Where there's a will...
4 February 2008
26 February 2014
7 October 2013
24 June 2013
29 August 2013
Direct disclosure obligations resulting from joinder of adult beneficiaries to matrimonial proceedings affecting trusts
24 February 2014
The Government's proposed changes to the inheritance tax threshold are seen by many as detrimental to the profession's efforts to encourage people to make wills.
The savings offered by the changes will affect the practice of including nil-rate band discretionary trusts in wills, on the basis that these are no longer required to give the inheritance tax savings previously only available by using this device. Since this was the main driver in encouraging people to make wills in the first place, the key reason to make a will seems to have disappeared.
The reluctance to give the Chancellor even more tax on death, having spent a lifetime paying tax, encouraged many people to put their affairs in order and write wills that would afford them a saving of inheritance tax at least on the value of one current nil-rate band.
This has now all changed, however, thanks to the generosity of the Government in allowing married couples to have the full benefit of two nil-rate bands without the complication of including nil-rate band discretionary trusts in their wills.
For those people who understand what this means, it would appear that they no longer have to make a will to save on inheritance tax.
In some cases this will be true, but in many others it will not be. The estate of a married couple or civil partners passing on intestacy can have an adverse effect as far as inheritance tax is concerned, quite apart from the fact that the estate may not necessarily go where it would have been intended if formal directions had been given.
Under current law it would in some instances be possible to circumvent the impact of inheritance tax on intestacy by means of a deed of variation. But these may not be available in the future, as in some cases the potential beneficiaries may be under the age of majority and so be unable to enter into such a deed.
The situation that has arisen now on the softening of the Government's attitude towards inheritance tax effectively increases the problem the profession has always had in encouraging people to put their affairs in order before they die and avoid the unnecessary legal costs that can go hand-in-hand with administering an intestate estate.
Straightforward transactionMaking a will in the majority of cases should be one of the most straightforward experiences that any client could ever be involved in at a solicitor's office. The effects of not making a will could be quite the opposite and involve those left behind with anxiety at the worst possible time.
As far as I am aware, making a will is the only time a client would voluntarily seek the advice of a solicitor. In all other cases - perhaps with the exception of powers of attorney, and even these are a safeguard for the future - all other visits to a solicitor are because this is a requirement and there is really no other option.
It is a well-known fact among private client practitioners that statistics on wills show that around 66 per cent of the adult population die without having made one - and for years we have been trying to find ways to encourage people to do so without any apparent success. This statistic has been around for many years and does not seem to have improved.
Even though the general wealth of the population has increased, there still seems to be an overall reluctance to dispose of this wealth in a reasoned manner.
With the average estate going through the Probate Registry standing at around £300,000, we must now have a situation whereby making a will is not something to be left to chance, and due consideration should be given to Government-led efforts to encourage people to make wills.
At the same time there remains a historical need to set up a central register of wills similar to the registration of land titles to ensure easy access to the terms of a will following a death and to avoid the problems that arise when original wills go missing. This could only be of benefit to the general public and would also be helpful to the profession.
Although the main reason for including a nil-rate band discretionary trust in wills has generally been for inheritance tax saving purposes, the other reasons to do so still exist - but by comparison appear less compelling, as none of them have the same immediate fear factor of paying tax that need not be paid.
These reasons include protecting the assets in the trust from the bankruptcy of a beneficiary, or likewise the divorce of a beneficiary. They also, significantly, still have the advantage of tax saving by providing the flexibility of skipping generations to keep the assets out of the estate of a wealthy child and holding these for grandchildren and even great-grandchildren.
However, this tax saving does not have the same impact on those who have previously realised that, unless they included these trusts in their wills, there would be a large inheritance tax bill for the children to pay.
What all this means for the client and the profession seems to be that, the easier and cheaper it is to make a will, the more likely it is that someone will do so. In the absence of any government intervention, the answer is that the profession should be more flexible in its approach to pricing and the packaging of legal services as a whole.
It is hard to imagine, given the changes in the marketplace that will soon be upon us, that legal services will not be packaged in a different way to what we have now. There will be different ways of purchasing and delivering legal services, and wills are an integral part of the bigger picture - for example, estate administration, tax planning, asset management and protection, and private client business generally.
The proposed changes to the inheritance tax threshold make it potentially simpler and cheaper to make a will while still retaining the same inheritance tax savings as before, but in a more straightforward way.
The changes should therefore be seen as an opportunity by the profession to encourage people to put their affairs in order and secure the advantages on offer.
The perceived difficulty in understanding on the client's part and explaining on the solicitor's part of the effect of the nil-rate band discretionary trust have now gone, which also means the time needed to go through the detail has also now gone, certainly as far as inheritance tax is concerned, and so this should lead to more people being encouraged to take advice on the preparation of a will. However, this will require the profession to go out to its client base and sell the idea. It is a notion we are perhaps unaccustomed to, but proactively selling legal packaged services will soon become commonplace.
Paul Hirst is a partner at Halliwells