It’s just over two years since the pension reforms were introduced to give people more choice in accessing their pensions. One of the benefits it’s brought is that it is encouraging people to think more about their pensions when they’re younger.
According to research by Aegon, 15% of people have realised they need to plan more for their retirement. The number of people talking to an advisor has almost doubled in the last 12 months.
What is particularly good to hear is that since the reforms, 14% of working age people are saving more in their pension pot. As a result, there has been a big jump up since April 2015 in the average amount that people have saved, from £29,000 to £50,000.
Just as it’s important for people to seek advice on how to grow their pensions, the new freedoms mean that people should equally take advice to manage when and how much they take out at retirement.
There may be a temptation to withdraw a large sum and leave yourself with too little to enjoy in a long retirement. Before splashing out on a long, exotic holiday, it pays to take a moment to think about some of the costs you may need to prepare for now.
When planning for your future, you may need to consider funeral and possible future care costs, as well as any outstanding debts. If you have built up a large pot and plan to invest it, you will need solid financial advice to ensure you get the best return.
Figures from HMRC show that many people are taking advantage of the freedom to withdraw money from their pension pot after the age of 55. During the last year, an average of 164,000 people withdrew money each quarter. The average withdrawal per individual was nearly £9,900.
The beauty of the pension reforms is that people have more choice to decide what to do with their pension pot. There are 6 options once you get to age 55:
1. Leave the pot until a later date
2. Buy an annuity
3. Invest the pot to produce an income
4. Withdraw cash in chunks
5. Withdraw the whole pot in one go
6. A mix of the above
Many people are still following the traditional route of buying an annuity, but as the figures go to show, many are also enjoying their new-found freedom. But the choices you make at retirement may have a big implication on the inheritance tax your dependents will need to pay.
It is worth discussing this with both your financial advisor and your Will writer. It’s a complex area and in some situations, it may be advisable to set up a Trust.
For advice on planning your Will please contact legalmatters today on 01243 216900 or email us at firstname.lastname@example.org.
A house is far more than simply a home. It’s also an enormously valuable asset, which can help you meet the costs of retirement.
In truth, most of us aren’t saving enough to cover our retirement needs. A recent study by Prudential found that more than half of those planning to retire this year will work beyond state pension age, with many pointing to a lack of money as the motivating factor. Around 1 in 12 said they simply could not afford to retire before they reach the age of 70.
However, the value tied up in our properties represents a potential answer for some with insufficient savings. According to Key Retirement, the property owned by the over-65s is worth a massive £1.054 trillion. So how can people tap into that money?
One answer is to downsize to a smaller property. These will usually be substantially cheaper, meaning that you can move into a property which is less difficult to manage and bank thousands of pounds to supplement your pension.
If you don’t want to leave your property, perhaps because of sentimental reasons or because it is close to family, then looking to remortgage may be an option. However, some lenders are less than eager to lend to people in their later years, so it may not be possible. Your chances of successfully remortgaging will depend on your individual circumstances.
An increasingly popular option is equity release, where you essentially unlock some of the equity you have built up in your property. Interest in equity release is at record levels and in the first half of 2017, retired homeowners cashed in £1.25 billion of housing wealth, according to Key Retirement. While these products are more expensive than remortgaging, they provide a useful alternative and should allow you to leave some form of inheritance for your loved ones after you pass away.
Interested to see how your property can supplement your retirement or be left to your loved ones after you’re gone? Speak to us today on 01243 216900 or email us at email@example.com.
Father of 4, Gordon Ramsay, has joined a growing list of celebrities who have decided not to leave their inheritance to their children. The celebrity chef, perhaps as well known for his colourful language as his culinary genius, believes in instilling a strong work ethic in them instead.
He has homes in London, Cornwall and LA and an impressive income – he is in 26th place on the Forbes rich list, with an income for the last year of £46 million. Despite this, he shares the view with many that to leave his offspring a fortune would be to spoil them.
He and his wife Tana have agreed they will give their children the 25% deposit they will need for a flat – but that’s it.
The common theme among the people taking this stance is that they want their children to grow up hard-working and fulfilled. They believe that handing on large sums of money changes people for the worse.
There are many who feel that their money is better spent on charitable works. In 2010, Bill and Melinda Gates and Warren Buffet set up the Giving Pledge. They encouraged 40 of America’s wealthiest people to join them in committing to give more than half of their wealth away, either while they are living or through their Will.
In an interview on ITV’s This Morning, Bill Gates summed up his attitude towards inheritance: “It’s not a favour to kids for them to have huge sums of wealth. It distorts anything they might do creating their own path.”
Simon Cowell has also said he plans to leave his money to charity. Whether he has changed his mind since the birth of his son, Eric, remains to be seen.
Sting on the other hand has said he intends to spend his wealth while he’s still alive. He, along with Nigella Lawson and Lenny Henry have echoed similar concerns as Bill Gates about over-privileging their children.
Back in 1992, three female inheritors set up the Inheritance Project. They wanted to talk about how inheriting wealth can be a negative thing and the effects it had on them. They interviewed 200 people in a similar position to them. They found that it was common for people who had inherited large sums of money to be trapped by their lack of needing to work and that many of them found it difficult to sustain relationships and had problems with addictions.
Obviously, all these examples involve very large sums of money and the people in question are not leaving their children penniless. But regardless of the size of your estate, it is worth putting some thought into what you leave to who and ensuring that it’s drawn up correctly.
For help on any aspect of preparing your Will, please call legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
Last Friday, news broke of the sad death of Sir Bruce Forsyth. The former Strictly Come Dancing host and all round National Treasure passed away at the age of 89, following a lengthy battle with illness.
Reports in various national papers have since detailed the star’s alleged estate planning which, according to ‘a friend’, was done in an effort to “avoid it being gobbled up by the taxman”. By all accounts, Sir Bruce has left all of his £17million estate (didn’t he do well?) to his wife outright where it has then been widely reported that his widow Wilnelia will then “be able to transfer up to £650,000 to each relative tax free to avoid inheritance tax”.
Whilst is it true that legacies to spouses are free from inheritance tax by virtue of the spousal exemption, legalmatters shakes its head at the level of misinformation reported. Quite frankly it doesn’t even know where to start with dissecting what a flawed and short-sighted piece of alleged tax planning this represents, but here goes.
So what is the actual position (if indeed these were his wishes) and why might it be regarded as a potentially reckless and ineffective idea?
First of all, the tabloid press have been quoting the figure of £650,000 supposedly available for Wilnelia to generously distribute ‘to each relative’ once Sir Bruce’s legacy has been transferred. Each relative!?! If this was the case, then the majority of estate planners would be out of a job and considered, surplus to requirements.
It would appear that the press have confused the level of transferrable nil rate band available to the surviving spouse on death with what an individual is able to give away tax free during their lifetime. Whilst Wilnelia would indeed be able to benefit from her late husband’s inherited nil rate band of £325,000 to combine with her own on her death, her late husband’s nil rate band is not something that she would be free to make use of during her lifetime. The articles also totally disregard the newly established ‘residential nil rate band’ that this tax year alone would have increased the late entertainer’s tax free allowance by an additional £100,000 (but latterly would allow a combined nil rate band of £1,000,000 if left to lineal descendants).
Any legacy left to a spouse is free of tax by virtue of the spousal exemption. Wilnelia is, of course, free to make gifts to whoever she likes during her lifetime. As long as she were to live another 7 years following such gifts (of any monetary value) these would also be inheritance tax ‘free’. Quite honestly, she could gift the full £17 million equally amongst his 6 children (or whoever she so wishes) as soon as she had received the monies from probate, should she be so inclined, but therein lies the issue.
If indeed this is the arrangement, there is NOTHING obliging Wilnelia to carry out the ‘wishes’ of her late husband. Outright gifts by their very nature, leave the recipient free to do whatever they like with the legacy. Despite ‘wishes’ or ‘instructions’ from the deceased, there is nothing legally binding to see that these are fulfilled. The deceased is simply requesting the recipient to make distributions and is hoping that this will be carried out. Whilst this level of trust is admirable, the private client practitioner knows more than most that trusting your relatives to ‘do the right thing’ on your death is a dangerous assumption.
Let us assume that, despite having no legal obligations to do so, the recipient of the legacy has every honourable intention of making these posthumous gifts. They themselves would need to survive another 7 years which is always a risky proposition. What instead, if they were to lose mental capacity and unable to make such transfers? Michael Schumacher’s tragic accident and resultant circumstances have shown that age, wealth and level of fitness have nothing to do with a lack of mental capacity and inability to manage your own affairs. How can we be sure that Wilnelia shall live a long and untroubled life, free of illness and incapacity? Her ability to make gifts from her late husband’s fortune and to therefore share the wealth and to reduce her own liabilities to inheritance tax is dependent on her being mentally fit and well; certainly, any attorneys that she may have appointed won’t be able to undertake such tax planning ventures without court authority (another common misconception).
So what might Sir Bruce have done to make provision for his children and grandchildren (and indeed he could well have done, because we are commenting on the reporting, not on actual events)?
Lifetime gifting would have been the best starting point. If carried out wisely and cautiously, after careful advice and taking all needs of the parties into due consideration, then lifetime gifting is an excellent way of reducing your tax bill.
And what about the use of trusts? Despite trusts having their own particular tax regimes, they are immensely useful structures to protect and preserve assets against unknown circumstances. Tax shouldn’t necessarily always be the driver, particularly where significant wealth is concerned.
Finally, any charitable giving would have the double benefit of not only being exempt from IHT for the legacy itself, but it could also have reduced his IHT rate to 36% if he had left 10% or more of his total estate to charity. A Brucie bonus if you will.
For the papers to glibly report that Sir Bruce has ‘in one fell swoop’ cannily avoided inheritance tax and at the same time ensured that his wealth lands where he would wish is, in our humble opinion, grossly underestimating the risks and potential issues at hand and is in any event based on apparent mis-reporting of the facts.
Make sure that your wishes are adequately enshrined in the correct, binding, legal documents as the road to court is paved with good intentions. Nice to sue you, to sue you, nice. Speak to a member of the team at legalmatters on 01243 216900 or email us at email@example.com to find out more.
Writing a Will is the best way to decide exactly what will happen to your assets after you die. It’s important though to remember that you can determine what happens not just with your assets in the UK, but international assets too.
It’s no longer particularly unusual for people to own assets in more than one country. For example, around 200,000 Brits own property in France alone. Accounting for these international assets properly when writing a Will is incredibly important, but the process can be rather complicated.
There are cross-border inheritance and tax issues to consider. Britain is unusual in that you can decide exactly who inherits your property, but in certain European nations there are more restrictive ‘forced heirship’ rules which dictate precisely who can inherit. Until a couple of years ago, these rules applied to Brits who own property in these nations, though these restrictions have since been loosened.
It may be that you need to have separate Wills in each country in which you own assets, as well as a main Will in the country in which you live, in order to control what happens after you die.
In most countries, probate is required before any foreign assets can be sold or transferred. This process can be complicated, yet it is still preferable to dying without a Will in place, in which case your loved ones will have to deal with foreign intestacy. This can be enormously expensive, stressful and time consuming.
The world is getting smaller all the time, so increasing numbers of us own assets in other nations – whether that’s property or investments. That makes it even more important that you write comprehensive Wills in each nation, setting out precisely what you want to happen with your assets.
No-one wants to think about what happens after they die, but failing to leave a Will could leave your loved ones with enormous stress, particularly if they are having to deal with foreign assets as well as domestic ones.
Talking to a professional Will writer is strongly advised so you ensure all your assets are going to the right places. You are welcome to call us at legalmatters on 01243 216900 or email us at firstname.lastname@example.org and we’d be happy to talk you through things.
As Game of Thrones season 7 is fully underway, the shenanigans of the inhabitants of Westeros are attracting viewers in record breaking numbers. Whether or not this fictional romp of dragons, zombies and war is your cup of tea, once you remove the fantasy element, you are left with the very bread and butter of a private client practitioner’s workload; family relationships, wealth and death. A tenuous link? Perhaps, but undoubtedly these universal themes are very much at the heart of both worlds.
Admittedly, the level of death is a little more frequent and varied than the average probate practitioner’s workload. Her Majesty’s Courts and Tribunal Services have a difficult enough job processing paperwork without having entire family dynasties wiped out in one fell swoop (one can only imagine the Oath drafting…)
But on a serious note, the programme highlights that death will not always present itself in the chronological order of a family tree. Even despite the wealth of information in the public domain, we are still faced with clients who do not have a Will as they believe their wealth will automatically be inherited by their children on their death. The Intestacy Rules will only go so far in handing down your estate to your lineal descendants but, of course, there is so much more to a Will then simply enshrining this course of events.
Warring offspring? Dubious marriage choices? Unruly illegitimate children? All in a day’s work in the Seven Kingdoms yet in the real world, these issues are just as much cause for concern for our clients today. If you are worried about protecting the family wealth (however big or small) correct estate planning can prepare for such eventualities and ring fence funds for your intended recipients without the worry of funds falling into the wrong hands.
Indeed, so many of the show’s main conflict points could have been easily avoided and managed had the characters’ legal affairs been put in order.
Had the ‘Mad King’ been furnished with a fully registered Lasting Power of Attorney, then his appointed attorneys could have stepped it at the first sight of faltering capacity and a much cheerier (and less bloody) outcome could have been achieved by all.
A Lannister always pays their debts, and loans and gifts are indeed an excellent form of estate planning if done in the right way. A flexible family trust is a great way of allowing for loans and repayments to be made to and from the family pot of money. Running out of blood descendants? A trust also allows for the person setting it up (the ‘settlor’) to add friends or charities into the mix.
There is certainly a stark solution for making provision for ‘blended families’ (with children born from different relationships) in a straightforward manner, without having to lose your head.
Whatever your family situation, legalmatters will find the right solution for you to ensure that your death does not leave any nasty surprises for those left behind.
An appropriate, professionally prepared and properly executed Will can provide security for your family, during an already emotional time. There is a time and a place for drama and conflict, and your death shouldn’t be one of them. Make a Will, make your wishes clear, because goodness only knows transferring the ownership of a dragon is an administrative nightmare at the best of times!
Queen Elizabeth II has been alive for longer than most of us and yet it seems hard to believe that she will one day die. However, there are many plans already in place to deal with this eventuality.
The responsibility for dealing with the news first falls to the Queen’s private secretary, who will inform the Prime Minister. From there, the Foreign Office will notify the Commonwealth nations.
The national and world press will also be told and shortly afterwards a footman at Buckingham Palace will pin a notice to the gates announcing her demise. This will be replicated on the Palace website too.
Television and radio programmes will be interrupted with an announcement of her death. Similarly, to the deaths of Kennedy and Princess Diana, you will undoubtedly remember where you first heard the news.
Social media will likely erupt and you may well hear it here first.
The country will enter into an immediate period of mourning. Parliament will be recalled and Charles will become King – unless his mother outlives him and then it will fall to the next in line, William.
Under common law, the wife of a King is automatically referred to as Queen, so despite any question marks over Camilla’s role, she will become Queen Camilla.
In the event that the Queen dies abroad, she will fly home by an RAF jet. From Balmoral, she will travel back on the Royal Train.
She will return to Buckingham Palace, flags will lower and bells will toll across the nation.
In the time between her death and funeral, thousands of people will be involved in the myriad of activities surrounding a monarch’s death.
Invitations will be issued for her funeral. Government departments will coordinate with the police, security, armed forces and transport to ensure the safety of the politicians, heads of state and public that will be attending and lining the streets.
The words to the National Anthem will be amended and new postage stamps and currency will be created.
Charles will be expected to make his first address as Head of State on the evening of his mother’s death. He will be proclaimed King the following day and will then commence a tour visiting Edinburgh, Belfast and Cardiff to attend remembrance services.
Television schedules will change. Some sporting fixtures may be cancelled and books of condolence will appear in town halls nationally and embassies around the world.
The Queen will be moved to Westminster Abbey to lie in state for several days. Four soldiers will guard her at all times and it’s thought the Queen’s children and grandchildren will arrive unannounced to stand vigil as well.
The day of the funeral will be a national day of mourning and a public holiday. The Archbishop of Canterbury will lead the service and afterwards her coffin will be taken to Windsor to be interred in the royal vault.
These plans will ensure the event will occur as smoothly as possible. If you’d like to ensure you have the right plans in place for after you’re gone, call us on 01243 216900 or email us at email@example.com.
When the UK made the decision to depart the European Union last year, the actual departure seemed a long way off. Although the thought of leaving loomed, the process of exiting was thought of as distant – simply another thing for politicians to worry about.
As we begin to enter the negotiations, however, it seems that the ‘keep calm and carry on’ attitude is faltering, especially among retirees.
According to recent research, 14% of those who have retired are worried about the impact of Brexit on their pension, with 19% saying they are now much more likely to seek financial advice.
Although market volatility was almost certain in the initial aftermath of the referendum, most believed that the markets would calm after the storm. However, retirees believe that the clouds haven’t cleared just yet; over one in four predict that any negative impact on their pension will be for the long-term.
It’s obvious that people are worried about the consequences of leaving the EU, but some have gone further than just expressing their concern. Due to Brexit anxieties, just over one in ten of those who had made plans to retire in 2017 have actively postponed their retirement, with 6% even changing the country that they planned on retiring to.
Having looked at these figures, you might be under the impression that just about everyone is worried about the impact of Brexit on their pension. It is though important to balance the numbers of those who are concerned, against those who are less so. In fact, the figures show the majority of people (67%) felt their retirement plans had not been affected by Brexit at all. One in eight even thought that leaving the EU would impact their pensions in a positive way.
Retirement expert at Prudential, Kirsty Anderson, commented on the concerns of retirees, as well as the importance of seeking advice:
“As you would expect, for many people who have been planning and saving for their retirement for most of their working lives, even the biggest of political upheavals won’t make a difference to their long-term plans. But with one in three new retirees telling us that their retirement plans have been affected by the referendum result, it is clear that uncertainty is having an impact for some.”
Although worrying is a natural reaction to being unsure about something, it’s rarely helpful. Rather than providing an answer, it just allows the concern to escalate and often causes us to worry even more. It might be impossible to know how Brexit will affect you exactly, but adequate planning will at least make your financial future a little more certain.
As well as guiding you through the process, talking to an expert at legalmatters can help clear up any concerns you may have. Be more certain about your future by speaking to one of our professional team today – call us on 01243 216900 or email us at firstname.lastname@example.org.
The new Residence Nil Rate Band (RNRB) that has now come into effect is good news for many. However, not for everyone.
In summary, the new rates effectively add another allowance in addition to the inheritance tax (IHT) threshold of £325,000 for a single person. This additional allowance is £100,000 per person, rising to £175,000 in 2020. These rates double for a married couple or civil partnership. There are, however, a few complications that may mean you won’t qualify and it’s important to understand these, as they may affect how you structure your Will.
First of all, the RNRB only applies to a property that the deceased has lived in and a qualifying share of it must be passed on to direct descendants.
If you have no direct descendants i.e. no children or step-children, fostered or adopted children, or children you have become legal guardian for, it doesn’t apply. You can still leave your property to siblings or nephews and nieces, but they won’t benefit from the RNRB and their inheritance tax bill may be greater because of it.
The property needs to form part of your estate when you die or to have given it away but reserved a benefit in it.
If you have more than one property, the RNRB can only apply to one of them. Your descendants can choose which one is to gain the benefit. If you have a couple of low value properties, your estate may benefit from a smaller amount of RNRB than if you had one larger property.
At the other end of the scale, if your estate exceeds £2 million, the RNRB tapers away by £1 for every £2 over this threshold. The threshold this year is £2.2 million. Estates above this level will not benefit from RNRB.
It’s possible to reduce the value of your estate by making certain gifts. As mentioned previously, you need to be careful when doing this as it could have adverse consequences. Alternatively, you could set up trusts to bring down the overall value of the estate. It may be worth considering leaving your property in trust to your partner to avoid the threshold being exceeded upon their death.
However, if you plan to leave any property in trust to your descendants, then aside from some exceptions, the RNRB again will not apply. It does depend though on the types of trust and so specialist advice is needed.
It sounds quite complicated, but a good solicitor, can talk you through your options to structure your Will to take advantage of the tax benefits available to you.
For advice on preparing a Will and the RNRB please call us on 01243 216900 or email email@example.com.
There are many positives to creating a trust. They can help you reduce your tax burden, protect your intended beneficiaries and avoid wills and probate disputes. However, there are many different types of trust; knowing the differences between them will help you establish which is right for your circumstances.
With a discretionary trust, the trustees have discretion over how to use the capital and income of the trust fund. While beneficiaries will be named in the trust deed, it is up to the trustees to decide which of the beneficiaries is to benefit.
A discretionary trust can be useful if you have a group of people that you know you wish to pass assets onto, but you don’t know which will need financial help in the future or what sort of help is required. For example, this could be your children.
Another bonus is that the assets within a discretionary trust are classed as being outside of the beneficiaries’ estates when it comes to Inheritance Tax. They’re also not counted when calculating means tested benefits.
Discretionary trusts are very flexible; you do lose control over exactly what happens to the assets you have placed within the trust. To counter this, you can appoint yourself as a trustee so you can have some influence over the decisions of the trustees.
These are also known as simple trusts. Essentially, the beneficiary gains the immediate and absolute right to the assets in the trust and any income they generate. Once the trust has been set up, the beneficiaries cannot be changed.
This type of trust is generally used for transferring assets to a minor – a trustee holds the assets on trust until the beneficiary is 18.
The beneficiary will be responsible for paying Income Tax and Capital Gains Tax on the assets within the trust. However, they are viewed as ‘potentially exempt transfers’ for Inheritance Tax. In other words, so long as the person who put the assets into the trust does not die within seven years of doing so, there will be no Inheritance Tax to pay.
Parental trusts for minors
This is where a ‘relevant child’ of the settlor (the person setting up the trust) can benefit from the assets in the trust.
The child’s income from the trust is classed as being the income of the settlor when it comes to Income Tax, while Capital Gains Tax must also be paid.
Interest in possession trusts
This is where the beneficiary of a trust is entitled to the income from the trust as it arises. The trustee is duty bound to pass on all of the income received to the beneficiary.
There are two types of beneficiary within a trust like this – the income beneficiary is the one who is entitled to the income from the trust for life. However, separate beneficiaries will be detailed in the trust, and they are entitled to the capital of the trust.
An example where you might put your investments into a trust like this – your spouse could be the income beneficiary, while your children are the capital beneficiaries.
Beneficiaries may be vulnerable for two main reasons – either they are mentally or physically disabled, or they are under the age of 18 and one of their parents have died.
These may qualify for special tax treatment.
Unsure whether you would like to set up a trust? At legalmatters we are happy to talk you through things. Feel free to call us today on 01243 216900 or email us at firstname.lastname@example.org.