There are many 'popular' misconceptions and misunderstandings of how the system works in relation to Wills and Inheritance Tax on death. Our Private Client department dispels the most common five myths which they regularly comes across in their line of work.
I don't need to make a Will as I am married and my wife will get everything anyway.
Unfortunately this is not the case. Under the law the state decides how much a surviving spouse will inherit if there is no Will. This is dependent on whether the couple have children as to the limit of inheritance. Although certain 'joint' assets will pass in addition to this allowance. The allowance has been increased (from 1st February 2009). It is important to make a Will especially if you have substantial assets and/ or children.
Someone told me that my Beneficiaries can't be Executors of my Will?
This is not correct. Executors can be beneficiaries of your Will. Most people are getting this mixed up with witnessing the Will. A beneficiary should not witness a Will. If they were to do so, then they would lose any entitlement under the Will. Additionally, the husband or wife of a Beneficiary should not witness a Will, as this will also invalidate the gift to their husband or wife.
I own a high value house as 'joint tenants' with my children. I have been told it passes automatically on death and no Inheritance Tax is payable.
Unfortunately, this is also not true. When the application for grant of probate is made details of all joint assets passing by 'survivorship' (i.e. where it is owned as joint tenants) are declared for Inheritance Tax purposes. If the joint owner is exempt, as in the case of a spouse, then there is normally no tax attributable to that asset. However, where the asset is owned by non exempt beneficiaries, then the value of the joint asset is added to the other assets owned by you at the date of your death for inheritance tax purposes. The Revenue will also ask how the joint owners acquired their share and if this came through you could also add the value of the half share gifted to your children back into your estate before calculating the inheritance tax liability if the gift is made within seven years of your death.
I am going to give away my home to my children now as I believe I will avoid Inheritance Tax.
This is a very popular urban myth. Generally, if you give away your home and continue to live in it, the Revenue will treat it as an asset owned by you at the date of your death. This is because of the 'reservation of benefit' rules. Broadly speaking, if you give away an asset but receive some 'benefit' from it (e.g. being allowed to continue to live in the house, or still receive dividends from shares you may have gifted) then the Revenue will tax the value of the asset you are receiving the benefit from. If you were to give away half of your house during your lifetime for example, you could get round these rules by paying a market rent for the half share of your home you have gifted. The recipient of the rent would then be liable to declare this for tax purposes to the Inland Revenue income tax office. Additionally, we advise extreme caution to clients wishing to take this route because of the risk of the gifted share of the house being open to attack in the event of bankruptcy or divorce in the family which could ultimately result in you losing your home.
My wife and I don't need tax planning Wills since the budget in 2007, as we will get two allowances on the second death.
Most people still want tax planning Wills, which involve the use of a trust for other purposes as well as tax planning. After the death of your spouse, if there was a Discretionary Trust in the Will, the equivalent value of up to the limit of the nil rate band (available on death) would be 'ring fenced' and therefore protected from being taken into account when the local authority assesses the value of your assets for Nursing Care contributions. Normally assets held in trust are disregarded. Additionally, if the right paperwork is in place after the first death, this will ensure that the assets within that trust are kept in your current bloodline. If your wife were to remarry after your death, her new husband (and his family), could end up with all your assets, bypassing your own children. If no new Will is made on the second marriage then the Intestacy Rules would come into play and the new husband could inherit a substantial part of your wife's estate, which would normally include assets which passed to her from your estate. Furthermore, there are strict regulations relating to the 'double spouse allowance' available on the second death.
For more information please call us on 0117 929 0451 or email.