Many people want to “keep things simple” and leave everything in their Will to their spouse if they die first, or between their children if they die second. This has much to commend it, but it is always best to think about all the options as there are good reasons NOT to follow this structure.
One consideration is protecting the assets of the first to die from being definitely taken into account for care fees funding for the survivor. If, for example, the first spouse (H) leaves their estate of £400,000 all to the survivor (W) making W worth £800,000, then W has £800,000 of assets available to be spent on their care and it will take much longer for the Local Authority to step in than if W was only worth £400,000.
This might be what is wanted, but H and W should consider leaving their £400,000 on first death into a trust for each other. H can give W a right to live in his share of the house or right to the income from the £400,000 of assets if they are of a cash nature and vice versa. This is not a fail safe protection of H’s £400,000 from being treated as W’s by the Local Authority, but does add at least the possibility of protection.
Or H and W could use a discretionary trust so the survivor has no right to the £400,000, which offers more protection from the Local Authority, but may not be acceptable to the survivor and be seen as too uncertain by them.
Capturing tax reliefs is another important consideration. If H and W hold shares in a business which qualify for business property relief, then this relief is “wasted” if those shares are left to their spouse as spouse relief means no Inheritance Tax is payable in any event. The shares could instead be left outright to adult children or put into a discretionary trust. The spouse, adult children and wider family can be amongst the possible beneficiaries and so potentially receive dividends from the shares in the future.
Capturing the Nil Rate Band and Residence Nil Rate Band on first death also needs careful consideration. Often families are more complex and people may have children from more than one marriage or relationship. Trusts can be used to make sure all family members are provided for as far as possible.
No one situation will be the same as any other and detailed knowledgeable advice should be taken to ensure that fully informed decisions can be taken as to how H and W wish to leave their assets in their Wills; simply or otherwise!
For further advice please contact Laura Banks on 0121 796 4027 or firstname.lastname@example.org