CURRENT ARTICLES

Wills & Probate: Are you Up To Date?

Will Contact Orders now have more teeth?

Pensions and Grandchildren

Inheritance Tax and Grandparents

Investing For Grandchildren

There is nothing certain in life except death and taxes

New Power of Attorney Laws

Wills & Probate: Are You Up-To-Date?

October 2007 heralded a change in legislation in two distinct areas of law.  Legislation relating to the Mental Health Act and Inheritance Tax were substantially altered. 
Erica Pearce-Howard, a Trusts and Estates Practitioner in the Wills & Probate department, at Vanderpump & Sykes takes a look at how those changes have manifested and the practical problems of their implementation.

Mental Capacity Act 2005

The Mental Capacity Act 2005 came into force in October 2007.  Since then it has been possible to appoint one or more Attorneys under a Lasting Power of Attorney (LPA) for Property and Affairs and/or Personal Welfare.  The main differences between the old Enduring Powers of Attorney and the new LPAs are that in order to be able to use an LPA it must be registered, which currently costs £120.00.  Also, a Certificate Provider is now required to certify that the person making the LPA is not having any pressure placed on them and are aware of the consequences of giving power to their Attorney.

In practice the forms have been found to be lengthy, cumbersome and fraught with potential for error, resulting in many LPAs being returned unregistered due to mistakes in completion (with the registration fee often being retained!).  The response to criticisms is an ongoing consultation, with a view to amending the forms and a reduction in the registration fee. 

Inheritance Tax

A significant change also took place in October 2007 relating to Inheritance Tax.  Prior to 9th October 2007 if a husband/wife/registered civil partner left their assets to each other and then on the second death to a third party (usually their children) they would only be able to use one nil rate band* allowance for the purposes of Inheritance Tax (*currently £325,000.00).

Now, if a surviving spouse dies after 9th October 2007 it is possible for their Executors to transfer any part of the nil-rate band allowance, that was not used when the first spouse died.  So, if a husband/wife/registered civil partner leave all their assets to each other and the survivor of them dies after October 2007, the survivors estate will benefit from double the nil rate band allowance, which at today's rates would be £650,000.00.

It is important to remember that even if all the assets passing under the Will of the first to die are left to the surviving spouse, there may be other elements that affect the allowance, such as assets in trust, or gifts to other people made within 7 years of the first death. Such gifts or trusts will reduce the amount of unused nil-rate band that may be available.

In order to apply for the double exemption certain documents must be produced on the second death.  These are the death certificate, the marriage certificate, the copy of the grant of representation and a copy of the Will of the first deceased.

For further advice on either of them matters above please contact Vanderpump & Sykes Solicitors on: 020 8370 2899.








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Will Contact Orders now have more teeth?

by Natalie Cutting

For far too long it seems that the Family Courts have struggled with the dilemma of what to do to enforce court orders for children to have contact with their parent (or grandparent). Sometimes the only real remedy for a breach of the order has appeared to be to send the offending parent to prison, effectively often making the child to suffer. Understandably family Judges very rarely take this course of action.

On the 8th December 2008 new legal provisions were added to the Children Act 1989 which are intended to give the Family Courts new powers to promote contact and enforce contact orders.

It is too early to say whether the new provisions introduced in December will make a real difference but this change does appear to signal a new and more proactive approach to this thorny subject.

Two new concepts have been introduced, a Contact Activities Direction, and an Enforcement Order. A Court can now direct a parent to take part in a specified activity such as attending parenting classes, counselling or guidance aimed at promoting contact.

The Court can ask CAFCASS (Children and Family Court Advisory and Support Service) to provide information on the suitability of such a direction and to monitor compliance and report back to the Court if there is a failure to comply.

In addition to the Contact Activities Direction, where there is a breach of a contact order the Court has new powers to make an Enforcement Order which can impose a requirement to do unpaid work or a requirement to pay compensation for financial loss caused by a breach of the order.

These new provisions clearly have significant resource implications. CAFCASS is already an overstretched organisation, but it is to be hoped that when a Court orders that contact to a child should take place, this new regime of remedies and enforcement provisions might mean that such an Order is one which a parent would be minded to comply with knowing that the Order would have “teeth” which might indeed be a change for the better. We shall have to wait and see.

Natalie Cutting, family lawyer with Charlesworth Nicholl & Co, 31 High Street, Crediton, Devon, telephone 01363 774706, www.charlesworthnicholl.co.uk.

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Pensions and Grandchildren

by Kevin Nelson

In my previous article I listed some of the ways Grandparents could help their grandchildren through investments. One area that I did not touch upon was that of pension investment. However, because pensions are so important this article attempts to list some of the key points which could be of benefit to Grandparents themselves and their children as well as their grandchildren.The article will not deal with defined benefit pensions but concentrate on retirement planning through building up an individual pension fund which can eventually be converted into a pension.

The life expectancy of a 65 year old man in 1980 was 14 years – now it is 24 years (Institute of Actuaries, Annuitant Mortality Tables). So from a retirement planning point of view it means that someone retiring now would need to build up 71% more in retirement funds to generate the same income as someone retiring in 1980.This prospect of running out of money in retirement is a daunting one and why it is vital to take action as early as possible.

Calculating the amount of income you need in retirement is a personal matter but, once calculated, a rough rule of thumb is to multiply the income requirement by 25 to give an approximate size of fund needed to generate that income. For example a fund of £500,000 would be required to generate an income of £20,000 per annum. The current full level of basic state pension is £90.70 per week so the bonus of saving for old age is being placed fairly and squarely on the shoulders of the individual. Generating the requisite fund size is a lot easier to achieve the longer you have to do it- for example a man starting to plan for retirement at age 40 who saves £500 per month nett of basic rate tax relief increasing each year in line with average earnings would need to save £783 per month at age 45 and £1307 per month at age 50 to have the same effect. This considerable difference in contribution rates is due to the effect of compound nterest once described by Albert Einstein as ‘the most powerful force in the universe’. The key message is start early to have highest impact but people should never avoid investing in a pension on the grounds that they have left it too late because, unlike any other savings plan for retirement pension saving carries useful tax incentives.

The unique advantage pensions have in saving for retirement is thanks to the availability of tax relief on your contributions up to your highest marginal rate and the ability to invest up to 100% of your earnings each year if you were so minded(admittedly with a ceiling of £235,000 per annum in the tax year 2008-09).In other words a basic rate (20%) taxpayer would only need to save £80 to be credited with £100 into their pension and a higher rate taxpayer would only have to invest £60 for the same result (for the higher rate taxpayer 0% tax relief would be given on the initial contribution and the remaining 20% relief would need to be claimed via the contributor’s annual tax return). Even for those without an income due to age or other reasons you are entitled to save up to £3600 per year into a pension and receive tax relief at 20% so a nett contribution of £2808 (this also means, of course, that parents or grandparents could initiate pension plans for children/grandchildren if they had the resources).The growth of your contributions while invested is also largely free of UK income or capital gains tax. On retirement you are also allowed to take up to 25% of your fund value as tax free cash.

The minimum age for retirement from 2010 will be 55 years (currently 50 years) and there is now greater flexibility in options at that point – for example you are now entitled to continue working while drawing your pension. There is also a wider variety of options available in taking your pension depending on the size of fund you have available. The traditional route of buying an annuity from an insurance company (in which they effectively guarantee you an income based on the value of fund you place with them ) remains the most popular but the government has now provided an open market option which means that you are not constrained to buy your annuity from the company with whom you held your pension fund but can effectively obtain the best offer possible from the market place for the type of annuity you want.

This article attempts to summarise some of the options open to parents/grandparents and has been written for grandparent times by Kevin Nelson of St. James’s Place Wealth Management - he will be happy to answer any questions you may have and can be contacted at St. James’s Place Wealth Management ,Chancellor Court, The Calls, Leeds LS2 7EH or on email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it This e-mail address is being protected from spambots. You need JavaScript enabled to view it or on 07767 658 850.You may also visit his website at www.sjpp.co.uk/kevinnelson

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Inheritance Tax and Grandparents

by Kevin Nelson

Inheritance Tax is no longer a concern just of the wealthy .In the tax year 2007-08 HMRC collected some £3.9 billion pounds in IHT because too few people took adequate steps to manage their potential liability. The basic facts are that, in the current tax year, the first £312,000 of each individual’s estate is taxed at 0% and therefore not liable to IHT. The entire estate above that level is taxed at a flat rate of 40%. Anyone domiciled in the UK is liable to this tax on transfers of value of their assets anywhere in the world with only certain limited restrictions. The government also has strict rules on how domicile is assessed .Simply moving abroad to live does not stop your UK domicile status.

This article attempts to list some of the ways Grandparents could help their children and grandchildren through more careful estate planning .Not preparing for IHT could be like asking your children and grandchildren to sit down and write a large cheque to HMRC.

There are three types of transfer of value – exempt, potentially exempt and chargeable lifetime transfers- below is a brief explanation of each.

Certain transfers are totally exempt for IHT purposes for example between spouses either in their lifetime or on death – this also applies to registered civil partnerships but not common law partnerships. Since the Chancellor’s pre budget report 2007 it has also been possible for the surviving spouse to add any unused portion of their late spouse’s nil rate band to their own. Annual gifts of up to £3,000 per person( donor) are also permitted and up to one year can be carried forward – it is also possible to make an unlimited number of small gifts (i.e. of less than £250 each ) but not including the individual who received the annual exemption. Gifts out of income are also permitted but must clearly not affect the individual’s standard of living – funding contributions to a life insurance policy ( particularly one which is held in trust ) would be a good example of this. Gifts for the maintenance of a young or infirm dependants are permitted as well as gifts to a certain level in recognition of marriage or civil partnership the level allowed is between £5000 for a parent and £1000 for non relative).

Other gifts ( for example outright gifts or gifts into absolute trusts ) may be classified as ‘potentially exempt transfers’on any value above the nil rate band level – here no inheritance tax will be levied if the donor survives for at least seven years after the gift and a tapering system will reduce the liability if the donor survives for more than three years but less than seven.

The third category are chargeable lifetime gifts which are generally those made into a discretionary trust – these will become immediately liable to IHT where the gift exceeds the nil rate band but only at an initial rate of 20%

IHT is normally payable by the personal representatives six months after the end of the month in which death occurs. Usually IHT has to be paid before a Grant of Representation is issued which means that,frequently, the personal representatives need to take out a loan before a Grant of Representation is issued.

A number of strategies can be employed to mitigate against the possible effect of IHT from the outright gifting options listed above to gifting options which enable the donor to either a) gift capital but retain the right to an income from that capital or b)gift the growth of investment capital but retain access to the capital itself.

Certain investment products are also potentially free from IHT – for example Alternative Investment Market (AIM) shares are exempt if held for a minimum of two years at the time of death and so are appealing to individuals who wish to retain full access to capital. They do, however, require specialist advice before purchase.

An alternative approach to IHT mitigation is not to reduce the size of the estate but to create a tax efficient fund to pay the Inheritance Tax Bill when required – the normal mechanism here is to fund a whole of life insurance policy in trust so that the proceeds fall outside the estate and can then be used to pay the IHT bill. Such a policy can either be paid by the estate owner or the potential beneficiaries of the estate. If the policy premiums are paid by the estate owner the funding could possibly be classified as expenditure out of income. It is also worth pointing out that investing in pensions can also be an indirect method of avoiding IHT as death benefits in modern pension plans are broadly exempt but it is important that suitable trusts be put in place for the funds to pass appropriately to the beneficiary.

Before deciding on an appropriate strategy any individual should carefully reflect on their circumstances and objectives and look for a solution which is realistic and flexible. The objective is to pass wealth to the next generation but not at the expense of the individual’s lifestyle today or their ability to adapt to future changes in situation. It is perhaps also worth remembering a quote from John Paul Getty ‘Money isn’t everything but it sure keeps you in touch with your children’.

www.sjpp.co.uk/kevinnelson/

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Investing for Grandchildren

by Kevin Nelson

There is a growing need for the older generations to help those following on to establish themselves and to face the significant financial challenges of a world which is increasingly complicated. Investing for children is becoming a necessity not just a nice to do. It’s not just about helping towards the cost of a wedding but recognizing the difficulties for young people to get on the property ladder and that many will be burdened with debt for a considerable part of their early working life.

There are a variety of different ways in which the older generation can help and this article seeks to list some of them :

Child Trust Fund: this should be the first option for those born after 01/09/2002 since the government has started to provide some assistance to young people through the Child Trust Fund into which it makes an opening contribution of £250– all details can be accessed on www.childtrustfund.gov.uk – maximum contribution per year is £1200 and there is important information about providers and who is eligible to open and manage a CTF

For children born before the above date or for those who have the luxury to invest more than the above other options do exist:

ISAs – gifts can be made into Individual Savings Accounts for children as long as they meet the normal ISA criteria i.e. minimum of 16 years old for a cash ISA and 18 for a Stocks and Shares ISA. Alternatively parents/ grandparents could invest in their own ISAs and make lump sum gifts to their grandchildren.The child’s age and the adults’ unwillingness to sacrifice their own ISA allowance may make this an inappropriate choice

Unit Trusts – these are particularly effective vehicles for investing on behalf of children as the unit trust investment can be ‘designated ‘ in the child’s name which would mean that the parents or the grandparents would have control over it until the child reached 18 at which point they become the legal owner and have the right to demand the funds contained in the investment. Before the age of 18 income and/or capital can be distributed to the beneficiary ( the child )for their welfare ,maintenance or education.

There is a slight advantage here of grandparents investing on behalf of children since parents are potentially liable to tax if the income from any trust designated to a child (dividends/interest payments) exceeds £100 p.a. Where the grandparent has opened the trust any income is directly assessable to the beneficiary( the child) and unless the child is a higher rate taxpayer there is no further liability ( although they will be unable to reclaim the 10% tax credit paid net on dividends) It should also be remembered that the beneficiary (the child) is also liable to Capital Gains Tax but carries a full annual exemption of £9200 before there is any tax liability.

IHT benefits of investing for Children - funding out of income is still classed as an Inheritance Tax (IHT) exempt gift and therefore falls outside the donor’s estate .A regular unit trust savings plan would help to utilize this exemption and the annual individual gift allowance of £3000 could be used to fund savings into plans for one or more children.

This article article attempts to summarise some of the options open to parents/grandparents and has been written for grandparent times by Kevin NELSON of St. James’s Place Wealth Management - he will be happy to answer any questions you may have and can be contacted at St. James’s Place Wealth Management ,Chancellor Court, The Calls, Leeds LS2 7EH or on email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it This e-mail address is being protected from spambots. You need JavaScript enabled to view it or on 07767 658 850

www.sjpp.co.uk/kevinnelson/

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" There is nothing certain in life except death and taxes!"

(Benjamin Franklin, scientist and a founding father of the USA)

Everyone should make a will! That is unless you know how the rules of intestacy would work so that your property would go only to those whom you want it to go to when you die.

Tax is important when you die as well as when you are alive since Inheritance Tax can swallow 40% of the value of your property over the threshold of £300,000 (the value of many homes today). Grandparents who wish to leave gifts for grandchildren will almost certainly need to make a will in order to do so, and even more so if you are in the unfortunate position of not knowing all your grandchildren, but wish to ensure that all of them benefit. The help that a grandparent can give by a wisely made will can be very valuable to a grandchild. It can help to ensure that they are able to go to university, or to set up in business, as well as giving them a start on the housing ladder. As an Association we therefore encourage grandparents to make a will.

Do consider the question of making a will, no matter what your circumstances may be. The cost of doing so is well worth the peace of mind that it will bring, in the assurance that only those whom you want to benefit when you die are those who will do so.

Most of the members of our Lawyers List of solicitors have experts in wills and probate, who can provide you with specialist advice and, thereby, peace of mind. The solicitors on our list have an interest in ensuring that their client grandparents’ wishes are carried out, and can also act as executors as well as obtaining probate when the time comes. Most will undertake home visits where necessary, and our list is made up on a town and county basis for convenience.

Peter Harris

Chairman of The Grandparents Association

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New Power of Attorney Laws

We are all living longer that’s the good news. The bad news is that Alzheimer’s disease and dementia are increasingly taking their toll on families. There are important steps that can be taken to address some of the financial and/or welfare problems that can occur in such situations. One of these steps is to make a Lasting Power of Attorney (LPA) which is a legal document usually set up by a solicitor whereby you appoint someone to deal with your finances and/or your welfare should you become unable to manage these areas yourself.

On 1st October 2007 the former document granting someone power over finances (an Enduring Power of Attorney) was replaced by the new LPA, under the Mental Capacity Act 2005.

Under an LPA it is now possible to choose someone to manage your finances and property should you become incapable but also to make health and welfare decisions for you. You can allow Attorneys to make decisions in different areas including consent to medical treatment and (somewhat controversially) end of life treatment if you wish.

LPA forms are quite lengthy and must be registered with the office of the Public Guardian by you or your Attorneys, before they can act under the document. Sometimes medical professionals may need to consulted during the process which does add to the expense. We recommend however, that making an LPA be seriously considered by individuals because of the problems which can occur if lack of capacity becomes an issue in the future. We also recommend proper legal advice be taken during the process.

Solicitors costs for an LPA vary from firm to firm, and in different regions of the country. We generally find that our costs range between £400.00 and £500.00, depending on the circumstances of the case, although sometimes costs may be in excess of this if a particular matter is more complicated.

For more information, please ask for a consultation with a member of the Private Client Department at Ridley and Hall solicitors (01484-538421) or visit our website at www.ridleyandhall.co.uk

Other useful contact details :-

Office of the Public Guardian

Archway Tower

2 Junction Road

London

N19 5SZ

Telephone Number: 0845 330 2900

Text Phone: 0207 664 7755

Fax Number: 0207 664 7705

Website: www.publicguardian.gov.uk

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