From Naomi Pinder, Head of Wills & Probate at QualitySolicitors Jackson & Canter:

I am very interested in how to protect assets and ensure that they pass to a person’s chosen beneficiaries.

Many husbands and wives / civil partners make mirror wills leaving everything to each other and after they have both died to the children in equal shares. This protects the surviving spouse but I am thinking about what happens on the death of the surviving spouse. At that stage the value of the two estates is added together and if the total is over £650,000 Inheritance Tax is charged on the balance at 40%. Another matter to take into account is the possibility of the remarriage of the surviving spouse. In that case, the estate may pass to the second spouse and after their death will pass in accordance with their will or intestacy.

EXAMPLE

Harry and Wilma have two children, Dick and Dora. Harry dies; Wilma inherits his estate which includes the house and savings. She also receives life insurance and death in service benefit, Harry nominated her to receive the benefit directly and without the need to obtain probate.

After 5 years Wilma meets and marries Jack and they make mirror wills, leaving everything to each other and then to the children, Jack has also been widowed and has three children. Wilma dies, Jack inherits. Jack dies and the joint estate is shared between all 5 children.

You will see that Harry’s estate is ultimately shared between Dick and Dora AND Jack’s three children.

SOLUTION

We need to think carefully about this situation and I like to discuss matters carefully with clients. The concepts can be quite abstract and the thought of dying is serious enough without then thinking about dying, remarrying and dying (similar principles apply to divorce when the estate would be at risk if simply being carved up in the divorce court).

Trusts can be used in relation to all or part of the estate. I regard provision for the surviving spouse as the primary object of a will, there should be enough security to enable him or her to be able to decrease their working hours to spend more time with the children. Therefore in many situations I would recommend an outright gift of the matrimonial home and savings.

I would then look at the death in service which can be a very substantial amount of money which is easy to overlook in will planning terms, also the lump sum from a pension or life insurance policy. This is where the use of pilot trusts / bypass trusts / spousal bypass trusts should be considered. In essence a discretionary trust is created where the beneficiaries are usually the surviving spouse, children and grandchildren and possibly other relatives and charity.

A letter of wishes addressed to the trustees indicates that the primary beneficiary should be the surviving spouse and after their death any balance left passes to the children.

The main advantage of this arrangement is that the surviving spouse does not actually inherit the money, meaning that it does not form part of their estate and there is no chance that it would pass to a second spouse or their children. Also it is not included in the calculation of the estate for inheritance tax or indeed for the assessment of means tested benefits including care home fees.

At the same time, the surviving spouse is secure and has been adequately provided for in financial terms.
The choice of trustees is crucial and I would consider the surviving spouse and the solicitor. This arrangement means that there is a team involving family and professional person.

These matters are fascinating and there are so many steps which can be taken for people to make sure that their family benefits from the assets they work so hard to save and accumulate. Money doesn’t grow on trees and if it can be controlled and protected for future generations and/or charity then I encourage you to come and have a chat with me about your own circumstances.

I look forward to hearing from you.