Q:Do I qualify for the residence nil rate band?
A: The residence nil rate band (RNRB) is an inheritance tax allowance applying in addition to the ordinary nil rate band which is currently fixed at £325,000. It applies when an individual leaves a qualifying residence or qualifying residential interest to direct descendants, and is being phased in over the next few years. A “qualifying residence” is any home that an individual lived in before they died (so buy-to-let properties, for example, are not included).
If you own more than one residential property when you die, your personal representatives will need to nominate which property the relief should apply to. The property needs to end up in the hands of “direct descendants”. They are defined quite broadly in the legislation and include children (including adopted, foster and step-children), grandchildren, together with the spouses and civil partners of children and grandchildren. It does NOT include nieces and nephews, siblings or other relatives.
For estates with a net value of £2m or more, the RNRB will taper away £1 for every £2 over £2m. Therefore currently, the RNRB will not be available for an individual estate over £2.2m. There may be cases where lifetime gifting is appropriate to ensure the estate is within the limits.
Q:When and how often should I update my Will?
A: Even if you have not undergone any significant life changes, it is advisable to review your Will every five years or so, to check that it still reflects what you want it to say and to find out if there have been any changes to the law which might affect your Will. In recent years there has been a major change to inheritance tax laws and for many people that has necessitated a change to their Will, even though their ultimate wishes remain the same. Particular events that should prompt you to seek professional legal advice from a solicitor about your Will include the following:
- If you have new children or grandchildren – to ensure they are included in your Will.
- If you get married – in England and Wales, getting married will revoke an existing Will, unless it was made in contemplation of the marriage.
- If you get divorced – for the purpose of your Will, your ex – spouse will be treated as having predeceased you upon finalisation of the divorce. It is therefore important to assess whether you have made substitute provisions, and if so, whether those still reflect your wishes.
- If someone named in your Will dies before you– in such circumstances it is important that you understand what shall happen to the gift left to the deceased beneficiary, and to decide what should happen in light of the death.
- If the executor is no longer suitable or dies– It is important that your executor is able and willing to administer your estate, and to control any trust created by your Will. Catastrophic results can arise if there is nobody suitable at the helm of your estate when you die.
Q:Why should I make a Lasting Power of Attorney?
A: Lasting Powers of Attorney (LPAs) let you choose who should manage your affairs and make decisions on your behalf if you lose mental capacity. If you lose mental capacity without an LPA, your loved ones will need to apply to the Court of Protection for a ‘Deputy’ to be appointed to manage your affairs.
Whilst in some cases this can be appropriate, LPAs have significant advantages over leaving the choice of Deputy to the Court. An LPA means you can choose who manages your estate, it avoids any delay (making an application for a Deputyship Order can be incredibly time consuming) and keeps costs down.
Q:Why should I use a trust?
A: There are many perks to using a trust over a Will, but some of the most common reasons to choose a trust are:
- To support someone who is unable to manage their money
- Providing for people under 18, who are not legally allowed to inherit
- Help provide managed funds to the mentally ill or people who are not good with money management
- Protect wealth
- If you are worried that divorce or bankruptcy may leave your loved ones penniless, setting up a trust can protect them from this eventuality
- Trusts can allow you to bypass inheritance tax, ensuring that your loved ones receive the maximum amount possible
- To split the benefits
- Unlike with a Will, you can specify and tailor who benefits from your assets to a very in-depth level.