Making a Valid Will

Blogs - Trust and Estates

Will and Mental Capacity

A person making a will must have the mental capacity to make it.

This means:

  • they must be able to comprehend the extent of their estate;
  • they must be aware of the people who they would usually be expected to provide for (even if they choose not to); and
  • they must also be free from any delusion of the mind that would cause them not to benefit those people.

These principals were first established in a case called Banks v Goodfellow in 1870. The judgement in this case alongside the Mental Capacity Act 2005, is still followed today. In making decisions in cases where mental capacity is an issue, the court has established something known as the “Golden Rule“, which provides guidance to solicitors when preparing wills for vulnerable or elderly people.

The case of Re Simpson [1977] states that there is one Golden Rule to be observed – however straightforward the will and however uncomfortable the suggestion:

‘the making of a will by an aged or seriously ill testator ought to be witnessed or approved by a medical practitioner who has satisfied himself of the capacity and understanding of the testator, and records and preserves his examination or findings.’

One of the most important parts of a solicitor’s job is to assess a client’s mental capacity and be sure they meet with the requirements of creating a valid will. Determining whether a client has testamentary capacity to make a will is vital in the preparation of every will.

Contact our Private Client Solicictors

We always take the necessary steps to ensure a will is valid. If a person lacks testamentary capacity we can assist with a Court of Protection application for a statutory will to be made on their behalf. Please contact our private client solicitors on 020 8240 9018 or submit our enquiry form on our website for more information.

What Happens to a Deceased’s Car When They Die?

Blogs - Trust and Estates

A motor vehicle is a chattel, and you don’t have to wait until a grant of probate or letters of administration have been issued to transfer a car to another owner or to sell it.

You will need the owner’s death certificate and legal proof of your entitlement to sell the vehicle on behalf of the deceased ’s Estate. This could be a copy of the Will naming you as Executor or a Solicitor’s letter confirming your entitlement to deal with the proceeds of the Estate under the Intestacy Rules. If there is more than one Executor of the Will, all named executors with all the required personal proofs of identification must be presented at the time of sale prior to any agreed payment being made.

If the deceased owned the car outright, you can transfer ownership by contacting the DVLA and then either sell it on or continue to run it. It is important to make sure car insurance is still valid and you will need new vehicle excise duty (VED).

If you decide to keep the car, you will need to contact the DVLA to tell them the current owner has died – and include the driving licence with a letter detailing your relationship to the deceased, the date they died and their name, address and date of birth.

If you are a family member and keeping the car, you must tell DVLA that you are the new keeper of the vehicle. You can also register the car as off the road (SORN) – if you want to keep it in a garage for the time being and not pay tax. Once it’s in your name you’re free to sell the car on to a private buyer, dealer or online car buying site.

If you want to keep the car and there is outstanding finance on it, you might be able to take over payments by contacting the finance company. If you want to sell the car and there is finance on it, then you will not have to go through the process of selling it as the vehicle still belongs to the finance company. In this instance, the car will be taken off you and often sold at auction to cover the outstanding loan. Any shortfall will need to be covered – normally by the deceased’s estate. Depending on the contract, you may be able to hand the car back without paying any fees under ‘halves and thirds’ rules if a certain repayment amount has already been met.

The half rule gives the purchaser the option to voluntarily terminate the agreement once. This option is available once half of the total amount payable has been made provided arrears are up to date. The third rule gives the purchaser further protection such that if one third of the total amount is paid, a court order would be required to repossess the goods in the event of a delinquent account. If one third of the total amount has not been paid, the goods can be repossessed by anyone, at any time.

If the car has little commercial or sentimental value, you may want to scrap it. If you go down this route, you must hand over the vehicle log book with the vehicle, keeping the notification of sale (V5C/3), and inform the DVLA that you have taken the vehicle to an authorised treatment facility.

Contact our Private Client Solicitors

We can assist you with all aspects of the administration of a deceased’s estate and can help you to make a Will that sets out what you want to happen to your assets (money, property, investments and possessions) as well as who you want to care for your young children after you have passed away. Please contact our private client solicitors on 020 8240 9018 or via the enquiry form on our website.

What is ‘Probate’?

Blogs - Trust and Estates

What happens to my affairs after I die?

When you die, someone has to take care of your affairs, pay any outstanding debts and distribute your Estate to those that are entitled to inherit it. This is known as the Probate process. You can choose who you want to do this in your Will by naming them as ‘Executor’. This can be a family member or a professional. You can appoint more than one executor up to four executors.

If you don’t have a Will the person responsible is your next of kin determined by inheritance laws whom we call it as  ‘Administrator’. They have to apply for Letters of Administration to start the Probate process. This is known as an Intestate Estate.

The person responsible for the Probate process whether they are the Executor or Administrator is known as your Personal Representative.

A Grant of Probate (Letters of Administration in the case of an Intestate Estate) is the legal document that is issued by the Probate Registry that gives the Executor or Administrator the entitlement to deal with your affairs and allows them to make all arrangements to finalise the Estate.

It is not always necessary to obtain a Grant of Probate. It depends on whether you owned assets in your sole name that require a Grant of Probate. Some companies or institutions will release assets without requiring a Grant of Probate.

We list below the assets that probably need a Grant of Probate to deal with:

  • A property owned in the sole name of the person who has died or owned with another person as ‘tenants in common’.
  • Bank accounts or savings accounts worth over £5,000
  • Stocks or shares worth over £5,000
  • Life assurance policies
  • Private pensions

One of the first things that your Personal Representative will need to do is to value everything in your Estate. This includes everything of value that you own when you die including your car or personal possessions. We call the total value of assets you own as ‘Estate Assets’.

Then, your Personal Representative will need to see if there is any ‘Estate Debts’ that should be paid out of your Estate. The first thing is to calculate if any Inheritance Tax is due and how much. They will then be responsible for reporting this to HM Revenue & Customs (HMRC) and settling the inheritance tax bill from the Estate. Your Personal Representative will also need to subtract any debts, bills and funeral expenses from the total value of your Estate. Any Lifetime Gifts that you have made in the last 7 years will also need to be taken into account and added back in.

You can choose to appoint JY Partners Solicitors as professional Executors in your Will or if you choose a family member or friend as Executor, we can help them with any stage of the Probate process, either taking on the whole process on their behalf, or just part of it.

Contact our Private Client Solicitors

If you have any enquiries in relation to probate or administration of estate, please contact us on 020 8240 9018 or via the enquiry form on our website to discuss. 

Gift in a Will and its Lapse

Blogs - Trust and Estates

What Happens if a Beneficiary Dies Before the Testator/Testatrix?

If a beneficiary dies between the point when the Will was made and the death of the testator/testatrix, the beneficiary’s estate will usually have no benefit from the Will. If the beneficiary has predeceased the testator/testatrix, the benefit is said to have lapsed.

IHTM12084 – Succession: Wills: Legacies and devises: Lapse (England, Wales and Northern Ireland)

Lapse occurs when a gift made in a Will fails because of the death of the legatee or devisee in the testator’s (IHTM12001) lifetime. Where the legacy or devise is anything other than residue, that property will normally fall into residue. However, if the deceased legatee or devisee is already a residuary beneficiary, the property devolves as it would on intestatacy (IHTM12101). The above does not apply where the gift is a life interest.

There are exceptions to the rule:

Where there is a gift in a Will to a child or remoter issue of the testator or testatrix (IHTM12001) the gift will not lapse if the dead beneficiary leaves issue (children) who are alive at the testator’s death (in England & Wales, the Wills Act Section 33 as amended by the Administration of Justice Act 1982 Section 19; in Northern Ireland, article 22 of the Wills and Administration Proceedings (NI) Order 1994).

Also, if the testator or testatrix makes substitutory provisions in the Will. For example a gift to ‘such of my children as are alive at my death’ will clearly benefit surviving children and not the issue of any predeceasing child.

For example, if under my Will I have left 70% of my residuary estate to my son but he predeceases me without living any issue, his 70% benefit under my Will will pass onto his surviving wife on intestacy upon his death as the son is already a residuary beneficiary under my Will.

Contact our Private Client Solicitors

If you have any enquiries regarding a Will, Gift and/or Trusts, please contact our private client solicitor on 020 9240 9018 or via the enquiry form on our website.

The Tax Implications of the Trusts

Blogs - Trust and Estates

What is a Trust? 

A Trust is a legal arrangement between a ‘Settlor’ and ‘Trustees’. Trustees hold certain assets which previously belonged to the Settlor and use those assets to benefit one or more of the ‘Beneficiaries’. The details of the arrangement are contained in a legal ‘Deed of Trust’ document which names the people involved and sets out the terms of the Trust. Trusts may be established while the Settlor is alive but can also be created through a Will.

There are a number of reasons to set up a Trust. It can provide flexible, financial protection for those important to you and your family, making sure that value passes to the people you want it to. It can also benefit future generations in a tax efficient way. Although some of the tax benefits of Trusts have been reduced in recent years, they are still a useful vehicle for protecting value for the family.

Type of Trust

There are several different types of Trust and they each have their own tax implications. The most common types are Bare Trusts, Discretionary Trusts and Interest in Possession Trusts.

Bare Trust

A Bare Trust gives the Beneficiary an immediate and absolute right to both the capital and the income. Although the assets are held in the name of a Trustee, they have no discretion over what income to pay the Beneficiary. Essentially, the Trustee is a nominee in whose name the assets are held, with no active duties to perform.

Discretionary Trust

The most common type of Trust is a Discretionary Trust. This type of Trust provides the widest powers and flexibility to the Trustees. Trustees generally have ‘discretion’ about how to use the income and the capital of the Trust. They can decide how much is paid to each Beneficiary, if any, and how often the payments are made.

Discretionary Trusts allow Trustees to take account of changes in circumstances, which the Settlor could not reasonably have foreseen. Depending on the terms of the Trust deed, the Trustees may be allowed to accumulate income within the Trust for as long as the law allows, rather than pass it to the Beneficiaries. Income that has been accumulated becomes part of the capital of the Trust.

The Settlor can exert some measure of influence over the actions of the Trustees through a ‘letter of wishes’ which contains the current wishes of the Settlor concerning the Trust administration. For example, it may specify which Beneficiaries should be financially supported first or the nature of any investments made by the Trustees. However, this is not legally binding.

Interest in Possession Trust

This Trust exists when a Beneficiary has a current legal right to any income from the Trust as it arises. Often these Trusts are set up in a Will, to benefit a surviving spouse. The Trustees must pass all of the income received, less any Trustees’ expenses and tax, to the Beneficiary. The capital will usually pass to a different Beneficiary, or Beneficiaries, at a specific time in the future or after a specific event.

This Trust is effective where couples are concerned about protecting assets for their children. This could be in cases of remarriage, where there are children from an earlier relationship or where there are concerns over the ability of the surviving spouse to handle the assets.

The surviving spouse is able to benefit from the income arising from the assets allowing them to enjoy the same standard of living during their lifetime, without access to the capital of the Trust fund. This is protected for the Residuary Beneficiaries (usually the children) who will become entitled on the death of the second spouse.

The settlement of the assets on first death does not trigger a charge to IHT. This can also mean that the ‘nil rate band’ is preserved and therefore able to be passed to the surviving spouse. Although the assets then form part of the estate on second death, this is only for the purpose of calculating IHT. The Trust assets pass in accordance with the terms of the Trust, not the will of the surviving spouse.

Inheritance Tax

Under existing legislation, it is possible for a husband and wife to put two times the nil rate Inheritance Tax (IHT) band (currently £650,000 in total) of value into a Trust every seven years without immediate IHT costs. With that amount (or greater amounts depending on the value of the nil rate band) protected from future IHT charges for the lifetime of the Trust. The amounts that can be transferred into Trust can be larger where certain business reliefs apply, or the person making the gift has surplus income. As long as the person making the gift survives for seven years after the gift is made, the value of the asset will not be included in their estate for IHT purposes. If they do not survive the period, exemptions may still apply, and increases in the assets value following the gift should continue to be protected from charge.

IHT can also apply when you’re alive if you transfer some of your estate into a trust.

The main situations when IHT is due are

  • when assets are transferred into the trust
  • when the trust reaches a 10-year anniversary of when it was set up (there are 10-yearly Inheritance Tax charges)
  • when assets are transferred out of a trust (known as ‘exit charges’) or the trust ends
  • when someone dies within 7 years of setting up a trust

Trusts are treated differently for Inheritance Tax purposes.

Bare trusts

These are trusts where the assets in a trust are held in the name of a trustee but go directly to the beneficiary, who has a right to both the assets and income of the trust. Transfers into a bare trust will be exempt from Inheritance Tax, as long as the person making the transfer survives for 7 years after making the transfer. With a bare trust, the beneficiary is treated for tax purposes as if they own the property themselves so they should also consider potential income tax and CGT liabilities.

Discretionary Trusts

With this type of Trust, the settlor sets out a list of potential beneficiaries in the trust deed and gives the trustees power to choose who benefits from the trust income/capital, and when. The IHT position for a Discretionary Trust is a 20% charge on assets entering the trust in excess of the settlor’s IHT nil rate band and then 10-year anniversary charges. Deceased spouse’s unused residence nil rate band (RNRB) cannot be transferred when gifting to a trust but it should still be possible to transfer any unused percentage of the normal inheritance tax nil rate band (NRB).

Interest in Possession Trusts 

These are trusts where the trustee must pass on all trust income to the beneficiary as it arises (less any expenses) e.g. a spouse creates a trust for all the shares they own and the terms of the trust say that when they die, the income from the shares goes to their wife for the rest of their life and when the wife dies the shares pass to the children. The wife is the income beneficiary and has an ‘interest in possession’ in the trust. She does not have a right to the shares themselves.

In many cases the IHT position is the same for interest in possession trusts and discretionary trusts – i.e. a 20% charge on assets entering the trust in excess of the settlor’s IHT nil rate band and then 10-year anniversary charges. Deceased spouse’s unused residence nil rate band (RNRB) cannot be transferred when gifting to a trust but it should still be possible to transfer any unused percentage of the normal inheritance tax nil rate band (NRB)

If you’re valuing the estate of someone who has died, you need to find out whether they made any transfers in the 7 years before they died. If they did, and they paid 20% Inheritance Tax, you need to pay an extra 20% from the estate. Even if no Inheritance Tax was due on the transfer, you still have to add its value to the person’s estate when you’re valuing it for Inheritance Tax purposes.

Excluded property 

Some assets are classed as ‘excluded property’ and IHT is not paid on them. However, the value of the assets may be brought in to calculate the rate of tax on certain exit charges and 10-year anniversary charges.

Types of excluded property can include

  • property situated outside the UK — that is owned by trustees and settled by someone who was permanently living outside the UK at the time of making the settlement
  • government securities — known as FOTRA (free of tax to residents abroad).

Introduction to Personal Injury Trust

Blogs - Trust and Estates

What is a personal injury compensation trust?

A personal injury trust allows the compensation that you receive because of an accident or injury to be disregarded when you are assessed for means tested benefits. It may also protect your compensation from being used to pay any care fees if you need to go into residential care in the future. To remain eligible for state benefits, your compensation must be placed in a specially designated trust, bank or building society account, set up by trustees and held separately from your personal finances.

How does a personal injury trust work?

Instead of receiving your compensation directly, the money is held by your trustees on your behalf. Once a trust is set up a bank account is opened up by your trustees which is run on your behalf by your trustees. The trust document must appoint at least three (but no more than four) trustees. The person receiving the compensation and setting up the trust (the ‘Settlor’) can be one of the trustees and the others could be your family members, friends or a professional. The trust document sets out guidance on how the money is to be managed by the trustees.

The role of the trustees

The trustees hold and have control over the compensation award, but you can choose to access the money at any time and the trustees do not have to be persuaded to release it. You also have the power to remove a trustee and appoint someone else at any time.

Use of the trust money

The money held in the trust must be used for your benefit and you can obtain the money at any time. There are some rules about how you should spend the money and you cannot make gifts to other people. To safeguard your benefits, you must not be seen to have personal access to the trust fund. Therefore, it is recommended that the trust is used to pay for things directly.

It is up to you how the money in the trust is used but typical examples which would not affect your benefit entitlement are the purchase of personal possessions, for example, a TV/DVD player, holidays, cars, mortgage capital repayment, school fees, TV license and the cost of care and other needs.

Online banking and card transactions are now possible with some trust accounts, check what facilities are offered by each bank.

The DWP and local authorities can treat amounts that they consider to have been ‘alienated’ (whether by spending or gifting) as still forming part of your assessable estate and you could end up having your benefits stopped, interrupted, or reduced, even after spending your award funds.

Your benefits are worked out on your personal funds, not on the compensation held in the trust. If you put trust money in your own hands or personal bank account, that money will be treated as yours and could reduce or stop your benefits. To avoid this, you should not access the trust fund by paying money to yourself or withdrawing cash. Your trustees should buy what you need direct from the trust bank account.

Contact our Private Client Solicitors

For expert legal advice and assistance on how to set up a personal injury trust, please contact our private client solicitors on 020 8240 9018 or via the enquiry form on our website.