5 Amazing Facts About Wills!

5 Amazing Facts About Wills

As a confirmed pedant and exponent of estate planning eccentricities, I’ve taken some time away from the more workaday aspects of will writing, to set down some of my favourite quirky facts about wills…

  1. Death bed gifts – a thing! Usually if someone dies without a will, their estate enters intestacy, however, if a gift is made at the end of someone’s life and crucially in a certain way, this may not be the case. For a ‘death bed gift’ (or donatia mortis causa) to have effect it must: be made in contemplation of impending death; be conditional on death; be parted with, or delivered to the intended recipient in some way. These conditions aren’t trivial and an estate worth more than £1m as deemed not to have been subject to such gift in a recent case. Traveller beware!

 

  1. Cryptocurrency – not a thing (probably)! Well at least to the extent that in the US, it cannot be treated as money in a will (being treated instead as property). HMRC guidance on the matter suggests the same. HOWEVER, there are those in the UK who doubt whether it amounts to anything more than digital information, potentially incapable of ownership. Long story short – don’t rely on your will to gift your Bitcoin!

 

  1. Choupette – a thing! Heirless designer Karl Lagerfeld, famously left his pet cat Choupette an estate worth tens of millions of dollars. In the UK, however, this would not have worked. Here animals can be provided for, however they cannot be will beneficiaries in and of themselves. Slightly depressingly, my reason for conferring on Choupette the status of ‘a thing’ is that pets might be classed as little more than ‘chattels’ (moveable objects) for legal purposes in the UK. If, however, you feel Mr Floofy Whiskers a companion truly deserving of the family Rolls, consider a discretionary trust, or a move to Singapore, where ‘hyper-niche’ tax lawyers are rumoured to be exploring a role for ‘pet beneficiaries’ in tax planning.

 

  1. Brewster’s Millions – not a thing! The title refers to a 1985 film, starring Richard Prior, in which Monty Brewster would inherit an estate of $300m, if he were able to spend $30m (approximately $70m in today’s money) in 30 days, without having a single thing to show for it at the end (and telling no one). The point was to teach Monty the burden and futility of wealth. So could such conditions be demanded using a will in real life? Well, a case in New Southwales a few years ago tested the use of conditions, the ruling here was that conditions remained valid to the extent that they were: i) certaine. could be understood to have been met; ii) not impossible, certainly a grey area in the case of Mr Brewster and iii) not contrary to public policy, hmm ‘vote for none of the above!’ (apologies, I’m a fan of the movie). In reality if you really are considering the use of conditions, once again consider using a discretionary trust.

 

  1. Move on! In 1856, German poet Henry Heine, left his estate to his wife on condition that she remarry. His withering reason: so that “there will be at least one man to regret my death”. Ouch! Caution should be exercised in seeking to exact revenge in this way, however. Under today’s law, Henry’s wife could simply disclaim the gift. Being childless the entire estate would pass to her by way of intestacy.

Well I hope you won’t hold my odyssey into oddity against me. I shall return to matters less esoteric in my next post. Good bye for now!

Dr Simon Pearce Co-Founder Confidence Wills www.confidencewills.co.uk.

 

 

 

 

 

What are the qualifying criteria for RNRB?

inheritance tax

The Residence Nil Rate Band (RNRB)

As a Will adviser, I am frequently called upon to consider the implications of inheritance tax (IHT) to clients’ estates. Most understand that there is a threshold below which IHT is not an issue for them, this is called the Nil Rate Band (NRB).

What few realise is that whilst inflation and house prices have driven estate values up – by many tens’ of percent in a majority of cases. The NRB has remained static since April 2009, at £325,000.

This is in stark contrast to the preceding two decades in which it rose by 103,000 and £104,000 respectively. https://www.gov.uk/government/publications/rates-and-allowances-inheritance-tax-thresholds-and-interest-rates/inheritance-tax-thresholds-and-interest-rates

 

Where does the RNRB fit in?

In mitigation of this stasis, and observing that the bulk of peoples’ estates lay in real property, Chancellor George Osborne announced the Residents’ Nil Rate Band in 2015.

In practice, the RNRB has the effect of removing some or all of the value of a family home from an estate, for IHT calculation purposes, in certain circumstances cases.

In the 2020/21 tax year, the threshold for RNRB will be £175,000 (rising in line with inflation therefrom). For clarity the remainder of this piece applies this figure in calculations.

 

What are the qualifying criteria for RNRB?

The RNRB benefit that is available to you amounts to the net value of your family home (or interest in it) up to £175,000. Crucially, it can only be used when a property is ‘closely inherited’ i.e. bequeathed to a direct descendent, including (but not limited to): children, step-children and grandchildren.

Thus, if you’ve a property worth £175,000, with a mortgage of £75,000 and £400,000 in cash, the net value of your property (£175,000-£75,000 = £100,000) will be eliminated from IHT calculations. The £75,000 in cash which exceeds the NRB threshold (£325,000), however, will remain subject to IHT at 40%. The unused RNRB simply goes unused in such instance and an IHT bill of £30,000 would be payable

Taking the above example, were £75,000 of the available cash to be used to pay down the mortgage, the net value of the property would now be £175,000 and the cash £325,000. In this case, the full RNRB could be applied to the value of the property and IHT liability would be reduced to zero.

 

Can RNRB be transferred?

RNRB can be transferred between spouses/civil partners on first death, in a similar manner to the NRB. The effect of this on a couple’s estate’s IHT liability, can be impressive, conferring an effective £1m IHT exemption.

By way of example: John and Kelly have one child, Paul, and jointly own a £600,000 property and £400,000 in cash. On John’s passing, the property and cash pass fully to Kelly by survivorship (being jointly owned). John’s NRB of £325,000 and RNRB of £175,000 also pass to Kelly. Thus when Kelly leaves her estate of £1m to Paul, there is no IHT liability.

 

Things to Remember

Before I finish, there are a couple of points worthy of consideration.

Firstly, the RNRB does not apply to unmarried couples with children. In these cases, it might be worth partners’ considering the passage of half of the property’s value to offspring, on the first partner’s death. In this way, RNRB can be applied individually. Certain trust arrangements might be useful to optimise this process.

Secondly, the RNRB is subject to an upper limit, tapering off in the case of estates valued in excess of £2m.

Finally, the full RNRB may be available to you, even if you have downsized (post July 2015), to the extent that you have replaced your home with another property or retain assets of an equivalent value to the original property, and bequeath these to lineal descendants.

 

IHT can be enormously frustrating, we recommend seeking the very best advice when creating a will. Confidence Wills are leading advisors in such matters. Contact us now with for more information.