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Tech centre - Financial planning bulletin

Will planning

May 4, 2018, 11:16 AM

Summary


People today generally experience more life events than their parents or grandparents. This is a reflection of the greater complexity of most lives as a result of changes in social attitudes to marriage, divorce, childrearing and career building. When advising clients on Will planning the value of your advice can be significantly enhanced by having a detailed understanding of your client’s personal circumstances and succession plans. In this Bulletin we will look at various Will planning ideas and consider how discussing bespoke estate planning solutions can develop other business opportunities and valuable relationships with other professional advisers.

Facts and analysis


The importance of making a Will and avoiding intestacy

The major benefit of making a Will is that the deceased’s estate is distributed in accordance with their wishes, it also gives the opportunity to plan and potentially save tax. Also, making a valid Will ensures intestacy is avoided. This is important as these statutory rules may not coincide with the deceased’s intentions and may lead to hardship for family and dependants on death. Consider the following example:

  • Sarah and Jeremy live in England. They are unmarried, have two young children Alex and Sam and all live together in a house owned by Jeremy. Jeremy also has an older son from his first marriage called Trevor who is in his second year at University. When Jeremy died without making a Will the rules of intestacy applied. As Sarah and Jeremy were not married his three children inherited all of Jeremy’s possessions, property and savings and Sarah received nothing. This meant Sarah was forced to sell the family home in order to give Trevor his inheritance.

Clearly, understanding Jeremy and Sarah’s personal circumstances and warning of the application of the intestacy rules would have been a substantial benefit.

The intestacy rules differ depending where you live. There are different rules for England and Wales, Northern Ireland and Scotland and full details can be found at:

https://www.gov.uk/inherits-someone-dies-without-will

Intestacy in Scotland

As previously mentioned, the rules of intestacy are different in Scotland. Under Scots law when a person dies intestate the surviving spouse has “prior rights” over the estate. These relate to the matrimonial home, furniture and a cash sum. The most significant part relates to an interest in the matrimonial home up to the value of £473,000. Prior to 1 February 2012 this threshold was only £300,000 however it has been substantially increased to reflect the increase in property values since it was last increased in 2005. Including the allowances for furniture and a cash sum the total entitlement for the surviving spouse is £552,000, without the children of the deceased receiving anything. This situation may not be an issue when the surviving spouse is also the parent of the children as it is likely they will eventually inherit.

Many children whose parents divorce and remarry and then subsequently die without making a Will could lose out on their inheritance. However, as “prior rights” only apply in the event of intestacy the importance of making a Will should be fully discussed with all clients in second marriages to ensure their succession plans are fairly balanced between the needs of the surviving spouse and children.

Second Marriages

In addition to the specific issues relating to “prior rights” under Scots law there are a number of further considerations when advising clients in second marriages:

  • Wills are automatically revoked by marriage so to avoid intestacy new Wills will need to be made.
  • When making new Wills careful consideration will need to be given to leaving assets directly to each other, especially if there are children from a previous marriage. Creating a trust in the Will can provide for the surviving spouse whilst ensuring that the children from the previous marriage can benefit as well.
  • For widows/widowers in second marriages who may die before their new spouse it is possible for the couple to benefit under the transferable nil rate band regime from three nil rate bands. This assumes the widow/widower’s first spouse did not use any of his/her nil rate band.

Transferable nil rate planning and discretionary Will trusts

When discussing Will planning options with clients it is important to understand the operation of the transferable nil rate band regime. When introduced in October 2007 it appeared to take away the need for married couples to undertake nil rate band planning by creating discretionary Will trusts on the first death. The following circumstances give examples of situations where planning with a first death discretionary Will trust is a likely strategy to discuss with clients:

  • Spouses may be in a second marriage and each of the couple may wish to benefit his/her own children from a previous marriage. Alternatively, each of the couple does not want the survivor to have complete legal and beneficial control of the assets following the first death. This could be achieved using a life interest trust in the Will (an immediate post-death interest trust). With this type of trust, income is payable to the surviving spouse and the capital is held for the children. Such trusts lack flexibility especially if there is an intention to make capital payments to the widow/widower by way of interest free loans.
  • There may be a desire to avoid assets being available to the local authority in the event of the survivor going into care. By leaving assets to a trust on the first death those assets will not count as part of the surviving spouses resources for the purposes of the local authority charge. Indeed, the resulting split in ownership of assets between a trust and surviving spouse may reduce the value of the assets in the hands of the surviving spouse, for example in the case of the private residence.
  • It may be desirable to avoid children inheriting assets outright. By passing assets to them via a trust it will mean they are protected from the claims of creditors and ex-spouses.
  • Inheritance savings could be secured by the trustees of the Will trust making loans to the surviving spouse if and when funds are needed. The loans create a debt and so reduce the taxable estate of the survivor on his/her subsequent death. For this planning to be effective one would need to identify whether the surviving spouse had previously made any lifetime gifts to the deceased because in those circumstances there could be a restriction on the ability to deduct the loans from the survivor’s taxable estate (section 103(1) Finance Act 1986).
  • Where a person has remarried after his former spouse has died without using his/her nil rate band, the surviving spouse may have a nil rate band of currently up to £650,000 available on his/her death first. Clearly, it would be important to utilise this because otherwise up to £325,000 of the nil rate band could be lost on the survivor’s death.
  • It may be felt that investments made subject to the Will trust on the first death may increase in value at a greater rate than the increase in the nil rate band.#

When advising on Will planning issues, consideration and advice should be given in respect of the following:

  • Life assurance

    Existing policies should be reviewed to ensure that if appropriate they are subject to a suitable trust. For existing policy trusts, the beneficiaries should be updated to reflect the settlor’s current intentions.

  • Pensions

    Pension death benefits paid as flexi-access drawdown or a lump sum with the discretion by trustees or an administrator will not form part of a deceased member’s estate for inheritance tax purposes. Commonly, such payments will be the subject of a nomination form completed by the member. Any such nominations should be reviewed and updated to reflect current intentions. Consideration may also be given to using an integrated trust or pilot discretionary trust to receive lump sum death benefits.

  • Lasting Power of Attorney

    Discussing a lasting power of attorney with clients provides the peace of mind that their affairs will be looked after should they become unable to do so themselves during their lifetime. It also facilitates introductions to further potential clients in the shape of the appointed attorney.

Next steps


Making sure that clients understand succession issues and the various Will planning solutions gives the opportunity to develop relationships with Solicitors and Will writing specialists for the mutual cross referral of business.

In addition, discussing Will planning alternatives with clients will provide further new business opportunities such as:

  • Additional life cover subject to appropriate trusts to provide inheritance tax free cash to ensure a continuation of lifestyle for family and dependants.
  • Whole of life cover to provide inheritance tax free funds for beneficiaries to settle any inheritance tax liability enabling the estate to be quickly distributed.
  • Estate planning recommendations may involve creating lifetime trusts with trustee investment opportunities.
  • Packaged trust solutions such as Loan Trusts and Discounted Gift Trusts

Learning outcomes and reflective questions for CII accredited CPD


Reading this article can count towards structured CPD under the CII CPD Scheme if you consider the Learning Objectives below to be directly relevant to your own personal professional development plan. The Reflective Questions don’t require answering, they are aimed to help you reflect on the issues raised in the article for your reflective statement on your CPD Certificate.

Learning objectives:

  • A review of the intestacy rules to understand the importance of making a Will.
  • Consideration of the specific issues that can arise for a client in a second marriage.
  • A comparison of using the transferable nil rate band and setting up a discretionary will trust.
  • Considering life assurance, pensions and lasting power of attorney with will planning.

Reflective questions:

  • As a result of reading the article can you identify clients who would benefit from a review of their Will planning arrangements?
  • What can you learn from the example of Sarah and Jeremy?
  • What are the key benefits of making a Will?
  • Why is Will planning so important when advising clients in second marriages?
  • What are the key planning opportunties that you may be able to implement from reviewing your client’s succession and Will planning arrangements?

Important information


This information has not been approved for use with customers and is based on Aviva’s interpretation of current law and legislation, and our understanding of HM Revenue & Customs (HMRC) practice as at 6 April 2018.  It is provided for general information purposes only and should not be relied upon in place of legal or other professional advice.  Both the law and HMRC practice will change from time to time and our interpretation may be subject to challenge by HMRC or other regulatory body. Aviva cannot act as legal adviser for you or your clients.  You should always seek appropriate legal or other professional advice. 

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