everyone one else will see an increase, with those with the largest estates seeing fees of up to £20,000.

The fees are tiered depending on the value of the estate:

  • £50k – £300k = £300 fee
  • £300k – £500k = £1,000 fee
  • £500k – £1M = £4,000 fee
  • £1M – £1.6M = £8,000 fee
  • £1.6M – £2M = £12,000 fee
  • Above £2M = £20,000 fee

These fees are in addition to inheritance tax (IHT).

When somebody dies, the executors must apply for a Grant of Probate from the probate registry. This needs to be done to allow them to administer the estate according to the terms of the Will. These fees need to be paid up front. It may be difficult if the executor is not able to release cash from the deceased’s bank account and/or the executor is on a low wage or benefits.

Previously they may have been able to apply to get help with the fees. However, the Government is also removing probate applications from the general fees remissions scheme and financial help will no longer be available.

There are things to consider which may reduce the amount of probate needing to be paid. In particular, married couples or those in a civil partnership should consider the nature of any property ownership agreements they hold.

Another way to reduce the cost of probate is to consider setting up a Trust. This may lower the value of the estate (from a probate point of view) and drop it from a higher tier rate to a lower one.

Trust law is complex. You will need advice from a specialist to ensure you are setting one up in the most tax efficient way, so that it doesn’t end up costing you more than you hope to save.

For advice on this or any aspect of Estate Planning or Will Writing, please call Finance North Estate Planning Services on 0161 771 2056, or complete the enquiry form below for more information.

Factoring Dependants Into Your Will

Perhaps one of the first things to think about when planning or revising your Will is who your dependants are. Who relies on you financially or for care? These are significant considerations you will need to think about

Obviously, this could include a spouse, civil partner or co-habiting partner, along with any children you may have. This isn’t limited to your natural children; you may have adopted or step-children you will need to consider. It may also include anyone you have been caring for or looking after financially, such as elderly relatives or a child with a disability.

If you and your partner are not married or in a civil partnership, it is vital that you have a Will to protect them should you die. If you don’t then the proceeds from your estate will pass to your children or to other relatives if you have no children. If there are no relatives, your estate will pass to the Crown.  Under the Inheritance Act 1975 your partner may be able to make an application for some of your assets, but this will take time and money.

If you and your partner die before your children are 18 years old, they will need a guardian to take responsibility for them.

You may also consider setting up a Trust to cater for the financial costs of being a guardian, by leaving a property for any children in the Trust until they are older. Usually a guardian will be one of the trustees, but it’s advisable to appoint someone separate as well to help the guardians and ensure there is no conflict of interest.

More thought also needs to go into providing for a child with disabilities. If you have more than one child, it is natural to want to provide for them equally. That said, sharing the proceeds of your estate equally between your children may not be in the disabled child’s best interests.

If you plan to leave a lump sum to each child, you need to assess whether or not the disabled child has the capability to make decisions for themselves. If they don’t have capacity to deal with their financial affairs, a deputy may need to be appointed. This is likely to eat into some of the funds of their inheritance.

You will also need to consider whether any inheritance left to a disabled child will affect their entitlement to means tested benefits. If it does, their inheritance may have unintended consequences that leave them worse off financially rather than better.

Again, setting up a Trust to provide an income for the disabled child is often a sensible approach to take.

There are different types of Trusts to consider and Trust law is complex. A good Solicitor, Estate Planner or Will Writing Professional will be able to advise you on this and all aspects of providing for your dependants in the way that you want.

The New Tax Band: What If My Property Is In Trust?

The way properties are judged for Inheritance Tax is about to change.

This month (April 2017), the new Residence Nil Rate Band (RNRB) will be introduced. This new band will allow parents to hand more of their estate over to their children without having to pay Inheritance Tax.

Currently, an individual does not pay Inheritance Tax on an estate worth less than £325,000. This increases to £650,000 for couples.

However, the RNRB, something which former Chancellor George Osborne announced, means an end to Inheritance Tax on the family home for most of us. It is essentially an extension to the current tax-free allowance, but applying solely to property. It initially stands at £100,000, but will increase over the next four years until hitting £175,000 in 2020/21.

In order to qualify for the RNRB, the estate must include a qualifying property – basically a property that the deceased lived in at some point during ownership. That property must also pass to a direct descendant, such as a child or grandchild. Finally, the value of the estate cannot exceed £2 million. For every £2 over this limit that your estate is valued, the relief is reduced by £1.

It could save families a huge amount in tax. Things can, however, become complicated if the property is held in Trust.

Why hold a property in Trust?

Trusts can be very useful for people who want to cut their Inheritance Tax bill. By putting certain assets – like a property – into a Trust, they are not viewed as being part of your estate when the time comes to work out what Inheritance Tax your loved ones will have to pay.

While some forms of Trust will benefit from the RNRB, others will not.

The RNRB will only be available with the following Trusts:

  • A Bare Trust for a lineal descendant
  • An Immediate Post Death Interest Trust for a lineal descendant
  • A disabled person’s Trust for a lineal descendant
  • An 18-25 Trust
  • A bereaved minor’s Trust.

Other Trusts will not benefit, for example if the property is left to a basic Discretionary Trust, RNRB will not be available, even if the beneficiaries of the Trust are a lineal descendant.

So how do we maintain the flexibility and protection that a Discretionary Trust offers whilst ensuring that our clients do not miss out on the RNRA?

One less reported aspect of the RNRA and its impact, is how the Trustees can benefit from a strategy in a little known section of the Inheritance Tax Act 1984 (Section 144) which gives the Trustees the power to make their choice later, and decide who is best to inherit within two years of a death. Two years to pick and choose the best person to receive this new RNRA allowance, that person most likely being the youngest member of the family.

But what if the Trustees forget?

Some clients choose their Spouses to be their Trustees, others choose their children and some may pick “John” from down the pub. Are these Trustees likely to know that they have two years to jump into action, probably not?

So we shouldn’t risk using Discretionary Trusts, hoping that the Trustees will miraculously remember to do their job? There is much merit in that argument.

The New Flexible Family Trust

What if we were to offer a Discretionary Trust that means our clients do not have to “speculate” who would be the best person to receive the RNRA at the time they make their Will? A Trust that gives the Trustees a chance to choose the best person at the date of death, BUT also ensures that if the Trustees neglect to do so, the allowance will be received REGARDLESS by default in the terms of the Trust.

We therefore present the
NEW FLEXIBLE FAMILY TRUST!

Our new Trust ticks all of the boxes. The flexibility within two years of death to “pick the right person” but also with the security in knowing that if the Trustees are “sitting on their hands”, the trust defaults for them, ensuring that the relief is never lost.

Jon O’Brien from Finance North Estate Planning Services says: “Working out exactly who should get what after you pass away takes a lot of thought and planning. Getting a comprehensive Will in place is crucial. Please come and speak to us today on 0161 771 2056 to receive expert advice.”