Monthly Archives: June 2016

There’s a hole in my bucket (list)

It is popular for people of all ages and genders to talk about the things they hope to have achieved before they die and set out those things in a written list. Everyone’s “bucket list” is different and may contain all manner of activities from being a passenger on Virgin Galactic to seeing the sun rise over the Grand Canyon. Wish lists are also influenced by the individual’s circumstances. Sadly many people are diagnosed with serious and terminal illnesses and often time will be of the essence for obvious reasons involving activities with family and making sure that whatever you might have planned to do with your children those plans are accelerated.

Young people also have an outlook in life that includes doing certain things before dying (The Duchess of Cambridge has reportedly said that visiting New Zealand is on her bucket list) and it is interesting (to me at any rate) that it is apparently not taboo to talk about life this way at a young age. In fact it has become quite a “cool” thing to do.

It has never bothered me to think about what I might have achieved in life before I die nor has it bothered me to make a Will that sets out my wishes for the estate I have and how I want basic things like my funeral and personal belongings dealt with. However there does seem a distinct difference that exists in public opinion between talking about a bucket list and making a Will. Surely though these two subjects go hand in hand. Yes a bucket list has more of a positive angle because it is a list of things you are going to and does not sign post death as graphically as making a Will does, but the bucket list must have on it the making of a Will otherwise the legacy of your lifetime simply goes unmentioned.

Why do all the things you want to do (or as many of them as you can) and then fail to leave what you have achieved to your family and that is the case even if it is a memory. Whilst you cannot “gift” a memory you can certainly make sure that the estate you distribute in your Will goes to those who you want to remember you and who you want to thank for being there with you. A wish to leave a gift of a personal item is sufficient reason to make a Will.

If you have achieved much of what you wanted to achieve in life or still have hope of achieving more it does not make sense to leave dependents and family or perhaps business colleagues with a stressful and potentially expensive administration to deal with. I’ve never seen on a bucket list “make sure family and friends are not provided for and cause more distress than necessary”!

So the bucket list must have on it “Make a Will” otherwise the bucket list is just filled with adrenaline fuelled or family orientated activities that serve the maker’s own ambitions and there is no focus on how those achievements translate for those close to the maker of the list. Death (the “D” word is clearly not the problem I thought it was so there must be another reason the ultimate wish list (your Will) is avoided by 70% of the population. I can think of quite a few reasons actually and all related in one way or another to the legal profession but I’ll leave that for another day!

In the mean time I hope more people update their bucket list and actually take a some time to make their Will and then that’s one less thing off the to do list!

Opting for Peace of Mind: Why a Lasting Power of Attorney isn’t just for the Elderly

We all know that we should write a Will, but too few of us are aware that we should also make something called a Lasting Power of Attorney (“LPA”).

Every year, thousands of people become incapable of managing their finances because of illness or serious injury. Although nobody wants to imagine these unfortunate circumstances happening to them, making an LPA now can ensure that a trusted person would be dealing with your affairs, as opposed to a stranger or someone you don’t trust. Making an LPA means that your ‘financial life’ continues seamlessly, even if something untoward happens to you.

Without an LPA, it is not guaranteed that a relative or friend will be able to assume responsibility for paying your bills in the event of mental incapacity. In these circumstances the process is rarely straightforward, often involving substantial costs and delays during what would no doubt already be a difficult time. An LPA avoids these difficulties by planning ahead and granting your trusted friends or relatives the authority to make decisions on your behalf.

“Dementia is fast becoming the biggest health and social care challenge of this generation” [1]. One in five people over 85 already suffers from it, with rates significantly higher among women. According to Alzheimer’s Disease International, 44 million people live with the disease, with medical advancements and increased life expectancies causing that figure to triple to a predicted 135 million by 2050. For the incapacitated, handling financial affairs or providing for dependants becomes virtually impossible. This is why healthcare professionals and charities who care for the elderly recommend that everyone plans ahead to ease this potential burden on relatives.

There are two types of LPA – a Property and Affairs LPA, which gives your attorney the power to pay your bills, access your bank accounts and even decide on whether to sell your home, and a Health and Welfare LPA, which covers medication and care. You are not obliged to have both in place and in each case you may choose more than one attorney – this is the person that you nominate to control your affairs.

Who should I choose to be my attorney?

As this decision is so important, many people choose their spouse or partner, but it is certainly worth naming a replacement who is younger such as a child or grandchild. Be sure to select someone you trust who will act in your best interests.

Registration

An LPA can only be used once it has been registered with the Office of the Public Guardian. It costs £110 to register each LPA, so £220 to cover both your health and your wealth.

Figures from the Ministry of Justice show that the number of LPAs registered has more than trebled in the past three years to 191,852 last year. Despite the rising figure of LPAs being registered, unfortunately, many still do not discover the value of this essential legal document until it is too late.

legalmatters will prepare your Lasting Power of Attorney for highly competitive, low fixed fees. Call us on 01243 216900 or email us at info@legalmatters.co.uk for more information.

Important Inheritance Tax Updates for Business Property Owners

The Finance Act 2013 has introduced new rules regarding the deduction of debts from Inheritance Tax (IHT), which all business property owners and advisers should be aware of.

IHT is normally charged on the net value of a deceased person’s estate. This is after deducting debts outstanding at the date of death, taking into account any relevant IHT reliefs and exemptions, and the nil rate band (currently £325,000) if available.

One of the most pertinent changes is the new rule dealing with debts incurred to finance properties which qualify for IHT relief. Agricultural property relief (‘APR’), woodlands relief and business property relief (BPR) collectively known as ‘relievable property’ attract 100% tax relief in certain circumstances. The government has made these changes seeking to block a ‘double deduction’ for IHT purposes.

Take for example Mr Bieber who dies in December 2013. His estate consists of his home worth £725,000 and a loan of £400,000 which he took out three years ago against his home to buy Alternative Investment Market (AIM) shares worth £600,000. These shares qualify for 100% BPR for IHT purposes so his total estate (£1,325,000) minus the exempted shares makes his net estate worth £725,000. Mr Bieber’s IHT status before the changes would be that he has no IHT to pay once the £400,000 loan and nil rate band of £325,000 are deducted from his estate.

The effect of the new rules (applying in relation to liabilities incurred on or after 6 April 2013) would be that Mr Bieber’s AIM share portfolio worth £600,000 would be reduced by the home loan liability of £400,000. The remaining £200,000 would still be eligible for BPR at 100% and Bieber’s remaining estate of £725,000 would be reduced by his nil rate band of £325,000, leaving £400,000 chargeable to IHT at 40%, i.e. £160,000 to pay.

Another example. Bill and Ben go into business together. They both need to put £1.5m into the business and they both have a house worth £2m each. Bill sells his £2m house; invests £1.5m in the business and buys a smaller house for £500,000. Ben borrows £1.5m against his house and invests that in the business.

Both Bill and Ben have £1.5m of business assets and £500,000 of net equity in their houses. Under the old rules, their net estates on death would have reflected this. However, under Schedule 34 of The Finance Act 2013, Bill’s taxable estate (on death after 2 years) will be £500,000, whereas Ben’s will be £2m. Both Bill and Ben have the same net wealth of £2m; the same investment in business assets – £1.5m; and the same net equity in their house – £500,000.

The reason for this is that Ben’s ‘double deduction’ is illusory. He is getting one deduction for his business property and another for the fact that the equity in the house is reduced by the borrowing. His borrowing represents a real liability that may have been incurred to finance his investment in business property, but would still exist if the business property lost all value. Bill equally has one deduction for his business property reducing the taxable value of that property to zero, and the means by which he financed his investment in business property (the sale of his £2m house and purchase of one for £500,000) reduced the value of his non-business assets.

The scenario may be extended further. A year after setting up the business, Bill decides that he does not like his smaller house, so he sells it and borrows £1.5m to move back into a house costing £2m at which point he is arguably in a position identical to Ben. Both have 1.5m invested in the business, both live in a £2m house, and both have a loan of 1.5m secured on their house. Yet under the new rules, if death occurs 2 years after financing the business, Bill will have a net taxable estate of only £500,000, but Ben will have a net taxable estate of £2m!

Call us on 01243 216900 or email us at info@legalmatters.co.uk to discuss the best way to protect your assets.