New Year Resolutions

At the end of an old year and the beginning of another is traditionally the time for clearing up, and for New Year resolutions.  There are some issues which it would be sensible to consider at this time of the year, so that you might start 2006 knowing that you have done your best.

Inheritance Tax

There has been much in the Press made of the fact, that the estates falling into inheritance tax are increasing, due principally to the limited value of the nil rate band, which is free of tax, and which currently stands at £275,000.00.  From April next year it will increase to £285,000.00, and from April the following year to £300,000.00.  Even with hiccups in house prices, this is simply not keeping pace, and the Revenue are collecting more and more tax.

There are steps that even those with relatively modest estates might take to mitigate, or indeed eliminate the tax.  These include an appropriately worded Will, of which more later and the use of annual and other gift allowances.  Remember too that some assets are free of inheritance tax by their very nature.

Wills

Have you made a Will, and if you have is it relevant and up to date?  I have written previously about the rules of intestacy and these are about to change.  Whilst it is true that the change will be for the better, there really can be no excuse for not leaving a Will, and leaving choices to the Government, because it is a matter of choice.  Making a Will enables you to choose Executors and Trustees, Guardians for infant children, to choose the age at which your children may inherit, and whether or not to save some inheritance tax, perhaps by incorporating into your Will a nil rate band discretionary trust.  Remember too that gifts to charities are free of tax.

If you have a Will, is it still relevant, does it make sense?  Ideally, your Will should at least be looked at every couple of years, to make sure that it still represents your wishes, includes everybody that you wish to include, and deals effectively and tax efficiently with your estate.  This does not mean that the Will has to be changed every couple of years, but it is worth checking.  Often small additions or deletions can be done through a Codicil at no great expense.  Before instructing your solicitor to prepare the Wills, it is worth spending a little time considering who you would wish to act as your Executors and Trustees, and if you have infant children then who should be their guardians.  Note too that to be an Executor and Trustee is to undertake a significant responsibility.  It is often sensible to appoint a professional as one of your Executors, perhaps your lawyer or accountant, and do not feel obliged to appoint a relative, they may not thank you for it.

The appointment of guardians is a critical appointment.  If your children are minors, then the guardians will quite literally step into your shoes.  Again, do not necessarily be tempted to appoint a member of the family, consider what is best for your children, who amongst the candidates would your children be most happy with, and who could you trust to bring them up responsibly.  All too often testators feel obliged to appoint parents, siblings and other relatives when it is wholly inappropriate.

Enduring Powers of Attorney

The legislation on Enduring Powers of Attorney is about to undergo radical change.  New legislation is being introduced and new rules and regulations will filter out eventually.  Enduring Powers of Attorney executed before the changes come into place are perfectly valid, and it is a very sensible precaution to take.  It is known that people are living longer, and more frequently therefore become incapable of managing their affairs by reason of mental incapacity.  This can be Alzheimer’s or dementia, but it can be as simple as old age.  If you wish to appoint your spouse, then my very strong recommendation is to appoint your spouse and another jointly and severally, just in case your spouse his self or herself becomes incapable.  Happily there is to be a tightening up of the regime because it has in the past been abused, and so going forward there will be many more checks and restrictions.

January 2006