Writing a will is one of the most important financial and personal decisions that someone can make in their lifetime, and yet, despite campaigns by the Law Society and the Government to convince us of the need to write a will, more than half the people who die each year do so without leaving a will.

Dying intestate, which is the term for dying without leaving a will, means that your estate will not necessarily pass on to those of your dependants and loved ones who you would otherwise wish to benefit. Intestacy Rules are statutory rules which govern the distribution of assets when a person dies intestate and sets limits on the amounts which can be transferred outright. The Intestacy Rules, however, generally only deal with civil partnerships, married couples, and the children from such civil partnerships and marriages. They do not otherwise deal with co-habitating couples. In recent years the number of married couples has fallen by a third and this trend is continuing with the effect that more people will need to deal with the distribution of their estates by making a will.

We can trace the importance of this by looking back at the most significant rulings in the area throughout the past decade. Indeed, with this background, it is surprising that the Chancellor announced new rules in the Budget to clamp down on trust funds passing under wills. In 2003, HMRC stated its intention “to create a level playing field” between assets held on trust and assets held personally by individuals and stated that “the Government recognises the important role that trusts play in society”.

The March 2006 Budget affects two main types of trusts – Accumulation & Maintenance Trusts and Interest in Possession Trusts. The former are often set up by parents or grandparents who want to give away assets during their lifetime or when they die, but who want the trustees to retain control of the money for a certain period – usually until the beneficiaries reach the age of 25. Following the Budget announcement, these trusts must be re-written to provide for assets to pass absolutely at 18, failing which the trust will be taxed at 6% every 10 years on the value of the asset over the Inheritance Tax (IHT) threshold, currently £285,000.00. Interest in Possession Trusts are often set up where say a husband wishes to provide his wife with an income on his death and for the capital to pass to the children on her death. The Budget will now provide for any assets over the IHT threshold to be taxed at 40% when the asset passes into the trust plus 6% every 10 years – unless you rewrite your will.

The Budget also caused confusion amongst professionals and insurers as to the effects on pensions of Section 172 of the Finance Act. This section imposes penalty charges of 55% and the possibility of the pension being de-registered for making, what are termed as “unauthorised payments”. Prior to the Budget, lump sum payments on death where death occurs prior to retirement age and are paid through a trust at the discretion of the trustees are treated as falling outside a saver’s estate and so are not liable to 40% IHT. After much objection, the Government has revised its announcement and has declared that existing life policies in trust will remain unaffected but that new policies will be affected.

The Association of Chartered Accountants estimates that over 1 million people will now need to review their wills following the Chancellor’s announcement. The Treasury does not appear to appreciate the enormous task ahead for the public and their advisors to review their existing wills and re-arrange their affairs. It believes that the new rules should not present a problem because a will can be re-written by Deed of Variation even up to 2 years after death to reinstate an IHT exemption. The Government does not seem to appreciate the difficulties and expenses of rewriting wills after death and the conditions that have to be met which are highly technical. In addition, many people who have written in a simple trust may not have given trustees enough power to change the will. Indeed the consent of all the beneficiaries is required even if the required power for trustees exists. This will become impossible where all the beneficiaries do not agree or where the consent of some or all of the beneficiaries cannot be given because they are minors.

Writing a will is the first step to be taken to avoid or reduce the effects of Inheritance Tax. If you are concerned about this, then legal advice is certainly the best way to confirm your position in relation to the effects of Inheritance Tax.

This article is free to republish provided the authors resource box below remains intact.

Roberto Germain
http://www.articlesbase.com/law-articles/good-will-hunting-the-importance-of-planning-your-estate-through-a-will-686207.html