MAKING A TAX-SAVING WILL
By Tim Brooke, a Partner and wills and probate specialist with Nottingham and West Bridgford-based solicitors Masser & Co.
It might not be a pleasant task, but at some time or another we all need to think about what will happen when were no longer here.
For married couples, the vast majority of us are quite rightly content to have a simple Will in place which ensures that when the first spouse dies, everything passes to their partner. After both have died, provision is then made for other loved ones, such as the children of the family.
Many people look to consider more complicated alternatives to the simple Will, in the hope that the Inheritance Tax bill will be reduced or even disappear. Inheritance tax (IHT) is payable at a hefty 40% on any amount above the current estate threshold value of £242,000 and with rising house prices, more people now fall within this bracket.
Any legacy to a spouse is free of IHT, so with a simple Will no tax is paid when the first partner dies. On the death of the second spouse, however, any other beneficiaries must pay the tax.
Thankfully there are ways to reduce this burden - an increasingly popular method being the nil rate band discretionary trust will.
Here, the first £242,000 of the estate passes into a discretionary trust and the remainder - which is also free from tax - passes to the spouse. The discretionary trust is established so that monies are only distributed to other people (such as the children) if the surviving spouse is already properly provided for financially. On the surviving partners death, his or her estate will be considerably less than it might otherwise have been, thereby saving up to as much as £96,800 in tax. The monies in the discretionary trust are then divided between any children or other beneficiary.
This option allows people to retain control of their assets whilst alive whilst still enabling them to give a benefit to their children.
Reducing the assets held in the sole name of the surviving spouse may also reduce the amount payable to the local authority if the person needs to receive long term nursing care.
If you are considering making a will or updating your present will, please contact Tim Brooke on 0115 912 6666.
For more information about the issues raised in this article, or any other commercial law matter, please contact Kelvin Henderson on 0115 912 666
