Transcript Key stages of administering the will or intestacy, paying IHT and

Practicalities of dealing with a
deceased person’s estate and the
role of the financial planner?
Ian Bond
Solicitor, Michelmores LLP
Overview
• Key stages of administering the will or intestacy,
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paying IHT and obtaining probate
Working with other professionals
Post death planning issues including deeds
of variation
The benefit of leaving assets in Trust – how trusts
are affected by the death of a settlor, trustee or
beneficiary
Dealing with the family – psychological,
behavioural finance and other issues
Overview (1)
• Key stages of administering the will or
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intestacy, paying IHT and obtaining probate
Working with other professionals
Post death planning issues including deeds of
variation
The benefit of leaving assets in Trust – how trusts
are affected by the death of a settlor, trustee or
beneficiary
Dealing with the family – psychological,
behavioural finance and other issues
Benjamin Franklin
… in this world
nothing is certain
but death and taxes
BENJAMIN FRANKLIN
Clients die
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Over 550,000 people die in England and Wales
each year
On average over the last 10 years between 60
and 70 per cent of people died without leaving a
will (die intestate)
Comparing court figures for death and divorces
shows that more people commit intestacy than
commit adultery
Make sure your client is in the minority who die
having a will
Stages of estate administration
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Valuing the estate
Preparing HMRC and Court papers & paying IHT
Issuing of the Grant
Collection of assets, paying of debts
Estate accounts
Distribution of assets to those entitled
Valuing the estate
What is in an estate?
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All assets held in the sole name of the deceased and
his/her share in assets held as tenants in common:
Also included for tax purposes:
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Gifts made within 7 years of death
Gifts where a benefit has been retained
Assets subject of a life interest trust
In some cases, pension policies or life assurance
payments for example that have not been written in trust
Valuing monetary investments
Contact all relevant institutions to request
date-of-death values of all monetary investments
• Bank accounts
• Building society accounts
• Financial investments
• National Savings
• Cash
Valuing shares and investments
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Contact the relevant registrars or portfolio
manager to confirm the holding.
Obtain date-of-death valuations for share
investments and historical share valuations for
shareholdings.
This can be difficult where companies have
amalgamated, reorganised, changed their
name.
Valuing other assets
• Professional valuations of all land and
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property within the deceased’s estate
Open market valuations obtained for all of the
deceased’s personal effects
Look also for:
Salary arrears
Rents due
Tax rebates
Unclaimed pensions
Refunds from utilities
Valuing debts and Liabilities
All relevant institutions are contacted to
ascertain the deceased’s outstanding debts
• These can include the cost of the funeral and
reasonable mourning expenses
• The mortgage on a property and other loans
and overdrafts
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Memberships
Utility bills
Credit cards and store cards
Hire purchase agreements
Estate valuation completed
Once the value of the taxable estate is known,
IHT can be calculated and must be paid before
the grant can be issued, but… the grant is
needed to cash the assets!
We can use
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IHT payment scheme
Loans from beneficiaries
IHT loans
Paying the tax - IHT Forms
There are two types of IHT form based on estate
value and the type of assets held by the deceased:
• IHT400 – 16 pages plus additional schedules
based on the deceased’s circumstances.
• IHT205 – 4 page simple form with no additional
schedules required.
In most cases, for taxable and complex estates fill in
the IHT400 and for non-taxable estates fill in the
IHT205.
Inheritance Tax
IHT is a tax which is paid on the value of a person’s
net estate on death (but also on some lifetime
transfers)
There are two tax bands…
£0 - £325,000 = 0% tax
Known as the nil rate band
£325,001+ = 36% / 40% tax
Known as the taxable estate
Payment of IHT
Time limits:
• IHT payable 6 months after month of date of
death
• Interest payable on late payment
• Penalties if tax return sent later then 12 months
• Failure to submit return fine of up to £3,000
What is Probate?
• By and large people just use the word Probate
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when talking about the legal process required
A Grant is a document issued by the Family
Division of the High Court giving conclusive
proof as to the terms and due execution of
any will, or the fact that the deceased died
intestate
Different types of grant
Grant of Probate – with a will
Grant of Letters of Administration – without a will
Post Grant – Gathering the assets
To cash or transfer assets, the financial
institutions need…
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A sealed office copy of the grant
Encashment forms
Original certificates of investment, bank books etc.
It can take a couple of days or a number of
weeks to cash the accounts, depending on the
particular turnaround time
Post Grant – Estate Accounts
Before the estate funds are paid out, the Estate
Accounts are prepared, typically showing:
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Assets and liabilities at date of death
Joint assets transferring
Amendments to date-of death valuations (gains/losses)
Income received
Administration expenses
Schedules of shares and dividends
Calculation of tax paid/payable
Overview (2)
• Key stages of administering the will or
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intestacy, paying IHT and obtaining probate
Working with other professionals
Post death planning issues including deeds
of variation
The benefit of leaving assets in Trust – how
trusts are affected by the death of a settlor,
trustee or beneficiary
Dealing with the family – psychological,
behavioural finance and other issues
Henry Ford
Coming together is a
beginning. Keeping
together is progress.
Working together is
success
HENRY FORD
Opportunities
Why solicitors should want to work with you:
• You own a key relationship with the client
• You have built trust through the provision of financial
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expertise
You understand their personal situation, their family tree
and their intended future plans
You have regular contact with your clients
Your records!
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Details of assets and liabilities
Previous gifts and transactions
Family tree and personal details
Dying tidy
Ensure that
• your client has a will and lasting power of
attorney;
• the will is reviewed regularly;
• you have a copy of those documents on your file;
and
• the clients solicitors, executors and beneficiaries
know who you are
Working together on challenges
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Uncertain economic future
House prices
Share prices
Complex family structures
Debt-free generation is falling
Baby Boomers caring for parents and children
Indebted generation to follow
Charitable giving
74% of people in the UK support charities during
their lifetime and 7% leave gifts to charities in
their wills
These legacy gifts are valued at £2 billion per
annum and they enable charitable work to be
undertaken that would otherwise go unfunded.
From 6 April 2012 people who leave at least 10%
of their net estate to charity can pay a reduced
rate of 36% instead of 40%
Overview (3)
• Key stages of administering the will or
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•
•
•
intestacy, paying IHT and obtaining probate
Working with other professionals
Post death planning issues including deeds of
variation
The benefit of leaving assets in Trust – how
trusts are affected by the death of a settlor,
trustee or beneficiary
Dealing with the family – psychological,
behavioural finance and other issues
Post death planning
Inheritance Tax is a
levy paid by those
who distrust their
relatives more than
they dislike the
Inland Revenue!
ROY JENKINS
Instruments of variation
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It is possible to amend
or vary a Will or indeed
an Intestacy after a death
to alter who receives the
benefit of the deceased
persons estate
There are many reasons
why this may be
desirable
Instruments of variation
… can re-write the deceased’s Will (or the
intestacy provisions) for IHT and CGT purposes
• Everyone adversely affected agrees
• There is no reciprocation – no one is compensated for what
they give up
• None of the assets are affected by a Gift with Reservation
• If the variation affects the rights of children or unborn
children, Court approval will be needed
Overview (4)
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Key stages of administering the will or
intestacy, paying IHT and obtaining probate
Working with other professionals
Post death planning issues including deeds
of variation
The benefit of leaving assets in Trust – how
trusts are affected by the death of a settlor,
trustee or beneficiary
Dealing with the family – psychological,
behavioural finance and other issues
Why use a trust?
The purpose of a trust is to place the right assets
with the right person at the right time
The benefits of a trust include IHT planning,
protection against divorce or bankruptcy &
protecting the less financially astute (including
minors) from themselves
Can be created during the clients lifetime or
upon death in their Will
Types of trusts
Generally two types:
• Interest-in-Possession Trusts
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Those where the income or benefit must be given to the
specific beneficiary – it is his or hers by right.
Discretionary Type Trusts
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There are several types but the common feature is that
the benefits are allocated at the trustees’ discretion to
any one or more of several beneficiaries. The trustees
might even decide, for a time, to benefit no one; the
income being accumulated for future use.
Interest in possession trusts
• Used where the client is concerned that long term care may
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become an issue and that the estate may be eroded by
care costs.
Where the client is concerned about his spouse/partner
becoming involved in another relationship after his death
and depriving his intended beneficiaries of their inheritance.
Where there is someone living in the client's property and
he would like them to continue living there either until their
death or until a specified future time at which point the
property would be sold and the proceeds divided between
specified beneficiaries.
Discretionary trusts
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Used where the client wishes to protect a vulnerable beneficiary.
The client would provide the trustee with discretion over
how/when the trust funds are to be used.
The beneficiary may be a minor and the discretion maybe for
them to graduate from university before they inherit.
The beneficiary may have a disability and their means tested
incapacity benefit may be reduced or stopped as a result of
holding money in their own name.
Divorcing or unstable marriages/civil partnerships
Beneficiaries that are likely to be bankrupt or cannot be trusted to
spend wisely.
Overview (5)
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Key stages of administering the will or intestacy,
paying IHT and obtaining probate
Working with other professionals
Post death planning issues including deeds of
variation
The benefit of leaving assets in Trust – how trusts
are affected by the death of a settlor, trustee or
beneficiary
Dealing with the family – psychological,
behavioural finance and other issues
Bereavement, grief and mourning
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Bereavement
is what happens to you.
Grief
is what you feel.
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Mourning
is what you do.
What is bereavement
…grief experienced
by the loss of a
loved one…
Key stages of grief
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Doubt that the death has occurred and a want to know
the details surrounding it.
Rejection of the death, a sense of disbelief that a loved
one is no longer alive.
Search for the deceased and will travel to the hospital or
place where the death occurred or where the deceased
is resting.
Sorrow. The bereaved person, may be tearful,
depressed and withdrawn. Alternatively, they may talk
almost unceasingly about the deceased.
Helpful points
• Be the families “trusted advisor”,
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available in good times and bad
Be mindful of dates
Good record keeping and diary function is the key
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Anniversaries
Birthdays
Date of funeral
Marriage anniversaries
Death anniversaries
Christmas
Easter
Helpful points
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Listen in a non – judgemental way thereby
understanding something of what they are going
through
Ask questions that help the customers gain clarity
and move them on
Don’t take any anger personally
Accept that you cannot make them feel better
Be aware of your limits
Finally
What
questions do
you have …
Contact me
Ian Bond
Michelmores LLP
E- mail: [email protected]
Telephone: 01392 687 542