The Consultants’ Handbook is a A Guide to stress-free, effective estate planning.
It is of use to the testator – Part 1 in particular – as well as for anybody interested in working in the profession.
This guide is Copyright © of David E Cochrane and his Estate Heirs & Assigns [ 2014 ] The right of David E Cochrane to be identified as the author of this work
has been asserted by him in accordance with the Copyright Designs and Patents Act 1988
All rights reserved. No part of the document may be reproduced stored in or introduced into a retrieval system or transmitted in any form or by any means [ electronic mechanical photocopying recording or otherwise ] without the prior written permission of the Author or publisher. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. Available on application and payment only.
Content is sold subject to the condition that it shall not by way of trade or otherwise be lent re-sold hired out or otherwise circulated without the Author’s / publisher’s prior consent in any form of binding or cover other than that which it is published and without a similar condition including this condition being imposed on the subsequent purchasers.
Note: The information relates principally to estate planning in England & Wales. However, most other countries [ generally in Europe ] will allow wills which are valid in England and Wales to obtain ‘second’ grants of probate where the deceased owned property in more than one country, subject to their own laws on inheritance being satisfied. Generally, however, the principles outlined in this book is worthwhile guidance for all estate planning needs
The document as a whole or in its parts is subject to constant up-dating, addition or withdrawal of parts without notice.
GENERAL ESTATE PLANNING INFORMATION & THE WILL
WILLS DIVORCE AND RE-MARRIAGE; INHERITANCE TAX; LIVING WILLS [ AKA ADVANCE DIRECTIVES ] POWERS OF ATTORNEY & PRECEDENT DOCUMENTS.
WILLS [CONTINUED]; TRUSTS & PROBATE; PRECEDENT DOCUMENTS
CONSULTANTS AND TRAININGS FOR THE ESTATE PLANNING PROFESSION
PART FIVE/1 [ ANCILLARY INFORMATION I ]
CARE, DISABILITY & ASSETS
PART FIVE/2 [ ANCILLARY INFORMATION II ]
PART FIVE/3 [ ANCILLARY INFORMATION III ]
GIFTING – A COMPREHENSIVE REVIEW
PART FIVE/4 [ ANCILLARY INFORMATION VI ]
PART FIVE/5 [ ANCILLARY INFORMATION V ]
TRUSTS – TAX ISSUES
PART FIVE/6 [ ANCILLARY INFORMATION IV ]
BUSINESS PROPERTY RELIEF
Everybody should have a Power of Attorney because having one can make life very much easier for a Donor and for his family and business partners. A Power of Attorney gives to another person, or persons, the authority to deal with the Donor’s affairs. A Power can be for Property and Affairs [ P&A ] or Health and Welfare [ H&W ]. A separate application has to be made for each.
Once registered, the Power can be used [ with the Donor’s permission ] whilst he is still compos mentis ; if the Donor is for some reason unable to act for himself due to loss of mental capacity or because he is otherwise disabled in some way, either permanently or temporarily – his Attorneys can act without the Donor’s permission but they are obliged by law to act in the Donor’s best interests.
An example; with a person in HM forces working overseas and who might want to buy or sell a house; dealing with the transaction through an Attorney makes life much easier. An Attorney does not have to be a lawyer [ expensive !] – it can be a spouse, a child a good friend or more than one of the above. Take the above example; once the conveyancers have established the identity of the purchaser / vendor client, which they are legally bound to do under the various terrorism and money laundering regulations, the Attorney can step in.
He will have the authority to deal with all aspects of the Donor’s sale and purchase, signing of the pre-contract enquiries, signing the sale and purchase contracts even the mortgage deed. His acts, provided authorised by the Donor when compos mentis, are seen to be acts of the Donor himself.
Having to send bundles of important and time-sensitive documents to an overseas address is just a real inconvenience, and not very secure.
A more common example is where a person spends a lot of time away from home, or even being laid-up in a hospital bed after an operation, an Attorney – it could be a spouse – can manage all the financial affairs sign cheques, manage bank accounts. In fact an Attorney can deal with the Donor’s affairs as though he were himself the Donor.
Some powers could carry endorsements – conditions and limitations – applied by the Donor stating what can be done or not done, or how something should be done, but this is more common with a General Power which could be limited to just one transaction, e.g., dealing with the sale of a house, and may also carry a termination date, e.g., ‘This Power of Attorney shall terminate on 31st December 2013’ where clearly, the transaction it was granted to facilitate, is complete. However, a General Power of Attorney becomes invalid when the Donor becomes incapacitated, whereas a Lasting Power remains valid until the Donor dies or revokes the Power – which he cannot do if he lacks capacity.
The new Lasting Power of Attorney was brought in to cut out the many fraudulent applications [ many made to take over the bank accounts of people who were duped into signing a power ] and a new ‘safety factor’ is supposedly effected by the introduction of a Certificate Provider [ CP ] – who certifies that the Donor is acting of his own free will and understands the powers of an Attorney – and Persons to Notify [ PN ] who would be notified when an application to register a Power is submitted to OPG, giving the PN a chance to question the application if they think there was anything untoward about it.
A Certificate Provider [ CP ] – can be a professional [ doctor, lawyer or other ‘professional person’ like a will-writer ] who certifies that he or she has discussed the Power with the Donor, and who is satisfied that the Donor makes the application knowing the implications of making it and the authority he/she is investing in the Attorneys. This discussion is supposed to be with just the two of them together, Donor and the CP, and the CP has to establish also that the Donor satisfies a few simple tests to indicate his/her ‘ capacity ‘ to make the power.
LPAs should be sent for registration as soon as they have been completed so if there is an issue which prevents the OPG processing the application, the Donor can be approached before he loses capacity and the necessary changes can be effected.
The alternative for a person who loses capacity and has no valid LPA is for his family [ or in some cases the Social Services ] to apply to the Court of Protection to appoint a deputy; this is a long-winded, expensive business, and the appointed deputy – even if a member of the family – may have to provide security which can be for hundreds of thousands of pounds; they may have to produce accounts and also seek special permission from the Court to buy or sell land. It is definitely NOT the way to go.
For a very good illustration of how the Court of Protection can mess up a life, find the Heather Batemen story on the internet.
Get a Power of Attorney …. TODAY !!
ALMOST CERTAINLY YOU DO! And whatever you may read about writing a will, whatever will-writing forms you buy, and whatever on-line will you might consider doing, you will never do as well as having a one-to-one discussion with an expert, experienced will writer. He will raise issues you would rarely consider … AND he can very probably save a very substantial part of your estate
which might otherwise go to pay inheritance tax or care-home fees ……
A very brief discussion …
Many clients may suggest that they do not need a will …. with property prices climbing at the moment [ June 2014 ], a good stockmarket and easy cash to buy property via the Help to Buy scheme, many people feel their wealth needs careful handling to benefit their families properly on death. By not having a will, your family could experience real difficulty in sorting out your estate when you die and if you are in the inheritance tax bracket [ the old death duties ] they will also have to find cash to pay that bill – usually before the Courts will issue a Grant of Representation, so possibly delaying any dealings with the deceased’s property!
Many people assume that if they die without a will, their partner will inherit everything. In fact, even if you are married, or in a civil partnership, there are limits on what your partner would inherit in the absence of a will. Instead, the Intestacy Rules apply, which may well put in place provisions that you would be extremely unhappy with.
These same Intestacy Rules provide that children inherit at the age of 18; many people believe that 18 is too young to inherit a substantial sum of money. Making a will lets you decide the age at which your children – or other chosen beneficiaries – inherit.
Have you considered who would look after your children if you die before they turn 18 or if they are mentally or physically disabled ? If you have parental responsibility, you can use your will to appoint an appropriate person to be their guardian, rather than leave the decision to the Social Services, or even have them looked after by someone whom you would not choose.
Naturally, people are inclined to look for ways to save money. DIY will packs or internet wills may be cheap, and as a result appear particularly attractive, but a lack of understanding of the law may open your will to challenges after you die. Mistakes made are unlikely to come to light for many years, by which time it may be too late to correct them. So whilst you saved the cost of having your will professionally drafted, the consequences could be a loss to your family of tens of thousands of pounds.
A specialist will-writer can help you avoid the various pitfalls and explain the options most suitable to your circumstances and make sure that your will protects your assets from the payment of inheritance tax or care-home fees. Your will can include certain safeguards in case, for example, a beneficiary is in the midst of divorce proceedings or is a bankrupt, an alcoholic or drug addict, is mentally or physically disabled.
A well-drafted will can also provide protection in the case of second – or perhaps in your view – ‘bad’ marriages.
Do not simply prepare a will and then forget all about it. The law can change so you should review your will regularly. Remember – a well drafted, updated will is a valuable investment.
POSSIBLE CONSEQUENCES OF NOT MAKING A WILL
1. Depending on the value of your estate, your wife could inherit everything unconditionally – meaning an absolute interest so she can do what she wants with the assets. With larger estates, a spouse could inherit a lot less that you (might have) wanted her to.
2. Your surviving spouse could spend the lot – then the kids get nothing.
3. Your children could find a substantial chunk of money in their accounts – when they are 18 …. mentally or physically disabled, addicted to drugs or alcohol, be insolvent, in a bad marriage.
4. People you do not know, people you do not like, could inherit a substantial sum of money – that you would have liked to give to someone else.
5. Your children’s inheritance could be swallowed up in care fees if you / your wife went into a care home.
6. Your business – possibly the main source of income for your surviving family – could be sold or wound up unless you made provision in your will for for its continuance.
7. Your children may be placed in care or with guardians you would not necessarily have chosen for them.
8. If your spouse re-marries (or takes a boy / girl friend) he or she could well finish up taking your whole estate.
9. You will have no opportunity to consider powers of attorney, discretionary trusts, IHT matters, exclusion of people /family members whom you do not wish to benefit.
10. If you have you any issues with cremation, burial, medical research or – when you are unable to express your feelings on these issues through mental incapacity – medical interventions when you may really just want to be allowed to pass away with some degree of dignity.
75% of Britons have no will …. !!
Passing away without a will – dying intestate – means the laws of intestacy govern the distribution of the estate in such circumstances. Under the Administration of Estates Act 1925 the spouse and children do not automatically receive everything in the deceased’s estate.
There is a strict order under the Act for deciding who gets what. Where the deceased leaves a spouse but no children, the spouse receives: All the personal chattels such as a car, furniture, clothes and jewellery; A legacy of £450,000 and one half of the balance outright with a life-interest only in the remaining half.The remaining balance then passes to various relatives; first to the deceased’s parents if either are still alive but if not then equally amongst brothers and sisters
Where there is a spouse and children, the spouse receives:
- All the personal chattels
- A legacy of £250,000 and the income from one half of the balance of the estate
- The rest passes to the children on reaching 18
All this can leave the spouse and the children with a financial headache, typical problems include:
- If the matrimonial home is in the deceased spouse’s sole name, this may often have to be sold to satisfy the various family claims
- Where there are children they are likely to receive very little, unless the estate is worth several hundred thousand pounds
- Inheritance tax may be due if the value of the estate passing to the beneficiaries, apart from the spouse, is worth more than £325,000 (2014 tax year)
Cohabitees; Liz S………….of Hampshire, lost her partner, Dave, three years ago from a heart attack. They were not married, and neither of them had written a will. Had she been married, she would have been entitled to at least £250,000 from Dave’s estate. As it is, Dave’s children from a previous marriage were the ones who were legally entitled to inherit his money. To reclaim some of that, Liz had to go to court. “It came as a big shock”, she said. “I didn’t realise that people living together just don’t have the same rights as a married couple.”
Writing a will
Proposals to change the entitlements of co-habitees coincide with Will Aid month, a scheme to allow people to get a professional will drawn up for relatively small cost. If more people did write a will, there would be less need for the proposals to change the law. At the moment cohabiting couples are among the least likely to write a will. More than 80% of them do not get round to it. Ms S………….. is amongst those who regret not doing so.
“I wish we’d done it when we decided to get together and share our lives” she said. But writing a will with your partner can be much harder than it seems. In Ms S…………’s case, her partner had a stroke three years before he died, and she thought it was just too sensitive a subject to broach. “It was something I didn’t want to suggest,” she said.
Professor Cooke, the Law Commissioner, concurs. “There’s almost a superstition about making a will,” he said. “If I make one, maybe I’m going to die. Perhaps it’s easier to say to your partner, ‘shall we both make our wills?’ ”
Unmarried couples and same sex partners
For this group of people the intestacy rules also lay down what will happen if one of the couple dies without a Will. These rules can be a nasty shock. If, in England and Wales, the couple have children then the estate of the deceased partner passes to the children at age 18, or earlier if they marry under that age. If there are no children then the estate passes to the parents, siblings and other remoter relatives in a specified order. These rules mean that if you die intestate there will be no provision made for your surviving life partner. This contrasts with the intestacy rules for married couples and civil partners where some provision is made for the survivor.
What can be done?
The simplest step is to make a valid Will which will ensure that your assets pass to those you choose after your death. A Will means you are also able to choose your executor i.e. the person who administrators your estate. You can also choose guardians for any children you may have and make specific gifts of treasured items to family or friends. It is important to remember that where the couple subsequently marry the Will is automatically revoked unless made “in consideration of marriage/civil partnership”.
On death each individual is entitled to an inheritance tax (IHT) allowance, known as the nil rate band, currently of £325,000. Any assets owned by the deceased in excess of this amount are taxed at 40%. There is an exemption for all assets, whatever their value, passing between spouses and civil partners. But they still need a Will to make this happen. And this exemption does not apply at all to those in unmarried relationships, however long that relationship may have lasted. In addition there are special rules where one partner of the marriage is not domiciled in the UK.
Dying intestate …..some case histories.
My brother died suddenly at the age of 39 earlier this year without making a will. He had learning difficulties and needed family support throughout his life. Although he had stated who he would want to receive his assets, his problems made it difficult for him to undertake the process of making a will.
After his death, we were advised that as he was not married and had no dependants his estate would be shared equally between his surviving parents. Our biological father was not in our lives. But when he was traced he stated that he intends to claim his full entitlement despite, to the best of our knowledge, not having seen my brother for many years. In the circumstances of this case, this rule has created a deeply unsatisfactory result.Jeremy, Harrogate
My mum lost her partner (unmarried) of 9 years, and his children from a previous marriage have asked my mum for “everything” that belonged to him – and by law my mum has to give it to them. Even the car that my mum paid half of. Three of his children had very little contact with him. They have never offered a penny and my mum gave up her job to care for her partner so now is left with nothing. His children rang her up 3 days after the funeral asking for all his pension papers. It is so unfair.
Carly, South Yorkshire
I am single and have made a list of “where it all is”, which starts: “As you sit at my desk, on the shelf behind you is a row of files; the 1st, named BANK, has details and statements for my current a/c…and so on. I keep this list up-to-date and send copies to my executors and my solicitor. There is a second list of “How to get rid of it all” with suggestions of people to contact to sell my motorbike, my large collection of specialist books, etc.
It does mean that someone will know your business (very un-British!) but the alternative is chaos for the same person at a time when they are already under the stress of grieving. Keith, Hants
My father died in 2004. He had made a will dividing his estate between his children. My brother was made executor of his will. However my brother decided that I did not deserve my share and has refused to pay me any money, around £65,000. This has stopped my own children from making wills. I have a profoundly handicapped son of 44 who lives at home with me full-time and needs care at all times. My brother used the excuse that I never helped with the care of my dad as the reason for my not getting a share. So beware if you write a will, make sure that the executor can be relied upon to carry out your wishes, as you may not be around to do anything about it. Ms Howden, Surrey
(Eurowills Note: An Executor is bound by law to distribute the estate according to the will provisions; Ms Howden should pursue it through the courts)
It is not unreasonable to suppose that most people need a trust of some sort as part of their estate planning. This does not mean that you have to engage lawyers to spend hours of their time mulling over your estate and briefing barristers to draft ‘opinions’ all for your benefit and at great expense if you want a trust. You can buy a very good text book on trusts for a relatively small sum of money; all you need is the time and the inclination to read it. A trust document can be just one page or many pages. As long as it sets out the four main ingredients of any trust – BENEFICIARIES, ASSETS, RULES and TRUSTEES – it is enough. However, trusts can be set up unintentionally such as where a minor[ a person under 18 years of age ] may be left an interest in realty
What is a Trust ?
A trust holds donated or ‘settled’ assets of any description, to be managed by Trustees on terms set out in the trust deed. The donor / settlor decides the terms, and what assets are donated. The Trustees are the legal owners of the trust property but they are not beneficially entitled to the property unless they are also beneficiaries. They will usually have a discretion – hence ‘Discretionary Trust’ – as to how they distribute the trust property to the beneficiaries.
What does a trust do ?
Any one or all of the following:-
Relieves the Donor of the burden of maintenance repair insurance and security of the trust property of whatever nature but especially realty [land and buildings] should he at any time be unable to or not wish to manage those matters himself. If a property is let, or otherwise not occupied by the donor or his family, then the total management of the property will fall to the Trustees; they have a duty to preserve the trust property.
Settles ‘The Property’ inter vivos e.g., whilst the donor is still alive, on ‘The Beneficiaries’ to afford them some fixture as to their inheritance; this is therefore an inter vivos trust. A trust set up on death is a will trust.
Avoids the expense and time of obtaining a Grant of Representation in respect of the trust assets on the death of the donor, because at the time of his death he does not own them. Whether the donor is alive or dead, the Trustees can still deal with the estate just the same, without any grant of representation.
Ensures that should the estate of a deceased not have sufficient funds to settle the cost of probate, funeral expenses or the debts of the estate, trust property will not be sold or charged if the Trustees wish to keep the property unencumbered or to keep it for the beneficiaries. Either the estate will be classed as ‘insolvent’ and the debts unpaid, or family could settle them; they are however not obliged to do so. Many Testators deliberately run-down the value of their estates, but this does not necessarily mean that he leaves nothing to his beneficiaries where a trust had been established years previously.
Permits Trustees some discretion in disposing of or dealing with trust assets so as to best accommodate beneficiaries’ respective interests needs and requirements and to better account for their various circumstances prevailing at the material time and in the future. For example, a beneficiary may be or become mentally unstable, a drug addict or alcoholic or could have serious debt issues or be going through a messy divorce. So clearly, giving money or other assets to such a person would be a waste of that money.
A beneficiary may have married, and where the Testator / Donor wants the trust property to remain in his blood line, no absolute gifts should be made to the trust beneficiary so assets can be passed on to grandchildren.
Ensures that in the event of a Donor’s Will being lost destroyed or invalid that trust property will devolve in accordance with trust terms; there are many well documented incidents where wills ‘go missing’ because a first, second or even third spouse or other dependants will fare better under the intestacy rules [ or maybe even under an old, but not destroyed will ]. Or a will may genuinely just not be found.
It limits the possibility of a person – maybe a bit frail or not of sound mind – being pressurised into disposing of property or the sale proceeds of, e.g., his house, when he moves into care, otherwise than to benefit the beneficiaries he chose to benefit years ago when he was in possession of all his faculties.
Where a couple settle property in a trust for the benefit of their children and grandchildren, then, where the relationship subsequently breaks down, that property will remain in the trust unless all parties – mainly the Trustees – agree that it should be broken. The court is very unlikely to break the trust just to benefit a departing spouse.
Reduces the risk of successful claims under the Inheritance [Provision for Family and Dependants] Act 1975; e.g., trust assets will not be available to settle any claims made by a dependant [or any other person] against a deceased’s estate.
Avoids assets falling under the control of the Court of Protection. As the property is managed by Trustees, they have full control over it, and remain so whether or not a donor becomes non-compos mentis, so the court of protection has no locus standi authority to intervene.
A trust can make provision for the Beneficiaries in case of their becoming disabled or unemployed, and any provision the Trustees care to make directly for the benefit of such a person – such as allowing him use of property, a car, or to lend him money, will not affect any benefits he may be entitled to. It will, however, make their and their families lives a lot more comfortable.
Can settle property on a series of beneficiaries as for example, in an Immediate Post Death Interest [ IPDI ].
There are other reasons for doing a trust, and your Eurowills Consultant will be able to discuss them with you
It has been pointed out – correctly – that too little attention has been given to the obtaining and retention of certain information which all Consultants should seek when interviewing a client for the drawing-up of a will.
The Law Society has produced various practice notes, and has – in furtherance of the case of 1979,
and later reported in 2000 – drawn up what is now known as the LARKE & NUGUS STATEMENT which – in a nutshell – is information to be obtained and retained for use in case a will is contested. There are other cases notably and more recently, of Key & Key (2010) Sprackling & Sprackling ( 2008) and the 2009 case of Martin v Triggs, Turner and Barton. However, for our purposes, the Larke case is what we need to address, and below I have set out the basic requirements to satisfy the Practice Note.
The retention of the Consultants’ basic fact-finder information sheet will not be adequate if we are to raise the professional standards of our Consultants; ergo, the following information must be obtained and it is recommended that in future, all consultants should forthwith have a secondary questionnaire drafted as follows:-
1. How long has the Consultant known the testator
2. Who introduced him, or otherwise, how did the introduction come about
3. Date of instructions
4. Notes of all meetings including where the meetings were held, and who else was present
5. Notes of all telephone calls
6. How instructions were expressed (in writing, verbally, via another or in a telephone call should cover this point)
7. What indications the testator gave that they knew they were making a will
8. Whether the client showed any signs of confusion, ill-health or loss of memory; we should include any impression of whether there was a drug or alcohol impairment or other distress
9. Whether any earlier wills were discussed, and departures from any earlier will-making pattern and if any reasons for change were given ( asking is therefore essential)
10. How the new will provisions were explained to the client
11. Who else was present at the execution of the will apart from the attesting witnesses.
NOTE: As mentioned above, in the case of a contested will the court will expect this information to be available and failure to provide it and where it could have a bearing on the case, then there may well be charges of misconduct, and an insurance claim.
Some of the questions have obvious answers, some may be inapplicable, but ALL must be answered
and this information kept with all other client information. In most of our cases, we may only see the client once or twice, but nonetheless the information must be correctly noted.
First sent December 2013.
Refer to book upload index.