FCA-REGULATED ESTATE PLANNING EXPERTISE
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ESTATE PLANNING – A TAILORED APPROACH FOR YOU AND YOUR FAMILY
At RAE Financial Advisory Services Ltd, we understand that estate planning is more than just preparing for the future; it’s about creating peace of mind today. We offer our bespoke estate planning services across Manchester and the North West, ensuring that your assets, investments and wealth seamlessly transition according to your wishes.
Estate planning is a critical component of a broader financial strategy, particularly vital for those with a considerable net worth. It encompasses not just the allocation of assets posthumously but also the joy and security of managing your wealth in the present.
MAKING A VALID WILL IS THE FIRST STEP OF ESTATE PLANNING
What Happens if You Don’t Make a Will?
Everything you leave when you die, less anything you owe, is called your ‘estate’. A will sets out what is to happen to your estate. It is a legal document which, although it can be changed after your death in some circumstances, will normally be followed as written.
Dying Without a Will (Called Dying Intestate) Can Cause Unnecessary Hardship for Your Survivors:
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Delays would be incurred in trying to determine whether you had, in fact, left a will, and in tracing your possessions.
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Delays would occur in the necessary formalities required before your estate can be distributed.
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Your next of kin will usually be appointed to sort out your estate, and he or she might not be the right person to do the job.
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The law dictates who will inherit your estate and in what proportions, depending on whether you were married and/or have any children or grandchildren.
The Rules Do Not Recognise Unmarried Partners (Although a Partner May Be Able to Make a Claim on Your Estate):
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The law may require legally binding trusts to be set up. These may be unnecessarily restrictive and expensive, especially where only small sums are involved.
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There may be inheritance tax on the estate, which could have been avoided.
Another very important reason for making a will is so that you can decide who you want to look after your children if you have a young family.
If you do not make a will, your possessions will not necessarily be passed on in the way you would choose. This is a particular risk if you live with an unmarried partner.
(Inheritance Provision for Family and Dependants) Act 1975.
THE SECOND STEP OF ESTATE PLANNING IS TO MAKE A POWER OF ATTORNEY
Managing Your Affairs and Lasting Power of Attorney
There may come a time when, because you are incapable of managing your property and financial affairs or personal welfare, you will need someone to do this for you.
You can formally appoint a friend, relative or professional to hold a lasting power of attorney that will allow them to act on your behalf. Lasting power of attorney (LPA) in England and Wales has no legal standing until it is registered with the Office of the Public Guardian. A lasting power of attorney is a legal document that lets you appoint someone you trust as an ‘attorney’ to make decisions on your behalf.
It can be drawn up at any time while you have capacity, but it has no legal standing until it is registered with the Office of the Public Guardian. A registered LPA can, unless the document states differently, be used at any time, whether you have the mental ability to act for yourself or not. You can create two types of LPA:
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Property and affairs
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Personal welfare
Property and Affairs LPA: A Property and Affairs LPA allows you to choose someone to make decisions about how to spend your money and the way your property and affairs are managed.
Personal Welfare LPA: A Personal Welfare LPA allows you to choose someone to make decisions about your healthcare and welfare. This includes decisions to refuse or consent to treatment on your behalf and deciding where you live. These decisions can only be taken on your behalf when the LPA is registered and you lack the capacity to make the decisions yourself.
How Many People Should You Appoint and Whom?
You may not be able to check up on the attorney yourself if you become incapable, so it may be a good idea to appoint more than one person to help prevent abuse of the responsibility. Choose people you can trust to act in your primary interests. You should consider how well they look after their own financial affairs and whether you can trust them to use your money to meet your needs.
Depending on the complexity of your property and financial affairs, it may be a good idea to get advice from a solicitor before making an LPA.
You can get further advice from the Office of the Public Guardian about making an LPA.
Registering an LPA
Either you or your attorney can apply to the Public Guardian to register your LPA. The application can be made at any time after you have made an LPA. Before the application to register the LPA is made, the people named as being entitled to receive notification of the application must be told by the person who wants to register it.
The Public Guardian will give notice that the application has been received to:
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You, as the donor
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The attorney or attorneys
Your relatives will not be notified of the application to register the LPA unless you have named them as persons who should be given notice. Anyone who has been notified can object to the LPA being registered.
Once the LPA is registered, it continues indefinitely. The LPA can be registered by the attorney after you have lost capacity.
Lasting power of attorney replaced the enduring power of attorney (EPA) on 1 October 2007. A person given power under the EPA before 1 October 2007 can still use it and apply to have it registered. This person has a duty to apply to register the EPA as soon as they believe that you are becoming or have become mentally incapable of making financial decisions for yourself.
If you have an unregistered EPA and still have the capacity to make decisions for yourself, you can make a Personal Welfare LPA to run alongside it.
Lasting Power of Attorney (LPA)
You can cancel your LPA if you have the mental capacity to do so. If there is a dispute about whether your LPA has been cancelled, the Court of Protection has the authority to make a decision.
A Property and Affairs LPA is revoked if you or your attorney becomes bankrupt; bankruptcy does not terminate a Personal Welfare LPA.
Enduring Power of Attorney (EPA)
You can cancel an unregistered EPA if you have the mental capacity to do so, without applying to the Court of Protection.
To cancel a registered EPA, you must show the Court of Protection:
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That you understand who the attorney is and what powers they have
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That you understand the effect of the cancellation
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Why the EPA needs to be cancelled
An EPA is revoked if you or the appointed attorney becomes bankrupt.
TRUST INFORMATION
INTRODUCTION TO TRUSTS
A trust is a legal and binding document which protects the asset from inheritance tax liability after a set period of time and ensures that such an asset is passed on to the right beneficiary. It could also protect the asset from divorce or bankruptcy, depending on the type of trust used.
Settlor
A settlor is a person who wishes to pass the asset/settlement to a beneficiary.
Beneficiary
A beneficiary is anyone who benefits from the asset/settlement held in the trust. There can be one or more beneficiaries, such as a whole family or a class of people, and each may benefit from the trust in a different way.
For example, a beneficiary may benefit from
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The income only, or
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The capital only, or
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Both the income and the capital of the trust
Trustee
Trustee(s) are the legal owners of the trust asset/settlement. They are legally bound to look after the asset/settlement of the trust in a particular way and for a particular purpose. Trustees administer the trust asset/settlement and, in certain circumstances, make decisions about how the asset/settlement in trust is to be used.
Trustees can be an individual or a company
What asset/settlement?
The asset/settlement of a trust can include:
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Money
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Investments
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Land or buildings
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Other assets, such as paintings
WHAT ARE THE MAIN TYPES OF TRUST?
Each trust has a different job to do in line with the settlor’s goals and objectives. Hence, you need estate planning and inheritance tax advice.
Bare Trust
A bare trust, also known as an ‘absolute’ trust, is one where the beneficiary gains immediate, absolute right to the assets in the trust and the income generated. The settlor placing funds into the trust must be certain that the assets in the trust will go directly to the beneficiary or beneficiaries they choose. Once this trust has been set up, the beneficiaries cannot be changed. Where the beneficiary is a minor, they can demand to take ownership of the assets on attaining the age of 18.
Split Discretionary Trust – Life & Critical Illness
A discretionary trust enables the trustees to have discretion about how the trust’s income and/or assets are used. In a discretionary trust, the trustees are legal owners of the assets in the trust. They must run the trust to benefit the beneficiaries. They also have the power to appoint new beneficiaries. With a form of discretionary trust called a ‘split’ trust, the life insurance proceeds will go to the chosen beneficiaries. If any of the specified critical illnesses is diagnosed, the policy proceeds return to the life assured.
A discretionary trust enables the trustees to appoint and vary the beneficiaries. The trustees can also decide who will receive some or all of the assets, and when. Under a split discretionary trust, when a claim is made on the policy, there may be tax charges on the policy proceeds. This will depend on when the benefits are paid out and on how long the policy proceeds are held within the trust. It is therefore recommended that professional tax advice be sought when assets held within a trust are to be distributed.
Discount Gift Trust
Discounted gift trust with the potential to reduce your liability to Inheritance Tax and offer the opportunity for gifted capital to grow while you take income.
Interest in possession trusts IIP
These are trusts where the trustee must pass on all trust income to the beneficiary as it arises (less any expenses).
This is where the trust has two types of class beneficiaries.
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Life Tenant to receive income as soon as the trust is set up, but not entitled to receive the capital.
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Remainderman to receive the capital after a specific period or upon the death of the life tenant.
Example: You create a trust for all the shares you own. The terms of the trust say that when you die, the income from those shares goes to your wife for the rest of her life. When she dies, the shares will pass to your children.
Your wife is the income beneficiary and has an ‘interest in possession’ in the trust. She does not have a right to the shares themselves.
Discretionary Trust
A discretionary trust enables the trustees to have discretion about how the trust’s income and/or assets are used. In a discretionary trust, the trustees are legal owners of the assets in the trust. They must run the trust to benefit the beneficiaries. They also have the power to appoint new beneficiaries.
Under a discretionary trust, when a claim is made on the policy, there may be tax charges on the policy proceeds. This will depend on when the benefits are paid out and on how long the policy proceeds are held within the trust. It is therefore recommended that professional tax advice be sought when assets held within a trust are to be distributed.
Accumulation & Maintenance A&M
This is where the trustees can accumulate income within the trust and add it to the trust’s capital. They may also be able to pay income out, as with discretionary trusts.
Loan Trust
Our Loan Trust allows you to invest money in an investment bond and access a capital sum, while any growth on the investment is outside of your estate.
Discretionary Will Trust
A majority of couples choose to leave all of their estates to the surviving spouse on the first death, i.e. they make a will stating “I leave all of my estate to my wife/husband provided that she/he survives me…”.
Each individual has a £325,000 inheritance Tax Allowance called the Nil-Rate Band NRB. A Discretionary Will Trust is a way by which married couples and civil partners can make use of both individuals’ Nil-Rate Band NRB. This means the joint NRB is £650,000.
Any couple whose total joint estate exceeds £650,000 should make a discretionary trust in their will. With the huge rise in house prices in the UK, many will have estates in excess of £650,000 when you add up the value of houses, investment, life insurance and personal property.
An additional joint Residential Nil-Rate Band RNRB of £350,000 (£175,000 maximum for each is added to the Joint inheritance tax allowance NRB of £650,000. This is provided your residential home is passed on to your blood descendant (children, grandchildren / adopted children). Therefore, if your estate is above £1m, you will be liable for 40% inheritance tax liability.
Transfers between spouses or civil partners, including transfers on death, are exempt from inheritance tax (subject to a limit of £55,000 if the surviving spouse or civil partner is not domiciled in the UK). Thus, there is no tax to pay when the first spouse or civil partner dies if all of that spouse’s assets are left to the survivor. However, the combined estate is then taxed in full on the death of the 2nd spouse. Where all of the estate is left to the surviving spouse or civil partner, the deceased’s nil rate band is not used, except to the extent that the individual made certain gifts during his or her lifetime. This means that by simply making a “Discretionary Will” you can save 40% of £325,000 or £130,000. It is therefore far more tax-effective to use up the nil rate band of both spouses or civil partners by creating a discretionary will.
You must seek legal advice to set up a Discretionary Will Trust.
HOW RAE FINANCIAL ADVISORY SERVICES LTD CAN GUIDE YOUR ESTATE PLANNING JOURNEY
RAE Financial Advisory Services Ltd’s estate planning services involve navigating complex legal landscapes and making decisions that align with your long-term goals and current laws. We pride ourselves on offering tailored advice that resonates with your unique situation. From mitigating inheritance tax to ensuring your loved ones are taken care of according to your precise wishes, our estate planning services help to devise a comprehensive plan that adapts to life's inevitable changes.
UNDERSTANDING ESTATE PLANNING AND ITS IMPORTANCE
Whether it’s a bare trust, a discretionary trust or any other form of estate planning tool, each serves distinct purposes and offers various benefits, from bankruptcy protection to inheritance tax mitigation. Our experts are well-versed in the intricacies of each and can guide you through choosing the right structures for your estate, considering your individual needs and the future of your family.
However, it’s essential to note that not all aspects of estate planning fall under regulatory oversight. Our expertise lies in advising on regulated areas, ensuring you receive informed and compliant guidance.
FREQUENTLY ASKED QUESTIONS FAQ
DISCLAIMER
Please note that the information contained in this section relates to our current understanding of the law of England and Wales, which is subject to change. Laws in other parts of the UK will differ. You should consult an appropriate legal professional.
Please note that not all of estate and inheritance tax planning is fully regulated by the Financial Conduct Authority. We can only advise on the regulated areas of estate and inheritance tax planning.
Please note that all of the above contents are just a brief guide, explanation, information and not advice.
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