What are the STEP Standard Provisions?

Posted on By admin

If you have a will, there is a high chance that they will include mention of the ‘STEP Standard Provisions’. But what does this mean?

The STEP Standard Provisions are a set of ready-made clauses that can be inserted into a will. These clauses provide protections and powers that enable the executors or trustees to effectively deal with the estate.

Since they were first published in 1992, the STEP Standard Provisions have become an important element in the drafting of wills, with will drafters incorporating them into countless wills and settlements.

Please note that this article refers to the England and Wales STEP Standard Provisions. There are separate Provisions that cover the law of Northern Ireland.

What is the benefit of the STEP Standard Provisions?

The STEP Standard Provisions give the executors of the will a number of technical and routine provisions and powers to help them to administer the estate properly. They are written in non-technical language, avoiding legal jargon, so they are easy to understand.

Why is this relevant to me?

Your will is an important document that sets out what should happen when you die. A well-written will can provide peace of mind that your loved ones will be provided for after you’ve gone. With such an important document, it is essential that you fully understand everything contained within it.

What are the different versions?

The England and Wales STEP Standard Provisions were first published in 1992. Since then, STEP has published two new editions: the Second Edition in 2011 and the Third Edition in November 2023. The new editions recognise changes in law.

What changed in the Third Edition?

Trust and will legislation has changed since the publication of the Second Edition in 2011, so the STEP Standard Provisions needed to be updated and modernised.

The most significant amendment is the standardisation of the clauses on trust corporations, which take into account wording from the terms and conditions of trust corporations.

Do I need to change my will if they refer to an older edition?

No, you don’t need to change your will if it refers to the First or Second Edition. These editions still remain valid. You should, however, review your will periodically to make sure it remains up to date. When you do this, the edition can be updated accordingly.

How do I know if the STEP Standard Provisions have been used in my will?

If your will includes the STEP Standard Provisions, there will be a statement included as follows (or similar):

‘The Standard Provisions of the Society of Trust and Estate Practitioners (XXX Edition) shall apply’.

If any of the ‘Special Provisions’ are also included, this will be clearly stated, noting which apply.

A qualified will drafting professional should explain the STEP Standard Provisions when they draft your will. If your will includes any of the Special Provisions, each of these should be explained to you so you understand what is included and why. You can ask your will drafter for a copy of the STEP Standard Provisions when you make your will. Alternatively you can find these at www.step.org/step-standard-provisions

Who should I speak to about making/updating my will?

It is essential to think carefully about who you choose to write your will. Although anyone can write a will, there are some factors you can check that your will writer has to give you peace of mind. These include:

  • Specialist accreditations: are they a member of STEP (a full member can use the letters ‘TEP’ after their name) or a another reputable specialist body?
  • Qualifications: Do they hold any specialist qualifications such as STEP’s Advanced Certificate in Will Preparation or the STEP Diploma?
  • Have they told you who regulates them and which relevant professional bodies they are members of? Are they signed up to an ethical code?
  • How much experience do they have in this specialist area?
  • Insurance: Do they have professional indemnity insurance (PII)?
  • Terms of Business: Have they given you a contract that sets out the service they will provide for you? Are the costs transparent?
  • Complaints: Have they told you who you can complain to if something goes wrong?

You can search for a STEP member here.

Probate fee changes in England and Wales

Posted on By Liz Skinner
will, probate

Are you applying for probate in England or Wales? You should be aware of changes to the cost of applications as of 26 January 2022.

What is probate?

In England and Wales, if someone has died, their next of kin, or those named in the will, need to obtain a legal document called a grant of representation, which gives them the legal right to deal with any property, money and possessions. This is known as probate.

The process and terminology differ across the UK – see ‘Elsewhere in the UK’ below.

You can find more information about probate in our article ‘What is probate?’

What are the changes?

The UK government announced in July 2021 that it planned to change the probate fee system. It consulted on the plans, explaining that it would introduce a single fee to cover the cost of delivery without making a profit. The proposed plans were officially enacted in December 2021.

As a result, for estates over the £5,000 threshold, the fee as of 26 January 2022 is £273. This cost is the same whether you apply yourself or you are paying a solicitor to act on your behalf.

As before, there is usually no need to apply for probate if the estate is worth less than £5,000.

Previously the fees were £215 for personal applications, and £155 if you applied via a solicitor.

What is the impact?

While the new fee is a lot more reasonable than earlier proposals, the removal of a lower ‘solicitor rate’ may discourage the use of a probate professional. This could result in more errors, possibly leading to delays or contentious probate claims being made later on.

To avoid these issues, it may be prudent to engage the services of a professional to administer the estate, which would ensure the correct estate searches and checks are carried out.

If you would like professional advice on dealing with probate, you can talk to a TEP, who are experts in inheritance and related issues: https://advisingfamilies.org/uk/find-a-tep/

Elsewhere in the UK

The legal document is called ‘confirmation’ in Scotland and ‘grant of probate’ in Northern Ireland and the process in each country differs slightly from that in England and Wales. You can find out more here:

The threshold in Northern Ireland is £10,000, with an application fee of £261 for estates over the threshold.

In Scotland, for ‘small’ estates with a gross value of (currently) £36,000 or less, executors are entitled to free assistance with obtaining confirmation from the local Sheriff Court. A fee is currently only charged for estates above £50,000, with £266 charged for estates between £50,000 and £250,000 and £532 charged for estates exceeding £250,000.

You’ve got a will… but is it valid and up to date?

Posted on By Joanna Pegum
woman

Many people make a will and think to themselves, ‘I’m ok, I’ve got a will!’ and then don’t give it much further thought. But the problem is, your will can get out of date unless you review it regularly.

As a specialist inheritance dispute lawyer, I only tend to see people when things have gone wrong – really I am a last resort. But I would much rather they didn’t go wrong in the first place. A lot of problems would be averted if people take the time to make sure their will is valid (i.e. get it checked over by someone qualified) and review it regularly.

Let me give you three examples I have come across:

The successful businessman

A very successful businessman owned his own limited company jointly with his brother. He made a will leaving his shares in the company to his brother. They built up their successful company together. For tax reasons, the brothers changed the status of their company – they stopped trading as a limited company and instead carried on as partnership. But my client didn’t think to change his will. This meant that when he died unexpectedly, there were no shares to leave in accordance with the terms of his will, and the brother lost out on a considerable sum.

The single mother

A single mother had two children and left her estate to them. She then had another child later in life and failed to update her will. When she died unexpectedly, her third daughter got nothing and had to make a claim against her sisters.

The homemade will

Another successful businessman made his own homemade will. He included a clause to say his company had to make payments of £75,000 a year to his wife – which it could afford. Unfortunately he didn’t realise that a gift in a will relating to a company is invalid, and has no effect. His wife lost her maintenance for life.

So the message is clear: review your will regularly, ideally using a qualified advisor who can ensure it will achieve the desired effect. That way, it’s unlikely I’ll be needed!

Stephen Lawson TEP is a Partner and Head of Litigation at FDR Law LLP, Frodsham, UK

‘One day, all this will be yours’: passing on the family farm

Posted on By Joanna Pegum
farmer and cows in countryside

It can be a very proud moment for a parent to look around a farm and to say to their child, ‘one day, all this will be yours’.

Family farms are often passed from one generation to the next and the value of land means that farms can have a considerable value, even if at the time cash is tight. Often two or three generations of the same family work together on the same farm.

But sometimes, unexpected things happen: parents get divorced and remarry, or family arguments drive a wedge between parent and child. In these circumstances, a parent may change their mind and make a new will, leaving property in different shares or, perhaps, leaving it to a new partner.

Can I change my will?

Anyone is generally free to change a will at any time. When making a will under English and Welsh law, a person is entitled to be capricious, whimsical or unfair if they wish to act in that way. Sometimes a new will is made just to reflect a change in circumstances.

An individual is perfectly free to make a promise to leave a property to someone – only to change their mind later. This situation is quite common.

So what’s different for family farms?

Family farms, however, face a unique situation when it comes to owners changing their minds. For example, a property-owning farmer may say to his daughter: ‘one day, all this will be yours’. He promises this on many occasions over a long period of time, and so the daughter continues to work on the family farm and turns down opportunities to work elsewhere (perhaps for a higher wage). This encourages her to stay working on the farm for a low salary precisely because one day the family farm will become hers.

If the farmer later decides to change his mind, this starts to stray into a more complicated legal situation.

If a property owner makes a promise to someone (for example to leave them the farm), and that person relies on that promise and acts to their detriment (for example by turning down the opportunity to work elsewhere for a higher wage), then the property owner can be held to that promise – even if they make a will to the contrary.

This legal principle is known by the slightly unusual word ‘estoppel’.

Sadly, there have been numerous recent cases that have gone all the way to trial in precisely these circumstances: a property-owning farmer has made a promise to leave the farm to a particular beneficiary, only to change their mind later. These are some of the saddest cases to come to court, since they reflect a tragic breakdown of family circumstances.

Try to resolve things amicably

If you find yourself in this situation and promises have been made and then broken, a good lawyer should take steps to try to resolve any family dispute amicably, without the worry, risk and expense of a trial.

Many people embark on a process of mediation in the hope that a family relationship can be salvaged and the work of the farm can continue. Statistically, mediations have a very high prospect of success: in the region of 85 per cent of cases referred to meditation settle, with considerable benefit for family members so that they can meet again around a kitchen table rather than at in court.

Don’t make promises you can’t keep

The best defence, however, is to avoid this sort of situation arising in the first place. It may be tempting as a short-term fix to offer to leave a farm to one beneficiary, rather than to someone else. Sometimes these promises are made on the spur of the moment or in the heat of an argument. These promises can, however, have serious consequences for the future of the farm. In short, promises should never be made unless they can be kept.

Stephen Lawson TEP is a Partner and Head of Litigation at FDR Law LLP, Frodsham, UK

What is a deceased estates notice?

Posted on By Joanna Pegum
man reads newspaper

If you’re acting as the executor of a will, before you distribute the estate to beneficiaries, and after you have gained grant of probate (or confirmation in Scotland), you will need to consider claims from creditors against the estate of the person who has died.

How can I tell if the deceased had hidden debts?

For most estates, even if you think you’re familiar with the affairs of the deceased, you can’t be sure that all creditors have been identified.

Many people now conduct much of their financial affairs online, and this poses a growing risk for executors of a will. Even if you had a close relationship you may be unaware of the deceased’s online accounts, including shop and credit cards.

As an executor, you’re liable for debts that belonged to the deceased, so you may have to pay these once they’ve been claimed and proved. You are covered, however, if you place a deceased estates notice in The Gazette and in a newspaper that’s local to where the person lived.

You can find deceased estates notices that have been placed in the London, Belfast and Edinburgh Gazettes here, as well as the latest list of newspapers by district. You can do this via The Gazette or contact newspapers direct.

Which laws does a deceased estates notice relate to?

In the UK, this protection from creditors and potential beneficiaries comes from a statutory advertisement that is referred to within the Trustee Act 1925 in England and Wales and the Trustee Act 1958 in Northern Ireland, as well as the Confirmation of Executors (Scotland) Act 1823.

While it’s not a compulsory notice, and not every executor places one, it’s recommended as an act of due diligence, and for the executor’s peace of mind.

How does a deceased estates notice work?

Once you’ve placed the deceased estates notice in The Gazette and in a newspaper, claims can be made for a limited period, namely for two months and a day.

After this time, you’re considered to have made enough effort to locate creditors and potential beneficiaries before distributing the estate. As the executor, you will not be held liable for any unidentified debts after this time.

Is placing a deceased estates notice essential?

It’s not a legal requirement to place a deceased estates notice, but it is advisable, and most solicitors place them as a matter of course (in a 2016 Gazette survey, 80 per cent of probate professionals always placed one if acting as professional executor).

If you don’t place a notice, and a creditor subsequently comes forward after the estate has been distributed, you may have to pay an unidentified debt, for whatever that amount may be.

How much does a deceased estates notice cost?

See the latest pricing for placing a deceased estates notice in The Gazette and in a newspaper local to the deceased here.

You can recoup the cost of the notice from the estate before assets are distributed.

When should I place a notice, and how do I do so?

You can place a deceased estates notice once you have at least one of the following as proof, where applicable:

• Grant of probate
• Letter of administration
• Death certificate

To place a notice in the Gazette, you’ll first need to register and then go to Place a deceased estates notice. If you don’t want to publish your personal address for claims, you can use a PO Box forwarding address.

For more information on what to do when someone dies, see The Gazette’s probate checklist.

I am unhappy with the personal representatives administering an estate. What can I do?

Posted on By Joanna Pegum
Annoyed

As a beneficiary, you have the right to challenge the personal representatives (often known as ‘executors’) of an estate if you have concerns as to whether they are administering it properly.

A personal representative may be liable for the mismanagement of the estate, a breach of trust, or a breach of their fiduciary duty. Assets held by to personal representatives on trust for the beneficiaries of the estate and there may also be other express or implied trusts on which they hold the estate.

How can I establish if they are doing something wrong?

In order to establish whether something has gone wrong, you need the relevant information. As a beneficiary, you are entitled to receive copies of the estate accounts. If your request is declined by the personal representatives, then provided a grant of probate or letters of administration have been issued, an application can be made to court for the personal representatives to fulfil their obligations.

What can I do about it?

If you discover that a personal representative has not been administering the estate appropriately, and you have exhausted all other avenues of possible settlement, you could consider issuing proceedings against the personal representatives for the estate to be restored on the basis that they have acted in violation of their duties to the beneficiaries.

You should consider whether the act complained of is a devastavit (breach by the personal representative of their duty to administer the estate), a breach of trust, or a breach of fiduciary duty, and whether the personal representative is covered by professional indemnity insurance or has assets in their own name to render a claim commercially viable. There may be an exculpatory clause in the will that the personal representative is able to rely on.

In certain cases it may be that an application for the removal of the personal representative is necessary, and this again would involve a court application.

Seek advice

If you are considering taking action against a personal representative you should seek professional advice from a qualified practitioner who specialises in contentious estates. They can consider your case, examine all options and advise on the best course of action.

Caroline Miller TEP is a Partner and Head of the Private Client Team at Wedlake Bell in London, UK.

Could my will be challenged by friends or relatives after my death?

Posted on By Joanna Pegum
family on bench

Under the laws of England and Wales, an individual has complete testamentary freedom. This means that you have the right to leave your estate to whomever you choose.

Certain classes of family members and dependants can, however, potentially challenge your will after your death under the Inheritance (Provision for Family and Dependants) Act 1975 (1975 Act), if they feel that inadequate provision has been made for them.

On what grounds could someone make a 1975 Act claim?

In order for someone to commence a 1975 Act claim, they would need to show that they have maintenance needs and the provision they have received from your estate is not reasonable to meet those needs.

Where, for example, your children are grown up and self-sufficient, their ability to use the 1975 Act is limited: just because they feel unfairly treated, does not mean that they are necessarily entitled to a bigger slice of the pie.

How much could they claim?

The level of provision that a claimant bringing a claim under the 1975 Act can hope to receive from your estate will depend on whether they fall within the category of spouse or civil partner, or one of the other categories, which includes: former spouses or civil partners, your children, someone you treated as a child, or someone who you maintained prior to your death.

Your spouse or civil partner could expect to receive from the court ‘such financial provision as it would be reasonable in all the circumstances of the case for a husband or wife to receive, whether or not that is required for his or her maintenance’.

For all other categories of claimant, they could expect to receive such provision as would be reasonable for them to receive for their maintenance only.

How can I avoid my will being challenged?

The best way to avoid your will being challenged after you die is to consult a professional advisor, who can consider your circumstances and ensure you have done everything reasonable to prevent this eventuality.

Caroline Miller TEP is a Partner and Head of the Private Client Team at Wedlake Bell, in London, UK

Giving to charity: what is Gift Aid and how does it work?

Posted on By Joanna Pegum
young woman writing

Many people give to charity during their lifetime, as well as including bequests in their wills. If you are a UK taxpayer, you can donate through the Gift Aid scheme, and may be eligible for tax relief.

For charities, Gift Aid increases the charity’s donation by 25%, allowing the charity to reclaim the basic rate of tax on your gift at no extra cost to you. Provided you make a Gift Aid Declaration, this happens automatically.

For example, if you give £80, which is known as the net donation, the charity receives £100, ie the gross donation. This is the same as you making a payment of £100 from your pre-tax earnings, assuming you pay tax at the basic rate of 20%. If you pay income tax at the basic rate, there is no further tax relief available to you.

How Gift Aid works for higher and additional rate tax payers

If you are on a higher or additional rate you can claim further tax relief. This works by extending your basic and higher rate bands by the gross donation. Your relief will be equal to the difference between the basic rate, and either the higher rate of 40% or the additional rate of 45%, depending on the rate of tax you pay.

For a higher rate tax payer (40%), a further 20% of tax can be claimed on the gross donation, ie a further £20. For an additional rate payer (45%), an extra 25% can be claimed, being a further £25.

Here’s an example:

You are a higher rate taxpayer paying with earnings of £75,000 and you give an £80 donation to a relevant charity, and make a gift aid declaration. The example uses the tax rates for England and Wales; different tax bands apply in Scotland.

The charity automatically claims 25% of £80 = £20 from HMRC. The charity has received £100 (the gross donation).

2023/24 bands
Higher rate band £37,700
Additional rate band £125,140

You declare the £100 gross payment on your tax return and extend your higher rate band by the gross payment (the additional rate band would also be extended where the individual earns over the additional rate threshold of £125,140).

2023/24 bands after extension
Higher rate band £37,800
Additional rate band £150,100
Tax on your £75,000 salary, ignoring any donation
Personal allowance £12,570 £-
Basic rate £37,700 x 20% £7,540
Higher rate (£75,000-£37,700-£12,570) x 40% £9,892
Total tax £17,432
Tax on your £75,000 salary, taking the donation into account
Personal allowance £12,570 £-
Basic rate £37,800 x 20% £7,560
Higher rate (£75,000-£37,800-£12,570) x 40% £9,852
Total tax £17,412

The tax saving where the bands have been extended is £20, since an individual earning £75,000 is a higher rate tax payer. There would be a further £5 in the case of an additional rate taxpayer.

If your total tax liability in the tax year is less than the amount of tax the charity reclaims on your gift, you may have additional income tax to pay.

Inheritance tax

Legacies left to charity from your will are entirely exempt from inheritance tax. If you leave legacies equal to 10% of your total estate to charity (less the £325,000 nil-rate band, and any residence and transferable nil-rate band) then your executors pay a reduced rate of inheritance tax at 36% on your death estate, rather than 40%. Both the nil rate band and residence nil rate band will be frozen until 5 April 2028.

If you are anxious to obtain the discounted rate, you need to give careful consideration as to how this is achieved through the drafting of your will. A TEP can provide guidance on this.

Check the charity is genuine

Before you make your donation, make sure you are giving to a bona fide cause by checking with the appropriate governing body. For England and Wales this is the Charity Commission, and in Scotland, the Office of the Scottish Charity Regulator (OSCR). A legitimate charity will be registered with one of these bodies and you can search their websites.

Registered charities with over £25,000 of income are required to submit their financial statements, annual reports and annual returns to the Charity Commission or OSCR. These bodies provide charity trustees with guidance on managing their charities for the public benefit, ensuring good practice and appropriate reporting requirements are adhered to.

Toby Crooks TEP is a Partner at Rawlinson & Hunter LLP in London, UK

What are ‘Legal Rights’ in Scotland?

Posted on By Louise Polcaro
legal rights,family,inheritance

Legal Rights are a distinctive feature of Scots Law, protecting certain family members from disinheritance. They entitle a spouse or civil partner and any children (or the descendants of a predeceasing child) to claim a portion of a deceased person’s estate, even if the deceased left a will leaving nothing to them. Legal Rights apply automatically, without a claim to the court having to be made.

Cohabitees do not have an entitlement to Legal Rights. Under certain circumstances, a surviving cohabitee can raise an action through the courts, but this is not an automatic right.

How much can be claimed?

The value of a Legal Rights claim is calculated by reference to the value of the net ‘moveable property’ in the deceased’s estate. Broadly, moveable property comprises any assets that are not land or buildings. Any debts and certain expenses (such as inheritance tax and funeral costs) are deducted to leave the net value.

The value of the Legal Rights claim depends on whether the deceased left:

  • a surviving spouse or civil partner and children;
  • a surviving spouse or civil partner alone; or
  • children alone.

A widow, widower or surviving civil partner can claim one-third of the deceased’s moveable estate if there are also surviving children, or one-half if there are not.  Surviving children are entitled to one-third of the moveable estate, equally between them, if there is a surviving spouse or civil partner. This increases to one-half if there is no surviving spouse or civil partner.

A child’s entitlement is not increased by his or her siblings choosing not to claim their respective shares. For example, if two surviving children are collectively entitled to a third of the net moveable estate, each child would be entitled to one-sixth. If only one child wishes to claim Legal Rights, the claim remains one sixth – it is not increased to a third as a result of the other child deciding not to make a claim.

If a family member is also a beneficiary under the will, he or she must choose to claim either his or her entitlement under the will, or Legal Rights. It is not possible to claim both Legal Rights and an entitlement under the will.

What happens if someone does not wish to claim their Legal Rights?

There is no obligation to claim Legal Rights. Anyone who is entitled to Legal Rights may renounce them at any time – either before or after the death of the person in whose estate they have the entitlement.

Asking relatives to renounce their Legal Rights during your lifetime can be a useful estate planning tool. However, a person can never be forced to give up their entitlement, nor can they be paid to do so.

If you are concerned about Legal Rights being claimed on your estate, or if you would like more information on making a claim, it is important that you seek the advice of a qualified advisor.

Kirsten Anderson TEP is a Partner in the private client team at Stronachs, Aberdeen, Scotland

What is confirmation in Scotland?

Posted on By Louise Polcaro
confirmation,Scotland,inheritance

Confirmation is the Scottish equivalent of the probate procedure in England and Wales and Northern Ireland. It is granted by the Sheriff Court in the district in which the deceased was resident and provides the executors with authority to deal with the estate; whether it be closing bank accounts, selling property or transferring or selling shares.

While there are similarities with the probate procedure, there are also significant differences, principally in terms of the paperwork required.

For ‘small’ estates with a gross value of (currently) £36,000 or less, executors are entitled to free assistance with obtaining confirmation from the local Sheriff Court.

How do I apply for confirmation?

The process involves conducting a thorough examination of the deceased’s financial papers to draw together the information needed to complete the confirmation application form C1. This form accompanies the inheritance tax return and provides details about the deceased and the estate.

Where a person dies without a will, an application must first be made to the Sheriff Court to have an executor appointed and in most cases it will also be necessary to obtain an insurance document known as a Bond of Caution.  Legislation sets out who may be appointed as an executor in the absence of a will and it is important that the correct individuals are identified from the start.

The Form C1 includes a declaration by the executors confirming that the contents of the form are correct, to the best of their knowledge. As the declaration is similar to swearing an oath in court, it is crucial that full enquiries be made into the assets of the estate and into the deceased’s tax affairs.

Where inheritance tax is due, a copy of the signed confirmation application must first be submitted to HMRC along with the tax return, before being sent to the Court. The tax must be paid at the same time, either in full or as a first instalment where this is permitted. Once the application is submitted the Sheriff Clerk will check it and if satisfied, submit it to the Sheriff to issue the Grant of Confirmation.

How much will it cost?

Court fees are presently £276 for estates worth between £50,000.01 and £250,000 and £554 for all estates worth over £250,000. There is no court fee for estates with a gross value of £50,000 or less.

Separate charges ranging from £8 to £20 apply where individual ‘Certificates of Confirmation’ are requested, focusing on specific assets in the estate. These certificates are often used to speed up the ingathering process after Confirmation has been granted, as an alternative to circulating the original Confirmation document to each asset holder in turn.

The same fee will be charged again, in full, where it is necessary to amend the application after Confirmation has been granted, and care should therefore be taken to ensure that no assets are missed out or reported incorrectly.

It is crucial when obtaining confirmation that the specific procedures used in Scotland are followed. To ensure that the process runs as smoothly as possible, it is recommended that advice be sought from a suitably qualified advisor.

Jaclyn E P Russell TEP is a Partner and Head of Private Client at Stronachs in Aberdeen, Scotland

 

What is the Residence Nil-Rate Band?

Posted on By Louise Polcaro
inheritance,house,

The Residence Nil-Rate Band (RNRB) is an additional allowance for inheritance tax for deaths occurring after 6 April 2017.

When does the Residence Nil-Rate Band apply?

In order to qualify, you must own a property or a share in a property that you have lived in at some stage, and that you leave to your direct descendants (including children, grandchildren or step-children). For estates over £2 million, the RNRB is reduced at the rate of £1 for every £2 over £2 million. In addition, it only applies on death and not on gifts or any other lifetime transfers.

How much is the Residence Nil-Rate Band?

The Residence Nil-Rate Band is set at £175,000 for 2021/22. These figures are per person, so a couple may benefit from double the allowance.

How does it work?

The RNRB value is limited to the lower of the value of the property left to direct descendants or the total RNRB available. The RNRB is applied to the estate first and then the nil-rate band (currently £325,000) is applied. Both the Nil-Rate Band (NRB) and the RNRB will be frozen until 5 April 2026.

If the value of the property is less than the RNRB, the balance cannot be offset against other assets in the estate. For example, if Mrs A dies and leaves her entire estate consisting of a property worth £350,000 and savings totalling £50,000, the total estate equals £400,000. From that, the RNRB of £175,000 can be deducted first, leaving £225,000, which is covered by the nil-rate band so there would be no inheritance tax to pay. However, if her assets were the other way round, i.e. a property worth £50,000 and savings worth £350,000, the situation would be different. In this case only £50,000 of the RNRB could be used, leaving £350,000 from which the nil-rate band can be deducted, with the remaining £25,000 subject to inheritance tax at 40%.

Can it be transferred?

Like the nil-rate band for inheritance tax, the RNRB can be transferred between spouses if it is not used in whole or part when the first spouse died, even if the first death occurred before 6 April 2017.

What happens if I downsize?

The RNRB is still available if you have downsized, given away or sold your home; this is known as the ‘downsizing addition’. For the downsizing addition to apply, you must have downsized to a less valuable home or ceased to own a home after 8 July 2015. Your former home would also need to have qualified for the RNRB if you had retained it and at least some of your estate must be left to your direct descendants. Calculating the downsizing addition is complicated, but it is generally the amount of the RNRB that has been lost because your former home is no longer in your estate.

Can I lose the Residence Nil-Rate Band?

The RNRB may be lost if you do not own a property at your death or if your direct descendants do not inherit on death. This means the RNRB can be lost if your property is left to some forms of trust, for example discretionary trusts or trusts for grandchildren where they cannot inherit until a specified age, for example 21. If the property is held in a trust prior to death, the RNRB will only apply if the death causes the property to pass to direct descendants, for example if a spouse has a right to live in the property during their lifetime (known as an interest in possession trust or life interest trust) and on their death it passes to their children without age restriction.

The RNRB can also be lost in whole or part if your estate exceeds £2 million. This is particularly important if you are a couple and individually your estates are less than £2 million but combined exceed this amount.

The RNRB will not be lost if a property is not specifically mentioned in a will, so long as it forms part of the estate on death. Nor will RNRB be lost if the property is sold during the estate administration by the executors.

Is there anything I should do?

It is worth speaking to a qualified advisor to review your will and any other arrangements you have made to see if any amendments should be made in light of this allowance.

Stacy Keech TEP is a Solicitor – Wills, Trusts and Probate at Coffin Mew Solicitors in Portsmouth, UK

What is probate?

Posted on By Louise Polcaro
will, probate

In England and Wales, if someone has died, their next of kin, or those named in the will, need to obtain a legal document called a grant of representation, which gives them the legal right to deal with any property, money and possessions. This is known as probate.

The process and terminology differ across the UK – see ‘Elsewhere in the UK’ below.

If they left a will

If the deceased left a valid will, this will explain where their possessions, money and property should go. You will need to locate the original will, which might be stored in the person’s home, bank or with their solicitor or legal advisor.

If there is a will, contact the executors named, who will be responsible for obtaining the grant of probate. If you are an executor yourself, you’ll need to complete a probate application form and inheritance tax form which can be submitted online to the central probate registry.

You can either do this yourself, or instruct a qualified advisor to act on your behalf.

When the grant of probate is obtained, the assets may be sold, resulting in a lump sum to go to the beneficiaries, i.e. those named in the will. Before the estate is distributed, all debts and expenses should be paid. If inheritance tax is due, this will also need to be paid.

If no will was left

If there is no will, the deceased has died ‘intestate.’ The next of kin, or if there is none, the legal advisor or person appointed by the court, will need to apply for a ‘Grant of Letters of Administration’ before the estate can be distributed. If the grant is given, they are known as ‘administrators’ of the estate.

The deceased’s spouse or civil partner will usually inherit the estate in this case. However if there is none, a set of rules known as the rules of intestacy will determine who is to benefit from the estate.

Probate fees

In England and Wales, there is usually no need to apply for probate if the estate is worth less than £5,000. There is an application fee of £155 for estates over the £5,000 threshold, with a £60 fee added if you apply yourself rather than via a solicitor.

Elsewhere in the UK

The legal document is called ‘confirmation’ in Scotland and ‘grant of probate’ in Northern Ireland and the process in each country differs slightly from that in England and Wales. You can find out more here:

The threshold in Northern Ireland is £10,000, with an application fee of £261 for estates over the threshold. An extra £65 personal application fee is charged if you apply for the grant yourself, without using a solicitor.

In Scotland, for ‘small’ estates with a gross value of (currently) £36,000 or less, executors are entitled to free assistance with obtaining confirmation from the local Sheriff Court. A fee is currently only charged for estates above £50,000, with £266 charged for estates between £50,000 and £250,000 and £532 charged for estates exceeding £250,000.

Can you change a will after someone has died?

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man looking concerned

Following the death of a friend or loved one, it may be necessary or beneficial to change the will. This may be in order to increase the size of a gift to someone, redirect it or even to adjust the will to take advantage of recent tax changes.

In the UK, changes can be made by a simple document called a Deed of Variation.

Common reasons for making a Deed of Variation

Some common reasons are listed below:

  • Someone in the family has been overlooked
  • A beneficiary has not been provided for adequately
  • Someone may have a valid claim against the estate
  • To reduce inheritance tax
  • To move assets into a trust
  • To resolve any discrepancies within the will
  • To give gifts to charity

How do I make a Deed of Variation?

Making a Deed of Variation is fairly straightforward, as long you do it within two years of death and all of the relevant beneficiaries contained within the will agree to the changes.

In theory, to vary a will you can just write a letter. It does, however, need to include a number of elements to ensure it meets the requirements of the Inheritance Tax Act and the Taxation of Chargeable Gains Act. A checklist is available here.

If the variation means there’s more inheritance tax to pay, you must send a copy to the UK’s tax authority, HM Revenue and Customs (HMRC) within six months of making the deed.

Minors who are beneficiaries cannot consent to a deed of variation so the beneficiaries may need to go to court to obtain consent on their behalf. Once the deed has been consented to and executed by the beneficiaries, they will not be able to claim their inheritance back.

If you are unsure about any aspect of varying a will, speak to a qualified advisor, who will ensure all requirements are met and prevent any disputes from arising.

Coping with care costs – Northern Ireland

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elderly couple

Like many people, you may be concerned about the potential impact of care costs on your finances and your children’s eventual inheritance. Many people seek advice on how their family home and any other savings and investments can be protected if they become unable to care for themselves in their own homes and require either a package of care at home or need to move into a residential or nursing home on a temporary or permanent basis.

Proposals to change care fees announced in the national press will only affect England, since health and social care varies across the UK. So what’s the position in Northern Ireland?

What are the rules around care costs?

The rules around care fees are complex. Broadly speaking, care provided in a person’s own home is not currently charged for but residential and nursing care is subject to a formal ‘means assessment’.

Put simply, if an individual has capital over £23,250 then they may be liable to pay for their care, although a limited number of exemptions do apply. For example, the main home would be disregarded if occupied by a spouse or one of a number of other relatives mentioned in the applicable regulations.

If a person’s capital falls to £14,250, then it will be fully disregarded and the relevant Health & Social Care Trust must meet any shortfall after the individual’s income has been exhausted.

It should be noted that, following a Judicial Review case in Northern Ireland, there is now some much-needed clarity on what is known as ‘Continuing Healthcare’. Put simply, if a person requires a high level of medical care, this cannot be charged for by a Health & Social Care Trust even if it is being provided for in a nursing home. This has been the position in England & Wales for some time but, until now, the position was less clear in Northern Ireland.

How does the means assessment work in Northern Ireland?

The rules governing the means test procedure are contained in the Department of Health, Social Services and Public Safety’s ‘Charging for Residential Accommodation Guide’. A resident will be required to give full details of their income and capital as part of the means test. However, it should be noted that there is no power for a Health & Social Care Trust to assess the financial resources of a person’s spouse or any other third party in calculating their liability to pay for their own care.

Get advice on care fees

Anyone facing a possible liability to pay care fees, , or who believes that they may be eligible for Continuing Healthcare, should always take advice from a qualified professional before completing any formal means assessment or dealing directly with the Health & Social Care Trusts over their finances. It is important to be familiar with the rules, especially those relating to the various exemptions that apply, before submitting any financial information.

Michael Graham TEP is Head of the Private Client Department at Cleaver Fulton Rankin, Belfast, Northern Ireland

It’s never too soon to make a will

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young man with cat

What have you got planned for later life? A cruise might be nice, or a cottage by the sea, but what about money? Do you know if you could afford a care home? Have you made a will? Do you know who would care for your family?

If your answers are no, you’re not alone. Apart from having a pension, research from savings organisation NS&I has shown that over half of us have not made any further financial plans.

More than a third haven’t made provision for long-term illness, nursing or care home fees, either for ourselves, or for other family members. Another third have thought about it – but haven’t put any plans into place.

Even such a basic step as making a will seems to elude most of us, even though almost everyone agrees it’s important.

Many people feel that they are too young to make a will, even those in the 45-64 age bracket.

It seems to be the big steps in life that finally prompt people to take action, notably getting married and having children.

However, it’s worth thinking of your family at every stage in life. If you die without making a will, they can be put under enormous strain trying to work out your wishes. They may face higher tax bills too.

If you don’t make a will, standard rules known as the intestacy rules will apply, and your estate could be divided up in ways you’d never have wanted.

For example, if you had been married and separated, but never got divorced, your ex-husband or wife would automatically benefit, even if you had spent many years with a new partner. If you had not married, but lived with a partner, your parents or siblings would inherit, and your partner may get nothing.

‘Many people assume their possessions will simply pass automatically to their partner or children, or believe their assets are too insignificant to need a formal arrangement’, says Emily Deane TEP from STEP.

‘But if you die without making a will, the intestacy rules will be applied, and this may not be what you want,’ she added. ‘The only certain way to ensure that your partner or relatives inherit in line with your wishes is by making a will.’

The donor’s dilemma

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mother thinking of handing over house

If you are thinking about transferring your house to your children during your lifetime, you should first consider the seven Ds…

  1. Divorce

If any of your children were to divorce then there would be a risk, however remote, that any assets in their name, including your house, could be taken into account in the divorce settlement.

  1. Debt

In the event of any of your children getting seriously into debt or becoming bankrupt then there would be a risk, however remote, that their creditors may seek to force them to sell your dwelling-house in order to discharge the liability.

  1. Death

If any of your children were to die before you without making appropriate provision in their will in relation to your dwelling-house, then there is a risk that their share of your house would pass to an in-law. Indeed, the problem may be compounded if your son-in-law or daughter-in-law should subsequently remarry.

  1. Disagreement

You may subsequently want to sell your house and apply the sale proceeds to buy another house. There is a risk that your children will not agree with your request. In addition, there is a risk that your children may wish to sell your house without your agreement and seek to have you put out of your own home.

  1. Deliberate deprivation

Health Trusts/local authorities have rules against deliberate deprivation of assets. If it can be proved that you deliberately deprived yourself of an asset in order to get government help towards nursing home fees, then the value of your house could be clawed back from your children. There is no time limit on this, although the longer the period of time between your transferring ownership and going into a nursing home, the less likely it is that the transfer will be challenged.

  1. Deprivation feeling

It is very important that you should try and envisage how you would feel if you have given away ownership of your house and other assets to your children. Will you feel deprived? Will you feel out of control? Will this feeling cause you to lose sleep and wish you had not done it?

  1. Doubt

If you are in doubt about what you are doing, it is better to postpone any action until such time as you are sure.

A qualified advisor can talk you through your options, ensuring all angles have been considered.

Peter M Thompson TEP, Thompson Mitchell Solicitors, Portadown, Northern Ireland

Who should be executor of my will?

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couple

An executor deals with the instructions in your will when you die and handles the finances and any tax liabilities that arise. It can become complicated if you have numerous assets and property, so it is sensible to appoint someone who is fairly astute, although they can always seek help from a professional if necessary.

Who can be an executor?

Anyone who is over 18 years old can be an executor of a will, and it is fine for them to be an executor and a beneficiary of your will. You can appoint up to four executors to act, however they must make decisions jointly so it might be simpler to appoint fewer. Ideally, though, you want more than one, in case that person is incapable of acting when the time comes. You could alternatively appoint professional executors such as your solicitor or accountant, but do bear in mind that they will charge for their time spent.

Who should I choose as executor of my will?

Most married couples tend to choose their spouse as their executor, which makes a lot of sense since you should trust your executor implicitly. However there could be a scenario in which both of you are in an accident together, so you would need a second executor to step in.

Some people may appoint their children, either to act as replacements for their spouse or to act jointly with their spouse so that the family can make decisions together. If you feel that your children are currently not mature enough to act as executors you should not appoint them. It is risky to appoint your children on the basis that it is unlikely anything will happen to you until later when they will be old enough to act: an eligible executor (right now) should always be appointed. That said, in a scenario where the executors are young or inexperienced they can always consult a legal advisor about the probate procedure. Having some professional help may also ease the emotional burden for them.

If your estate is quite sizeable you may wish to appoint a professional executor such as a lawyer or accountant who will be accustomed to this kind of work. They will be able to handle the probate paperwork and tax matters. Again, it will the ease the burden from family members, but you may want to check their charging methods are reasonable before formally appointing them.

How do I appoint them?

The only thing that you need to do is state that you would like to appoint them as your executor and put their full name and current address in your will. If you appoint more than one, you should state that you would like them to act jointly. As mentioned before, you can also make them a beneficiary in your will but they must not be a witness to you signing your will as this may invalidate their gift.

Should I tell them?

In most situations it is advisable to tell your executors that you have appointed them and let them know where the original wills are stored. There is nothing wrong with giving them a photocopy of your will for their own reference. It is also sensible to keep a note of their new addresses should any of your executors move so that they can be located when needed.

Things to consider when making a will

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child beneficiary

It’s very easy to put off making a will. No-one likes to think about their own mortality, and it can be tricky working out who should inherit what, whether it’s property, money or possessions.

Let’s break it down into stages to make it more manageable.

Who gets what in your will?

Who would you like to benefit from your will? You could make a list of people that you would like to inherit from you such as your spouse or partner, children, other family members, friends and charities. The people that benefit from your will are called beneficiaries.

How much do you own?

Have a think about what you own, including money in bank or building society accounts, property, pensions, life assurance and possibly a business. Try to estimate the value of these assets. You may also have cars, furniture or jewellery that have significant or sentimental value, which you may like to leave to someone in particular. You should also consider your digital assets. You can make all this clear in your will.

What about specific gifts in your will?

You could start thinking about specific items or amounts of money to leave to your beneficiaries, such as ‘my wedding ring to my daughter’ or ‘£1,000 to my son’. These are called specific gifts. You can leave the remainder, known as ‘the residue’, to your other beneficiaries. Because you won’t know how much you will have left, divide it into shares. For example ‘I leave the family home to my wife, and the residue of my estate is to be divided in equal shares between my children’.

Will you have to pay inheritance tax?

The inheritance tax allowance is currently £325,000 for an individual, or £650,000 for a couple who are either married or in a civil partnership. If you live with your partner but are not legally civil partners, then he or she will not qualify from this allowance after you die.

Anything over this threshold will usually be charged at 40% for inheritance tax. You can leave everything to your spouse or civil partner free of inheritance tax.

The Residence Nil Rate Band gives you an additional allowance of £175,000 (frozen until 5 April 2026) to be used against your home, provided you leave it to your children or grandchildren. This allowance can be transferred to a spouse or civil partner if it isn’t used up on the first death. It’s best to take professional advice, if you are unsure, because it is a complicated matter and there could be other reliefs or allowances available to you.

There is an unlimited relief for a spouse/civil partner if both are UK domiciled (or transferor non-domiciled).

If it is a gift from a UK domiciled to a non-UK domiciled spouse/civil partner (the non-UK domiciled spouse/civil partner can elect to be treated as UK domiciled for IHT purposes) then it is £325,000.

Do you have any vulnerable family members?

If you have young children, you can appoint a legal guardian in your will to ensure that if something were happen to you and your partner, they will be looked after by someone you trust implicitly with their well-being.

If you have a family member with disabilities, or mental health issues, who you need to provide for after your death, you should speak to a professional about setting up a trust. This can be managed by someone that you trust after you have gone, and you can leave specific instructions or wishes about how they should manage it. (For further information, read ‘How can I make sure my disabled child is provided for when I die?’)

Who can help me make a will?

As specialists in inheritance and succession planning, members of STEP, who are known as TEPs, draft wills and trusts, administer estates, act as trustees and advise families on how best to preserve their assets for future generations.

Choosing a professional to help you to deal with such important and often sensitive issues can be difficult. Many aspects of planning are non-regulated, meaning anyone can write a will, for example, regardless of training or expertise. With a TEP, you’re in safe hands.

The risks of not making a will

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Woman thinking about making a will

It’s very easy to put off making a will, as no-one likes to face up to their own mortality.

But there may be serious implications for your family if you don’t make one. Your home and property may not be distributed according to your wishes, and you risk depriving family members of their inheritance and even their home.

Possible consequences of not making a will

Some of the consequences of not preparing a will include:

  • Your estate may be distributed under the intestacy rules, which favour close family
  • Step children and unmarried partners may be overlooked
  • Your partner may be left homeless
  • Your children may be left with no legal guardian
  • Your family may face additional distress at a difficult time
  • Your money may go to the government
  • Family disputes may arise
  • Legal action may be required, which can be very expensive
  • Your family may face a higher bill for inheritance tax
  • The law is regularly changing, and it may not favour your family

Your will is an important document, so it’s worth using an experienced professional to make sure it’s drawn up properly. It will cost a few hundred pounds or so, but you’ll get an estimate first, so there’s no need to worry about fees mounting up.

The greatest advantage of using a professional is the peace of mind it will bring you. A professional will construct your will the way you want, to suit your individual needs, and will ensure all your wishes are carried out following your death.

There will be no technical mistakes, so you can rest assured there will be no expensive and upsetting disputes for your family to deal with when you’re no longer around.

Getting divorced? Make sure you review your will

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Divorce

With all the other issues to think about when going through a divorce, updating your will can easily fall between the cracks.

But while divorce does not automatically revoke your will, it can leave it in a bit of a jumble. This is because the will remains valid, but it will be read as though your ex-spouse is not in it. So any provisions that include your ex-spouse will be excluded from your will and any gifts made to your ex-spouse will fall back into your estate to be divided among the other beneficiaries.

And don’t forget that in the days/weeks/months leading up to your divorce, your will is still valid. So if you die prior to the decree absolute, your spouse will inherit in accordance with your will. If this is not what you would want, you may wish to think about reviewing your will as soon as you are aware that you are going to get divorced.

Another thing to be aware of is what happens if you re-marry. Marriage or civil partnership automatically revokes any previous wills, so you must make a new will at this point too.

Key points to consider when reviewing your will

Below are some points you may wish to consider:

  • Did you appoint your spouse as executor? If so, you will need to consider who you would like to instruct in their place. You may appoint more than one executor.
  • Did you leave the bulk of your estate to your spouse? If so, if you don’t amend your will you will effectively die intestate and it will be distributed in accordance with the intestacy rules. You will need to amend your will to reflect who you would like to leave your estate to.
  • You will need to consider your inheritance tax liability. Married couples benefit from a transferable nil-rate band, enabling them to transfer up to £325,000 tax-free to their spouse on their death. You may therefore need to consider your tax planning strategy in light of your divorce.
  • You may wish to appoint a guardian for your children in your will in the event that something happens to you and your divorced spouse.

I’m getting divorced in Scotland. Is this different?

As of 1 November 2016, Scottish succession law was amended in relation to divorce and wills so that it echoes the position in England and Wales and Northern Ireland – see the article ‘Divorce and the effect on wills in Scotland’. Unlike in the rest of the UK, however, in Scotland your will is not automatically revoked on remarriage, and there are different rules in relation to inheritance, with a spouse/civil partner and children entitled to a ‘legal right’ to inherit a set portion of your estate.

Seek advice

Divorce and remarriage can make providing for your loved ones a little more complicated, so it is always wise to speak to a qualified advisor to ensure all angles have been considered.

Related articles

Can I really use a trust to avoid inheritance tax?

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Mature couple talking to financial planner at home

Trusts are occasionally seen as devices to avoid paying tax. In reality, you would never set up a trust just to gain tax advantages.

When you set up a trust you are giving up ownership of the assets it holds. This is a dramatic move, and will normally only make sense if you have clear objectives about what you want to achieve with your assets. Tax should really be a secondary issue.

In most cases any tax advantages or exemptions given to trusts are tightly targeted at those that are seen as doing social good – such as charitable trusts, trusts for disabled or vulnerable people, etc.

In many cases the trust may avoid one type of tax, but will be caught by another.

A lot of people think that if you put your money in a trust it will be exempt from inheritance tax. However, trusts are subject to three separate inheritance taxes: an entry charge; an exit charge; and a ten-year charge.

Let’s look at these in detail.

Entry charge for a trust

The entry charge is paid when you transfer assets into a trust. These may include buildings, land or money and can be either:

  • a gift made during a person’s lifetime, or
  • a transfer that reduces the value of the person’s estate (for example an asset is sold to trustees at less than its market value). The loss to the person’s estate is considered a gift or transfer.

Exit charge for a trust

The exit charge is similar, but it takes place when a trustee pays out of the trust to another person, called a beneficiary. The charge is based on a percentage of the value of the assets being transferred. Where payments of income are distributed to beneficiaries, no inheritance tax is payable because the beneficiaries will be liable for income tax instead.

Ten-year charge

The ten-year charge, also known as the periodic charge, is payable where the trust contains relevant property, where the value is over the £325,000 inheritance tax threshold known as the nil-rate band. It is charged on the ‘net value’ of relevant property in the trust on the day before each ten-year anniversary. The net value is the value after deducting any debts and reliefs, such as Business Property Relief or Agricultural Property Relief. However, neither of these are applied if the assets have been held for less than two years. If all of the assets are transferred to one or more of the beneficiaries before the ten-year anniversary, no charge will occur, but, of course, an exit charge will apply.

Charges

Both exit charges and ten-year charges are incurred at 6%, but there are many complicating factors and exemptions regarding ‘excluded property’, which get quite technical.

These charges are time consuming and complex to calculate, and trustees generally need to consult a professional advisor to arrive at the correct figure. This can be expensive, but it is worthwhile, as delayed or incorrect payments to HMRC will result in interest charges and/or financial penalties.

Speak to an advisor

As you can see, the rules around inheritance tax and trusts are very complicated, and each person’s individual circumstances will dictate their tax position. If you are considering setting up a trust you should speak to an advisor to discuss your specific situation and find a solution that works for you.

Can I leave everything to charity in my will?

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donating to charity - giving money - piggybank

Many people choose to leave money or other assets to charities when they die. Where a charity is particularly important to you, or where you feel your relatives are sufficiently well off, you may wish to leave most or all of your estate to charity.

In many countries, including Scotland, it’s not possible to do this, as set quotas must be reserved for certain relatives.

In England & Wales and Northern Ireland it is possible to leave your whole estate to a charity. However, you will need to make sure you provide for any close family and dependants that rely on you. If you don’t, and they bring a claim, a court can award them some of your estate if it decides it puts them in financial difficulty.

Make sure your family know your intentions in advance to avoid delays, legal costs or distress.

Avoiding disputes with your family

If there is any possibility that your will may be challenged, you should consult a professional advisor, who can ensure you have done everything possible to prevent this eventuality.

The following four steps are also all advisable:

  1. Tell your family why you are leaving everything to charity, and not to them.
  2. Write a letter to accompany your will explaining your reasons, and also why the charity is important to you.
  3. Get a doctor’s certificate confirming that you were of sound mind when you made the will. This way it can’t be challenged on grounds of mental incapacity.
  4. Make your intentions clear to your will advisor in writing.

Plan for the long term: choose your charity with care

Your chosen charity might have been wound up, or merged with another one, by the time you die. To play it safe, you could name a second and perhaps a third as a back up. Alternatively your will advisor could add a clause into your will to direct the legacy to a similar organisation.

If you are leaving a large amount of money to charity, think about setting up a charitable trust in your will. An advantage of this is that you can simply indicate how you wish the funds to be used (for example, ‘for medical research’), but leave it to the trustees to decide over time which projects should be funded.

Get advice

As mentioned above, if you decide to leave everything to charity you should speak to a qualified advisor, who will help ensure all relevant issues have been taken into consideration.