The Trust Register-Do you know your duties if you are dealing with the administration of an estate?
In October 2020, amendments to the Money Laundering Regulations came into force introducing new rules extending the scope of The Trust Register (TRS) so that it applies to a wider range of trusts, both based in the UK and some non-UK Trusts regardless of whether or not the trust is liable to pay tax.
Relevant trusts must register with TRS if they are liable to UK taxation in any year.
Although estates themselves are not subject to registration, in some instances Personal Representatives will need to register the estate, for example, if they are selling property worth £500,000 or more. Bearing in mind local property prices, many Personal Representatives may be caught and may be unaware of their obligations.
There are deadlines for registration of new and existing trusts; for existing non-taxable trusts that have not yet been registered this is 1 September 2022.
Trustees are also required to ensure the TRS is kept up to date, and again there are deadlines for doing so.
Types of trusts
The most common type of trust that needs to be registered is an “express trust”. These include bare trusts, discretionary trusts, interest in possession trusts (if created on death they are excluded from registration for two years as with other will trusts), protective trusts, pilot trusts (often set up to receive pension benefits) created before 6 October 2020 containing more than £100, and pilot trusts created after 6 October 2020 regardless of amount held.
Charitable trusts and Child Trust Funds do not have to register. Bereaved minor trusts and statutory trusts (created on an Intestacy) do not have to register as an express registrable trust but may have to register if they have a UK tax liability.
For trusts relating to land, eg where two or more people have bought a property together, where the Trustees and Beneficiaries are the same people, there is no requirement to register. However, if there is a Declaration of Trust in place and the Trustees/Legal Owners of the property are not the same as those with a beneficial interest then the trust is required to register.
This may occur where a third party has lent monies to assist with a property purchase and wishes to protect their investment, or, for example, children have assisted their parents to purchase a property under the Right to Buy Scheme.
Trusts for retirement policies are excluded from registration during the lifetime of the person assured provided that the policy only pays out on their death, terminal illness, critical illness or permanent disablement, or to meet the cost of healthcare services.
The information required by the TRS can be submitted online and the type of information required depends on whether the Trustees and Settlors (the person or people creating the trust) are individuals or a business or organisation, such as a charity.
Trusts with a UK tax liability need to provide more extensive information, including details of the trust assets as part of the annual tax return.
There are penalties for failing to provide the information required by the appropriate deadlines. However, given difficulties with both registering new trusts and updating the register, and a recognition that the last tax year was the first year that trustees have been able to meet their obligations, HMRC had indicated that they will not automatically be charging penalties. However, it is not clear how long this honeymoon period will last.-HMRC has certainly not been lenient on penalties in relation to late reporting of capital gains on UK properties.
If you are the Trustee or Settlor of a trust created at any time or you are dealing with an estate especially one where there is a property to be sold, and you are uncertain as to whether the new rules apply to you, please contact Sherrards and our trust experts will be happy to guide you in the right direction.
Making a Will: How to Protect Your Family and Financial Assets
It is my firm advice that everyone should make a Will, but if you don’t then it is important to be aware of the consequences of not having one. Without having one in place at the time of your death, or if your Will is no longer valid, the law dictates how your estate will be divided in accordance with the Intestacy Rules. These rules could potentially result in your loved ones not benefiting from your estate in the way in which you would have wanted.
Why make a Will?
Below are some key points of why you should make a one to help protect your family and assets.
- To avoid your assets being distributed in accordance with the Intestacy Rules which could mean, for instance, your spouse not inheriting all of your estate
- To ensure that those you wish to inherit your assets on your death get them
- To nominate executors of your choice to deal with the distribution of your estate
- To nominate your preferred guardians of your children
- To make small personal gifts
- To take advantage of tax saving strategies.
When to update your Will and things to remember
The general advice is to review it every 5 years, or if you’ve had a change in circumstances in the family particularly births, deaths, decisions to marry, divorce, form or dissolve UK civil partnerships.
On marriage or entering a civil partnership (or remarriage or a new civil partnership), your old Will is automatically revoked and has no effect, unless it has been made in contemplation of that marriage or civil partnership and contains a relevant statement to that effect. If you pass away without making a new Will your estate will pass to a list of your relatives specified by law under the Intestacy Rules.
On divorce, any gift in your old Will to your ex-spouse or civil partner is cancelled as is their appointment as Executor but the rest of it stands. This can create problems so normally it is better to make a new Will.
The pitfalls of making a DIY Will
Homemade or “DIY” Wills have become a popular option over the last few years. The appeal is understandable with costs starting from as little as £10 for a pack, and there are also many online companies offering to make your Will for you for a low fee. However, there are disadvantages that comes along with homemade Wills and below are just some to keep in mind before making the commitment.
1. Poor wording and mistakes – Without legal training, DIY Wills can be a minefield. If your wording is incorrect or unclear, you run the risk of your wishes not being fulfilled.
2. Witnesses – They are often incorrectly signed and witnessed, which leads to them ultimately being invalid. This is where the presence of a qualified professional is beneficial, as they ensure mishaps are avoided.
3. Complexities – If you own property abroad, you have foreign investments, or you own a business, you should seek assistance when you it comes to drafting your Will. You want to make sure everything goes to the right person, and complex scenarios aren’t easily catered for in the one-size-fits-all DIY option.
A Will is a legal document, and, as such, legal advice should be sought when you’re in the process of drawing one up. Whether your Will is simple or multi-faceted, the advice that a professional can give you is invaluable and can get you to think about things that may have been overlooked. Having in place a valid Will ensures your loved ones will be well looked after when the time comes. Contact Nicole for more information.
He advises on estate planning, wills, trusts and probate.
His expertise lies in assisting with disputes such as unfair prejudice petitions and proprietary estoppel, breach of trust and breach of fiduciary duty claims, including cases with off-shore and multi-jurisdictional elements.
That’s it; no fuss, just facts.
Providing for your pet when you die
The pandemic has also made many of us think about our own mortality. Understandably, people want to ensure that their pets are cared for after they die.
Here are some things you may wish to consider.
- Do you want any gift to apply to your current pet only or to any pet which you own when you die?
- Do you want your pet to be looked after by a particular person and would they be willing to take on the responsibility? This could include financial provision for the care of the pet by leaving that person an absolute gift. Should you appoint a substitute beneficiary in case a primary beneficiary is not willing to care for the animal or if they have died before you?
- If there is no one suitable or, as an alternative you could consider: –
- Leaving your pet to your executors setting out details of care in a letter of wishes. The advantage of a gift to executors is that there is no danger of the gift lapsing and the testator can leave it to the executors to exercise their judgement to find someone suitable.
- Make financial provision for your pet through the use of a trust which could give some flexibility (although the trust should be limited to a period of 21 years and there may be practical issues in relation to such trusts such as the associated costs of running a trust);
- If you would like your pet to be cared for by an animal welfare charity (e.g. The Dogs Trust), you could leave a gift to that charity requesting them to find your animal a home. It is sometimes possible to register your pet with a charity before you die and a gift to the charity could be used as a default option in case the gift to your primary beneficiary has lapsed.
- How much should you leave by way of gift? The popstar, Michael Jackson, left $2 million for the care of his chimp Bubbles and Karl Lagerfeld, the fashion designer, left his cat, Choupette, a significant share of his estate. You should consider the age and life expectancy of the animal (compare a dog with a parrot!), and bear in mind that costs such as medication and vet bills may increase as the animal gets older.
If your pet has insurance, this is something else to be factored in when considering the amount of the gift.
Make sure that financial provision is adequate. Otherwise, the beneficiary may be reluctant to accept the gift of your pet. The executors may also have limited power to adjust the level of financial provision in those circumstances unless the residuary beneficiaries are in agreement.
Consequently, you should review your Will from time to time to ensure that any change in circumstances has been considered. You could also index link the gift to provide for inflation.
Should the gift be conditional on the beneficiary looking after your pet?
Please contact Nicole or the team for more information on making a Will.
Dying without a Will
Rik Mayall, comedian and actor, did not have a valid Will in place when he died in June 2014. He died “intestate” meaning his £1.2 million estate could have paid inheritance tax which could have been avoided with the right Will in place. Under the intestacy rules law, a significant part of Rik’s estate, as a married parent who died without a Will, would go straight to his children, triggering a potential tax liability.
The intestacy rules (when you die without a valid will) are set by law and can be summarised as follows:-
- Married/civil partner with no children. If you die without a Will everything goes to the spouse or civil partner
- Married/civil partner with children, and you die without a Will assets up to £250,000 and personal possessions (not land) go to the spouse or civil partner. Assets above that limit are split 50/50 between the spouse and the children.
- Unmarried, living with someone, with or without children, if you die without a Will the cohabitee receives nothing. Where there are children and/or grandchildren, they get everything. Where there are no children, the deceased’s assets go to their siblings and parents.
Where there are no children or other dependants, no parents, grandparents, siblings, cousins, nephews, nieces or aunts and uncles (blood relatives not relatives by marriage), the whole estate goes to the Crown. To have share in the estate the cohabitant would have to make a formal claim under the Inheritance (Provision for Family and Dependants) Act unless all other potential beneficiaries were over 18 and agreed that some assets passed to the co-habitant.
What does all this means for inheritance tax
One of the key inheritance tax perks is that spouses/civil partners can bequeath any amount to each other tax free. However giving assets to children will trigger an inheritance tax bill if the gift exceeds the “nil rate band” or threshold of £325,000 per person plus an additional sum (currently £125,000 as long as the whole estate is not worth more than £2.2Million) in relation to homes passed to direct descendants. If everything passes to a spouse/civil partner, then on their death, the first spouse/partner’s tax free threshold can be added to their own – thus doubling what can pass before tax. Everything that passes down above the tax free allowances is taxed at 40% of that value.
Avoiding the intestacy rules, is not the only reason it is a good idea to make a Will. With a Will:-
- You leave clear instructions about how your estate is to be distributed.
- You choose your own executors – the people who manage the estate.
- You appoint guardians to look after your children if they are under 18, until they come of age. You can also make financial arrangements for their benefit.
- You can make specific gifts to friends or family. These can range from items of jewellery to sums of cash.
- If you have remarried, you can ensure any children from your first marriage get a share of your estate.
- You to make gifts to charities
- You may avoid family disputes.
And just in case you were wondering, making a Will does not bring forward the date of your death! Contact Donna for more information.
Cohabiting siblings could win same treatment as married couples
In 2018, Prime Minister Theresa May announced that heterosexual couples will be able to enter into civil partnerships, giving them substantial tax benefits. It could open the way for cohabiting siblings to also receive the same treatment, pending a proposed change in the law.
Ms May’s announcement follows a Supreme Court ruling in June this year to allow Rebecca Steinfeld and Charles Keidan to have a civil partnership instead of a marriage. Before this, only same sex couples were allowed such partnerships.
A couple in a civil partnership is entitled to the same beneficial treatment in terms of tax, pensions and inheritance as married couples. The ruling therefore aims to provide greater security for unmarried couples who have formalised their relationships, and for their families.
But some siblings who have been cohabiting for years believe they should have the same rights too.
Sister Act inclusion
Two recent cases have highlighted the issue. Both involve sisters who had lived together for over 30 and 43 years respectively.
In both cases, each sister wanted to leave her estate, including her share of the jointly-owned home, to the other. Both homes, over time, had risen substantially in value. However, on the death of the first sister, her estate will only benefit from the £325,000 tax free allowance and not any of the extra benefits that married couples and civil partnerships now receive including the extra inheritance tax allowance introduced in April 2017 in relation to the family home. This currently allows an extra £125,000 to be passed tax-free to children and grandchildren. Siblings are also excluded from the right to pass assets to each other free of inheritance tax.
This means that, in the case of these cohabiting sisters, there would be substantial extra inheritance tax to pay. In one case, the surviving sister would be forced to sell their home of 23 years.
Both sets of sisters want the law changed to give legal recognition to ‘sibling’ couples who have decided to spend their lives together, in jointly owned homes until parted by death. The Civil Partnership Act bans ‘prohibited degrees of kindred and affinity’, which includes siblings. Lord Lexden has proposed a bill to include siblings in the Act. The bill received its second reading in the House of Lords in July but has yet to reach committee stage.
So a change could be coming soon. But in the meantime, the death of a co-habiting sibling could leave the survivor with the only options of selling up, borrowing money, or using an equity release scheme. Contact Nicole for more information.
Warning: Probate fees increase
A controversial increase in probate application fees has moved a step closer to being introduced, after being narrowly approved at a parliamentary committee hearing earlier this month. The fee, which is currently £155 when using a solicitor and £215 when people apply directly, will now be applied on a sliding scale according to the value of the estate, with the highest fee capped at £6,000. The new fees will begin in April 2019 for all applications for grants from that date regardless of the date of death.
Although this increase, dubbed a “stealth tax”, is due to be scrutinised again by the House of Commons in the near future, it is likely that the new fees will be introduced from April. The changes are projected to add an additional £185 million per year to the Ministry of Justice coffers. The fees will far exceed the costs of the whole probate court service – it would seem bereaved families are being asked to pay for other parts of the court system – there is a dark irony here where victim’s of crime may, in effect, be part funding the criminal courts.
These new fees seem manifestly unfair and unjustified given that the work involved for the probate court on an application for a grant of probate does not increase in relation to the value of the estate.
The Labour party is believed to be preparing to object to the proposals during its final stage in the House of Commons. However, with the current Brexit wranglings taking most of the limelight and column inches, it may be the case that these unfair changes will just slip in through the back door.
I do, or not I do?
The Civil Partnerships, Marriages and Deaths (Registration etc) Act 2019 comes into force on 26 May 2019 allowing both same-sex and opposite-sex couples to choose either marriage or civil partnership.
It has taken well over a decade to achieve equality in this area. In December 2005 the Civil Partnership Act was implemented. This enabled same-sex partners to have their relationships officially recognised for the first time in England and Wales, affording them equivalent rights to married couples. Whilst this was a step in the right direction for equality, same-sex partners still weren’t on an equal footing as they could not marry.
The position changed when the Marriage (Same Sex Couples) Act 2013 came into force in March 2014, with the first same-sex marriages taking place on 29 March 2014. Once again this failed to level the playing field; same-sex partners had the choice of a registered civil partnership or marriage, with opposite-sex partners being unable to form a civil partnership.
Equality works both ways, and it has long been argued that to achieve this everyone should be able to formalise their relationship as they choose, either through a civil partnership or marriage. This has recently been tested in the Supreme Court which concluded that the failure to offer civil partnerships to opposite-sex couples is incompatible with articles 8 and 14 of the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950. Article 8 is the right to respect for private and family life, whilst article 14 is the right to enjoy Convention rights and freedoms without discrimination on grounds such as sex and sexual orientation.
As a result of the judgement, the Government had the choice of either withdrawing civil partnerships or making them available to opposite-sex couples. They chose the latter and the Civil Partnerships, Marriages and Deaths (Registration etc) Act 2019 comes into force at the end of this month.
It’s not yet known what the take up will be for opposite-sex couples wishing to register a civil partnership, watch this space. But remember, for anyone getting married or forming a civil partnership, any existing Will you hold will be revoked unless made in contemplation of the ceremony.
Get in touch with our Wills, trusts and probate team and tick this off your to do list before you say “I do”.
Warm congratulations to all however you choose to celebrate your relationship.
Leaving a legacy for your pet
Considering leaving a legacy for your pet?
Many will have heard the tale of Karl Lagerfeld’s cat Choupette, who reportedly inherited a substantial sum from the German fashion designer’s £153 million estate. Whilst many of us with pets may not have the resources to fund such a lavish legacy, have you thought about what will happen to yours should they survive you?
According to statistics from the PDSA, 49% of UK adults owned a pet in 2018. Being a dog owner myself, I know that pets are often considered an important part of the family. Their welfare, and the cost of caring for them, should be given thought when making or updating your Will.
Whilst owning a pet is a source of pleasure it’s also a financial burden. As an example, the average cost of dog food alone is approximately £200 to £400 a year according The Money Advice Service, with many of us spending significantly more than that on treats and accessories.
In England it’s not possible to leave a legacy directly to your pet. However, you can leave your pet to a friend or member of your family, together with a gift to provide for their maintenance. This doesn’t guarantee that they will be willing to accept the responsibility of looking after your pet, so you may wish to consider making the gift conditional on them doing so. And you should certainly ensure you make it conditional on your pet surviving you.
If the beneficiary is unable or unwilling to care for your pet, then a backup plan is a good idea. Many charities offer rehoming schemes, and my own dog is signed up with the Dogs Trust Canine Care Card scheme.