second marriage wills plan - clarke willmott · the second marriage wills plan consists of wills...
TRANSCRIPT
clarkewillmott.com Great service... Great people...
Second Marriage Wills PlanPrivate client solutions for the St. James’s Place Partnership
What is it?
The Second Marriage Wills Plan consists of Wills for a couple who are either married or in a civil partnership where either partner has been in a previous marriage or civil partnership which has ended on the death of their partner.
The Wills also incorporate asset protection measures to ensure that assets pass to the testator’s chosen beneficiaries.
Who is it for?
This Plan is suitable for all couples where one or both partners have been widowed previously, who wish to ensure that their inheritance tax (IHT) liability is minimised as much as possible.
It can also be used by couples who have children from previous relationships and wish to make completely sure that their assets pass to their own children rather than to their partner’s children.
How does it work?
Each person can leave up to £325,000 currently to any beneficiary they choose with no liability to IHT. Since 2007 a married couple or couple in a civil partnership (a couple) can transfer any unused IHT nil rate band between them. This means that if the first of a couple dies leaving all their assets to their partner, on the death of the survivor, the Executors of the survivor’s estate can claim a percentage of the unused nil rate band of the first to die as well as the survivor’s own nil rate band. This means that a maximum of two nil rate bands (currently £650,000) can be claimed. In addition the residence nil rate band (RNRB) will, when fully in force in 2020/21 exempt £175,000 of an individual’s assets from IHT
provided on death they leave an interest in an home worth at least this amount, or assets of equivalent value if they have disposed of their home, to “lineal descendants” (broadly children, grandchildren and their spouses and civil partners). This allowance is also transferable between spouses and registered civil partners.
If one of the couple has been married previously, but has been widowed, he or she will potentially have an unused nil rate band and unused RNRB from their first partner. If all their estate is left to their second partner, the first partner’s unused nil rate band and RNRB is lost because on the second partner’s death only two nil rate bands and/or RNRBs can be claimed.
This Plan deals with this problem by incorporating either a nil rate band discretionary trust or a gift to a pilot trust into the Wills. This means that the nil rate band of the first partner is used and two nil rate bands are available in addition on the death of the second partner. If the RNRB is to be maximised also, this would need to be combined with a gift on the first death to an immediate post-death interest trust for the children of a share in the house sufficient to use the RNRB.
This can also be combined, if so wished, with a trust of the rest of the estate under which the second partner is entitled to income, and to capital at the trustees’ discretion, but control of the capital is maintained.
What are the tax savings?
These are substantial and at current rates can amount to up to £130,000 or double this if both partners had been previously widowed. Further savings can be made if the RNRB is maximised also.
Great service... Great people...
Case study
The tax saving, and the operation of the Plan, is shown by the following example:
Sarah is married to Tom and they have a child, Edward. Tom dies, leaving all his assets to Sarah. Sarah marries again to Alex who has children from his previous marriage which ended on divorce.
Sarah and Alex’s combined assets amount to £750,000 which they wish to leave equally between all three children. If Sarah leaves all her assets to Alex, then on Alex’s death after Sarah, his Executors can claim Sarah’s unused nil rate band of £325,000 and his own nil rate band of the same amount. IHT of £40,000 is paid as Tom’s unused nil rate band cannot be used. In addition, there is no control over how Alex deals with the assets he has inherited from Sarah and he could in theory exclude Sarah’s son, Edward, from benefit.
By comparison, if Sarah left assets to the value of the nil rate band to a discretionary trust on her death before Alex, Tom’s unused nil rate band can be used. Alex can benefit from the trust at the trustees’ discretion. On Alex’s death there are assets of £425,000 in his estate (£750,000 less the £325,000 left by Sarah to the discretionary trust) and no IHT at all to pay as the value of these assets are within the total of his and Sarah’s unused combined nil rate band of £650,000. In addition, the assets in the trusts can now be distributed by the trustees to Edward, and cannot be given by Alex to his children.
If Sarah wished another trust could also be used to protect the assets outside of the discretionary trust. If the couple’s assets were more valuable, and more IHT was due, they could also consider using the RNRB on Sarah’s death also.
If Alex’s first marriage had also ended on death, then he too could use a nil rate band discretionary trusts in his Will, and potentially four nil rate bands could be claimed in total.
What will we provide you with?
This Plan consists of:
• a pair of Wills; and
• any associated documents such as pilot trusts and letters of wishes.
The cost
£2,000 plus VAT.
Disclaimer: This briefing is intended to highlight issues only for the purposes of general interest and is not intended to be a comprehensive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content. Last updated: March 2017.
clarkewillmott.comClarke Willmott LLP is a limited liability partnership registered in England and Wales with registration number OC344818. It is authorised and regulated by the Solicitors Regulation Authority (SRA number 510689), whose rules can be found at http://www.sra.org.uk/handbook/. Its registered office is 138 Edmund Street, Birmingham, West Midlands, B3 2ES. Any reference to a ‘partner’ is to a member of Clarke Willmott LLP or an employee or consultant who is a lawyer with equivalent standing and qualifications and is not a reference to a partner in a partnership.
For further information please contact:
BirminghamMatthew Parr 0345 209 1330 [email protected]
BristolAnthony Fairweather 0345 209 1265 [email protected]
Jane Halton 0345 209 1417 [email protected]
Bristol and CardiffCarol Cummins 0345 209 1275 [email protected]
Bristol and LondonLiz Smithers 0345 209 1115 [email protected]
Tom Mottram 0345 209 1860 [email protected]
SouthamptonRupert Thompson 0345 209 [email protected]
Taunton David Maddock 0345 209 1205 [email protected]