Will you review?
People generally only rarely review their
Wills. They typically do so when there are changes in their
family intentions or if their wealth has considerably
improved. However, an economic downturn like we are
experiencing also provides a useful opportunity to review a
Will. The recent divorce case of Myerson, for example, has
shown that you are not free to renegotiate or change a divorce
settlement because economic or business conditions have made you
less wealthy, but you are free in those same circumstances to
change your Will.
Many clients have seen considerable reductions
in the value of their wealth caused by falling property values, and
in more dramatic falls in the values of foreign property and assets
and shareholdings in the UK.
If you are not currently as wealthy as you
were when you made your Will, you need to consider the financial
bequests (gifts) that you made. If you previously had assets
worth £800,000, and gave £100,000 to each of your three children,
is that still wise when if your assets are now worth £500,000 and
the balance (residue) that passes to your spouse or partner is now
only £200,000?
You also need to consider if you can still
afford charitable gifts to godchildren, more distant relations or
friends. Is it also still realistic for you to have made
index linked gifts?
Our clients quite often specify detailed
arrangements for their funerals and for how pets are to be cared
for. A client recently suggested that they would like their
funeral to take place in Scotland and their ashes to be scattered
in Canada. The costs were considerable and on reflection that
client specified more modest funeral arrangements. An
economic downturn should cause you to reconsider these sorts of
arrangements.
People often also make detailed provision for
leaving items of personal property. A far better arrangement
is to leave personal property in your Will to your executors in
accordance with a letter of wishes, which is stored with the
original Will. You can change your letter of wishes as often
as you like without having to change the Will. So if
previously you have made generous provision for who is to inherit
your china, jewellery, motor cars or stamps, you can now review
that provision in the light of your current personal wealth.
There are particular problems associated with
gifts of company shares in Wills. Apart from the shares being
worth much less than when you made your Will, and therefore worth
much less to the beneficiaries, there are some tax pitfalls
associated with declining share values. When shares are
falling in value your executors, the people you appoint by Will to
administer your estate and pass your property to the beneficiaries,
have only one year to sell the shares and then reclaim the
inheritance tax previously assessed on their higher value - that
will be 40% of the reduction in value of the shares and this could
be a sizable amount. The same considerations apply to
property when prices are falling but the executors then have three
years to act.
There are special considerations that apply to
your foreign property. However when the value of foreign
property has, in general, fallen like it has in the UK, the need to
review your Will about who is to inherit property and to what
extent is obvious.
Many clients have recently made Wills
including what are known as nil rate band discretionary
trusts. Until last year's budget, those nil rate band trusts
were very important methods of providing extra inheritance tax
relief for married couples. However, the provisions in Wills
relating to nil rate band discretionary trusts were complicated.
Last year's budget provided married couples and those in civil
partnerships with extra inheritance tax relief and so those nil
rate band Wills are now largely redundant. Since there are no
tax advantages in having these more complex Wills and some trust
administrative costs can be saved, many clients are now reviewing
their Wills and removing the nil rate band provisions.
Another good reason to review your Will, even
when your assets may now be less valuable is to make sure that
wealth is being managed most tax efficiently. Many clients still
ignore the advantage of lifetime trusts. If you can afford
it, you can set aside £624,000 as a couple every seven years free
of inheritance tax. For clients in their 40's who are wealthy
in their own right and still accumulating wealth, nearly £250,000
can be saved in tax every seven years.
English law has a concept of what are known as
mutual Wills. These are Wills made by a couple with an implied
binding agreement that the terms of their Wills will not be changed
in the future. These are generally undesirable and too
restrictive for most clients' needs and so when you review your
Will you should take legal advice and check whether you should not
have a clause specifically excluding mutual Wills.
As highlighted by the examples in this
article, there are compelling reasons why you should review your
Will while the current business and economic conditions
prevail.
