How are trusts in wills affected by tax and inheritance tax?

The main tax that affects wills, triggered by the death of the person, is Inheritance Tax. 

However, when someone dies the deceased's personal representative (PR) or executor will make sure that a personal Tax Return is completed from the start of the tax year to the date of the deceased's death. From the date of the deceased's death to the end of the tax year the PR will have to account for tax and report to the beneficiaries on the tax that he or she has deducted. Each year the PR will have to submit an Income Tax Return to HM Revenue & Customs. However, in the year in which the estate is wound up and all the assets have been distributed, the PR will only have to account for the tax on the income up to the date of distribution. In practice, if probate value is less than £2.5 million and the total tax due by the PR is less than £10,000, HM Revenue & Customs will accept a single computation and one-off payment.

Find out more about making a will, probate and inheritance tax.

 

What is a trust?

A trust is brought into existence when a person (called the 'settlor') transfers some of his assets to trustees (who become the legal owners) for the benefit of third parties, called 'beneficiaries' (the beneficial owners). A trust is a legal entity in itself. Another word for a trust is a settlement.

Sometimes trusts are created under a will and sometimes they are created during the lifetime of the settlor. Sometimes trusts are created to save tax, sometimes to protect assets; there are many and various reasons for setting up a trust.

 

I'm an executor to my father's estate; how do I go about getting authority over his affairs in Scotland?

As executor to your father’s will, you have the power to deal with your father's assets from the date of his death. However, it's not until you receive a 'Confirmation' in Scotland that you can prove your authority to those institutions and authorities that hold assets in your father's name.

Application for Confirmation is made to The Sheriff Clerk of the Sheriff Court in the area in which the deceased had been domiciled at his death. A list of Sheriff Courts is available online at www.scotcourts.gov.uk or by calling the Scottish Courts Service on 0131 229 9200. The grant of Confirmation is proof to the public that the executors can realise the deceased's estate, collect from the deceased's debtors and distribute the assets, as determined by the will.

The executors can now send the Confirmation, or a Certificate of Confirmation, to all parties concerned, requesting whatever money is due to the estate. This money can be deposited into the executors' bank account from which debts of the deceased can be paid.

Find out more about making a will, probate and DIY wills.

 

What happens to someone's Income Tax affairs when they die?

When someone dies, they are entitled to their normal full year's worth of allowances. A tax return will need to be completed for the last period of their life from 6 April up to the date of their death and the tax will have to be worked out accordingly.

Income arising after death is treated as the income of the estate and becomes the responsibility of the trustees or executors. When the estate is distributed, both the capital and the income that has arisen since the date of death will be distributed according to the will to the various beneficiaries and tax will be deducted from any income that has been received at the appropriate rate.

If you as a beneficiary receive income that's been credited to a deceased person's estate, then you will receive that income net of the appropriate rate tax and while you may have to pay higher rate tax on the income, there's also a chance that you might be able to claim some back or for there to be no adjustment at all.

Find out more about making a will and DIY wills.

 

I am acting as an executor for someone who died recently and I find the inheritance tax issues complicated. How do I calculate the tax due?

Up to a certain value, the estate is exempt from inheritance tax, but once you reach that threshold, there are quite considerable amounts of tax to be paid. The rates to be paid vary from time to time but you can find the latest figures at the HM Revenue & Custom's website.

You can calculate the tax yourself by working through the HM Revenue & Custom's worksheet IHT/WS and completing forms IHT 200 and D18.

If you are finding the whole thing too much, then hand the tax calculation problem over to your local Capital Taxes Office and they will work it out for you.

Find out more about making a will and DIY wills.

 

What is probate?

Probate is a process that gives the people carrying out your will the right to deal with your assets and property. It acts as proof that your executors have the authority they need to administer your estate.

Find out more about probate, making a will and DIY wills.

 

My partner has already made a will. Should I be making a will too?

Yes. Both you and your partner should make a will, even if most of your property is in one person's name. Making a will allows you to name your spouse as the person who will benefit from your property if you die, and in your will you can decide where your property should go if your spouse dies before you.

If you are not married but are cohabiting (living together as an unmarried couple) it is even more crucial that you both make a will. There is no automatic entitlement that your partner will receive any of your money or possessions if you have not made a will.

 

I’ve already made a will but I want to change my will. Should I just add the changes to the will I've made?

No. You shouldn't change your will by altering a will that you've already made.

The best way to update your will is to simply make a new will, and include the fact that all previous versions of your will are cancelled. It's actually a good idea to destroy all the copies of your old will, just to make sure, once you have completed making your new will.

Find out more about making a will and DIY wills.

 

Is it OK to store my Will at home?

You can store your Will at home but you should consider the following points. 

  • A Will is an important document. It records your wishes. But a Will is only a piece of paper that can be easily lost, as sometimes happens when people move house, for example.
  • There is also the added question of security: do you want other members of your family to have access to your Will?

It’s possible to store your Will with a solicitor, but their Will storage charge can be high and it might be inconvenient if you move away from the area where you currently live. Your bank is another possibility for Will storage, but again there could be quite a hefty cost involved.

With Lawpack’s safe and secure Will Storage Service the cost is only £12.00 per year and you also receive free Will forms and guidance when you want to make changes to update your Will. Lawpack also maintains contact with your Will’s executor (with your consent).

When I have completed my DIY will, do I need to take it to a court or a solicitor to have it witnessed and made legal?

No, there is no need to have a solicitor make your will “legal”. Your DIY will has been prepared by barristers to ensure that it is legally valid. Simply follow the instructions and guidance that are provided with your DIY will.

A solicitor does not need to witness your will. Once you have made a will it can be witnessed by friends or anybody else you trust and this act will make your will perfectly legal. The only people who shouldn't be witnesses are the beneficiaries of the will - witnesses can't inherit anything from a will they are witnessing.

Find out more about making a will and DIY wills.

 

I don't know anyone who I can ask to be the executor of my will. Can I do it myself?

No. The executor of your will is the person you wish to handle your estate (property, money, investments etc) after your death. So it's impossible for you to act as your own executor for your own will.

Find out more about making a will and DIY wills.

 

Can an executor be a beneficiary of my will?

Yes, and you can have up to four executors. Remember, though, that whoever witnesses your will can't be a beneficiary of it.

Find out more about making a will and probate.

 

Can my executor witness my will?

An executor (or a spouse of an executor) can safely act as a witness unless he or she is also a beneficiary, or a professional adviser who may wish to charge for his or her services, in which case another witness must be found.

Find out more about making a will and probate.

 

How many witnesses do I need for my will?

In England & Wales, you need two witnesses over the age of 18 to witness your signature and to sign your will; in Scotland, you need only one witness over the age of 16. The spouse of a testator (person making a will) cannot witness a will, nor can beneficiaries of the will (or their spouses).

Find out more about making a will and DIY wills.

 

What happens if I die without making a will?

If you die without making a will, or if your will is invalid, you die intestate. The management of your estate, which is your house (if you have one) and any other assets minus all your debts, is then done by administrators (called 'executors-dative' in Scotland) appointed by the court, who will probably be your close relatives.

In some cases, your possessions may go to the Crown, but generally the bulk will go to your spouse or if you don't have one, your children. If you have no children, other blood relatives are next in line. One in two people in the UK currently dies without making a will and if you haven't done so already, it's a really good idea to prepare one.

In Scotland, the rules of intestacy allow your spouse and dependants to claim your property and money regardless of your wishes. If no surviving relatives can be found, your entire estate goes to the Crown.

 

What should I include when making my will?

Obviously, you should include exactly who will inherit your property, and what in particular each person will inherit. Just as importantly, you should choose the person who will be responsible for carrying out your wishes and who will act as a guardian to your children if they have no other parent.

You can also use your will to say whether you would prefer burial or cremation and if you would like to be an organ donor. Lastly, you might be able use it to reduce the amount of tax to be paid by people inheriting from you.

Find out more about making a will and DIY wills.

 

How long is a will valid for?

A will is valid until revoked, which can happen in a number of ways.

By destroying it, combined with your intention to cancel it. Physically destroying your will usually revokes it. Accidental destruction of a will doesn't cancel it but there might be difficulty in proving that it applies. A will can be destroyed by another person, but it must be at the request of the testator.

A will must be physically destroyed - simply crossing out the will or writing 'revoked' across may not be sufficient. Rubbing out or cutting off the signature of the testator or witnesses may be enough to revoke the will.

If part of a will is destroyed, only that part of the will is revoked. If an entire will is to be revoked, any codicils attached to it may have to be revoked separately. If a will is known to have been kept in your possession, but can't be found when you die, it will be presumed that it was destroyed by you unless there is proof that that wasn't what you intended.

By making a new will that revokes your old will. To make sure of this, the will forms in our books and kits contain the phrase, 'I revoke all previous wills and codicils'. This gives you the opportunity to reconsider all of the terms of the old will and make all the changes at one time rather than separately using codicils. Be sure your new will complies with all the requirements necessary to make a valid will. If you don't destroy your old will, it might come back into force if your new one is revoked.

In England and Wales (but not in Scotland) by marriage unless your will states that it is made with your forthcoming marriage in mind. Your will is automatically revoked by marriage unless:

  1. you were planning to marry when your will was made;
  2. your will names the specific person you married;
  3. you state that you want the will to be effective during your marriage to that person.

In Scotland by the birth of a child if the will doesn't provide for the child and you haven't shown your intention that the will not be cancelled.

Except for the situations just mentioned, a will remains valid for an unlimited period of time. 

Note that divorce doesn't automatically revoke your will.

 

Who can make a will?

Every adult can and should make a will. You need to be of legal age, which is 18 in England and Wales and 12 in Scotland. You must also be over the age of 18 in Northern Ireland, although there are exceptions if you are under 18 and married or you have been married.

You must also be of sound mind - understanding what you are giving away, how you are giving it away, and who you are giving it to. If you have a history of mental disorder or if an illness may be affecting your judgment in any way, consult a qualified doctor before writing your will. This helps establish your competence and will be useful should your will be contested later on the grounds of mental incapacity.

 

Will I automatically inherit my partner's estate when they die?

No, so you should both be making a will immediately.

If your partner dies without making a will their estate will be distributed among their blood relatives in accordance with the rules of intestacy. If you are not married (a.k.a. cohabiting) you may well not be entitled to any of their estate.

 

My partner and I are cohabiting. We are an unmarried couple who are living together. Should we make a will including each other?

Yes, assuming you want your partner to inherit from you. 

It is very important for unmarried partners who are cohabiting to make wills, as without them, the surviving partner may receive nothing when the estate is distributed.

 

How do I go about complaining about my solicitor?

Discuss the problem with your solicitor first. If it's a problem relating to the service you've received, discuss the problem with either the solicitor directly or, if that's awkward, the partner in their firm responsible for complaints. All solicitor firms must have their own complaints procedures. If the solicitor is a sole practitioner, then they may have an arrangement with another local firm or with the local Law Society to deal with complaints.

Now put your complaint in writing. Any complaint should eventually be recorded in writing. Your solicitor will then have a record of the details. You should keep a copy of your letter.

Next refer the case to the Law Society's Legal Complaint Service. You should contact the Law Society if: 

  1. you haven't received a detailed reply to your initial complaint from your solicitor within a reasonable time, say 28 days; 
  2. you haven't been able to sort out your complaint with your solicitor; and 
  3. your complaint is about a solicitor's conduct. 

It's important that you contact the LCS within six months of the matter you are complaining about. If you leave it any longer, it may decide not to investigate your complaint.

Make your complaint heard: find out how...

 

How do solicitors charge?

There are various methods of funding a legal case used by solicitors:

  • Charging by the hour: This is the most common method of charging. Hourly rates vary from high street firms where you can expect to pay somewhere between £80 to £120 an hour for advice on private and commercial work, all the way through to £350 an hour for a senior partner in a City firm for extremely expert advice on complex points of commercial law.

  • Fixed fees: This form of payment has the obvious appeal of limiting your liability for legal costs and, after the hourly rate, it's the next most common way of charging. The obvious downside is that if your case concludes quickly, then you will end up paying more than you may have on the hourly rate basis.

  • No win, no fee: 'No win, no fee' is a deceptively simple expression. On one level - and as the name implies - solicitors are paid nothing for their work if they lose, but it also covers agreements whereby solicitors can charge more if they are successful.

  • Legal Aid/the Community Legal Service: To be eligible for Legal Aid, you have to show that you cannot pay for your case (i.e. that you are financially eligible) and that you have a sufficiently strong case that you are likely to win. Even if you're working, own your home and have savings, you may still qualify. However, you may well have to pay a contribution towards the cost of taking your case to court.

 

My husband will not make a will. If he died, what would I be entitled to?

If you don’t have any children, you will be entitled to the first £450,000. If you have children, you will be entitled to the first £250,000. After that it gets complicated.

To ensure that you protect yourself and your property thoroughly, it's vital that you and your husband make a Will. If your husband is put off by the cost or does not have the time to do so, then don't worry - making a Will does not have to be expensive and is easy to do. You can use Lawpack's DIY Will Kit for £9.99 or use our quick, online service from £59.99.

Find out more about making a will and DIY wills.

 

Does your DIY Will Kit enable me to draw up a Discretionary Trust Will?

No, I’m afraid that it doesn’t.

 

Can I use the DIY Will Kit to create two Wills (one for myself and one for my husband) or is it limited to a 'single use'?

The Will forms included in our DIY Last Will & Testament Kit are in Word format so you can save them to your computer and use the forms as many times as you like.

 

I have used Lawpack’s DIY Will Kit to write my Will. Can you clarify if the witnesses are just witnessing that the Will has been signed or do they need to know the content of the Will?

Your witnesses are witnessing that the Will has been signed.

 

My wife recently passed away and I need to create a very straightforward single Will leaving my estate to my children. Will Lawpack’s Last Will & Testament Kit enable me to create such a Will?

Yes, included in our DIY Last Will & Testament Kit is Will Form 3, called “Residue direct to children”, where you can leave your estate directly to your children.

If your children are over the age of 18, you can also use Will Form 1, “Simple Gift of Residue” which is appropriate for leaving your estate to adults.

The Guidance Manual included in the DIY Will Kit will outline which DIY Will Form you should use.

 

I bought Lawpack’s Last Will and Testament some years ago and wrote my Will, but my circumstances have now changed and I wish to rewrite my Will. Do I need to buy a new DIY Will or will it still be current?

Our latest DIY Last Will & Testament Kits all include a Product Update Service, which you can access on Lawpack’s site, where you can read about any law changes and download the latest forms.

If your Guidance Manual doesn’t include such a service, I suggest that you buy a new DIY Last Will & Testament Kit.

 

What is the difference between Lawpack’s Last Will & Testament eKit and the mailed Last Will and Testament?

Lawpack's Last Will & Testament eKit is a downloadable version of the mailed Last Will & Testament Kit. Instead of the physical copy being sent out to you in the post, you can download the Last Will & Testament eKit instantly and save it to your computer.

Find out more about making a will and DIY wills.

 

Does Lawpack’s DIY Will eKit work on a Mac?

I’m afraid not. You will have to purchase the DIY Last Will & Testament Kit which will be sent out to you in the post.

Find out more about making a will and DIY wills.

 

Does Lawpack’s DIY Will Kit include a codicil?

No, it doesn’t.

Find out more about making a will and DIY wills.

 

Which form In Lawpack’s DIY Will Kit do we use if the estate is to be left to an adult (not related) and if she dies, to her child?

If the child is over the age of 18, you can use our Will Form 1 called “Residue to Adult”. If the child is under 18, you currently will not be able to write a Will using our DIY Last Will & Testament Kit.

Find out more about making a will and DIY wills.

 

In Lawpack’s DIY Will Kit it states that I don’t need a solicitor to complete it. But in the ‘Letter to Executor’ and ‘Important People to Notify’ it asks for solicitor’s details. Can I just put ‘None’ in these boxes and keep my original Will at home?

Yes, you can store your Will at home, if you so wish. Or you can store your Will using our Will Storage Service.

Find out more about making a will and DIY wills.

 

Do I have to store my Will in a secure storage facility?

Your Will must be stored in a safe place, but you can do this at home, with a bank or solicitor, or with our safe and secure Will Storage Service.

Can a couple convert to a tenancy in common and, as a result, leave their share of their joint property to someone other than their spouse (e.g. their children)?

Yes, you can convert to a tenancy in common, but you will need to see a solicitor to do this. Once you have converted to a tenancy in common, you can leave your share of the property to whomever you want in your Will.

Find out more about making a will and DIY wills.

 

I got divorced 18 months ago and I now live with a new partner. I have three children (under 16) who live with my ex-wife. I need to update my Will. Will Lawpack’s DIY Will Kit be suitable in these circumstances?

Yes. You can use our Will Form 2 called “Residue Direct to Adult but if he/she dies to Children”, included in our DIY Will Kit.

Find out more about making a will and DIY wills.