Wills and trusts
Wills
The most basic financial planning for Inheritance Tax involves having a properly constructed Will which ensures a tax efficient and personally rewarding distribution of assets in accordance with one’s clearly thought out and up to date wishes.
Even individuals whose Estates are not likely to attract inheritance tax liabilities should, for their own peace of mind, ensure as far as possible that their wishes as regards the disposal of property and possessions are recorded.
Wills can also specify guardians of minor children and most importantly may well be the last communication a person ever makes to their loved ones.
Wills should provide for the creation of a Nil Rate Band Trust or spouse bypass gift where on first death assets to the value of the Nil Rate Band do not pass directly to the spouse but to other beneficiaries or to a trust. This can provide significant inheritance tax savings.
If you die without making a Will, the State makes one for you. At present in England and Wales, your estate is distributed as follows:
1. With no children, parents, brothers, sisters, nephews or nieces - the spouse inherits everything.
2. If there are children, the spouse takes the personal chattels (car, furniture, clothing etc.) and £125,000 and INCOME ONLY from HALF of the residue (the balance) The children are entitled to half the residue when they are 18 (or if they marry earlier) PLUS the other half of the residue on the death of the surviving parent.
3. If there are no children but there are parents, brothers, sisters, nephews or nieces, then the spouse takes the personal chattels plus £200,000 plus half the residue.
The other half of the residue is given in order to either:
a) parent(s) or if they are dead then to
b) brothers and sisters or if they are dead then to nephews and nieces
4. If there is no surviving spouse then everything is taken by:
a) children but if none then by
b) parents but if none then by
c) brother, sisters or nephews and nieces
d) grandparents but if none then by
e) uncles, aunts or cousins - but if none then by
f) THE CROWN