Willmakers of Maidstone Limited - Professional Will writing service - Example case studies
Here are a list of scenarios with examples of the type of situation where a will could save a lot of pain and suffering to surviving relatives in the event of an unexpected death.
Case Study 1
Mr & Mrs Robin have combined assets of £650,000 (twice the Nil rate band for tax year 2009/2010), consisting of house, savings & investments, life assurance, cars, jewellery, etc. In their Wills, they have left everything to each other and, on the second death, to the children. If Mr Robin dies first, his wife will pay no inheritance tax (a spouse is exempt). Prior to the 9th October 2007 the position was that when she dies there would be a tax bill of £140,000 (40% of anything above £300,000 – the Nil Rate band for inheritance Tax in tax year 2007/8), which is deducted from the children's inheritance. They had been advised to change their Wills to include a discretionary trust (known as a Nil Rate Band trust) which is set up after the first death. Because this trust contains no more than the threshold for inheritance tax, it will be tax free when it eventually passes to the children. Mrs Robin can make use of anything contained in the trust against a promise to repay the trust (known as a Debt Scheme), so that her standard of living will not suffer. When she dies her gross estate is £600,000+. But there is a debt of £300,000 and with her own allowance of £325,000 there is a substantial tax saving.
The question now is “Should they proceed in the light of the introduction of a transferable Nil Rate Band from 9th October 2007?” For the great majority of married couples or civil partners the answer will be NO.
However there are exceptions. One such is where Mr Robin has 3 children from a previous relationship and Mrs Robin has 2 children from another relationship. Whilst they want each other to have the benefit of the whole estate, they want to guarantee that on 2nd death their own children will inherit the relevant half of the estate whatever the survivor may have done after the first death (such as remarry or rewrite their Will). In that case the use of the Discretionary Trust is a safer option.
Another exception is if one of them has been previously widowed. That person can use the unused portion of the transferable Nil Rate Band. If it is left absolutely to the second spouse it is wasted. But if the Debt Scheme is used the family can benefit from an additional Nil Rate band!
Case Study 2
Mr & Mrs Swift are elderly. They own a house (as joint tenants) worth £210,000 and little else. If Mr Swift dies first, Mrs Swift automatically becomes sole owner of the property. If she later has to go into a care home at a cost of £600 per week, the entire value of the home will be eaten up in about seven years and the children will inherit nothing.
50% of the value of the house can be saved if Mr & Mrs Swift become 'tenants in common' so that each now owns half. They can now, in their Wills, leave half of the house to a trust for the ultimate benefit of the children. After Mr Swift's death, his half is protected. Mrs Swift will have a lifetime interest in the half that is now owned by the trust, so that she has complete security. On her death, the children will be £100,000 better off.
Case Study 3
Mrs Swallow is a single parent with an estate worth £150,000 and a disabled child who receives state benefits. If Mrs Swallow dies and leaves more than £20,500 to the child, state benefits will cease. All she need do is arrange to include a discretionary trust in her Will so that the Trustees will make periodic payments for the benefit of the child. State benefits will therefore be unaffected.
Case Study 4
Mr & Mrs Hawk have both been married before and each has children from the previous marriage. In their Wills, they would like to safeguard the inheritance of these children, but are concerned not to leave the surviving spouse short of funds. This is a common problem in today's world and is easily solved with a properly drafted Will. As in case study 2, the ownership of the house can be changed to ‘tenants in common’ and the Will can contain a life interest. The ultimate beneficiaries of their half of the house would be their own children.
Case Study 5
Mr Starling & Ms Magpie have recently had their first child. Whilst their assets are limited, they need Wills. Firstly to appoint guardians for their child so that there is no dispute between the couple’s respective parents as to who should undertake that duty should the couple die. Secondly they need to ensure that their assets go to each other as they are not married. And thirdly they need to decide how the assets should be divided should both of them and the child die in an accident.
Case Study 6
Mr & Mrs Owl have combined assets in excess of £1,500,000. Of this the house is owned jointly at a value of about £500,000. Mr Owl also owns a trading business (eg: a hotel or a factory) that could be sold as a going concern for about £1million. If he leaves this to his wife the family will lose the benefit of possible Business Property Relief. The children are too young to take over the business and, if left to them, his wife will lose out on lifetime income. As in case study 1 the house should be changed to Tenants in Common and the Will may need a Discretionary Trust with the Debt scheme. More specific advice may be required as to the business, depending on the exact circumstances. One solution may be to leave the business into a Discretionary Trust with the beneficiaries named as the wife and the children. The wife would then have the benefit of some lifetime income with the business attracting Business Property Relief. This means that the value would be outside of Mr Owl’s estate so Inheritance Tax could be Nil.
Case Study 7
Mr & Mrs Eagle die in an accident. Mr Eagle’s estate is worth £3million and Mrs Eagle is worth £300,000. Most Wills include a 28 day or 30 day survivorship clause, so there would normally be substantial Inheritance Tax payable. However the property was owned as tenants in common and the Will Maker had also included a “commorientes” clause in the Will of the elder so the estate passed free of Inheritance Tax to the children.
Monty Knight-Olds ASWW/MIPW
Registered Office:- 9 Blacksmith Drive, Grove Green Maidstone, Kent. ME14 5SZ. Telephone: 01622 739657 Mobile: 07770 784289
A company registered in England and Wales. Registered number 4488068
Home | Scenarios | Services | Our Profile | Email/Query | Useful Links |
E-mail: wills@willmakersofmaidstone.co.uk