Jane Shaw, private wealth lawyer and director in the dispute resolution team at law firm, Pannone Corporate, commented:

 

“Despite a flurry of activity from individuals and business owners in anticipation of changes to CGT and IHT, the Chancellor has unsurprisingly delayed making any big decisions at this point, given that the economy is still in a fragile state. This has provided people with another window of opportunity to prepare and plan forany changes, such as the alignment of CGT and income tax rates, as well as changes to IHT and the introduction of a gift tax for all lifetime gifts over a low threshold.

 

“While the proposed tax reforms have been kicked into the long grass once again, it’s only a matter of time before CGT and IHT receive the kind of tax treatment that’s been on the cards for the last couple of years, with reports by the Office of Tax Simplification (OTS) and the Wealth Commission amongst others, demonstrating that a move is highly likely. In the last few weeks, an increasing number of people have been setting up Trusts in order to trigger a gain in advance of any CGT rise, or at least putting themselves in a position to pay it should they need to. This trend will undoubtedly continue in anticipation of future changes.

 

“It’s essential for people to take stock and get their affairs in order if they believe any changes to CGT and IHT are likely to affect them, particularly for those business owners where a third-party sale is on the horizon.

 

“Despite a recent rush of activity, it’s important to note that individuals and business owners can trigger a gain at any point, by transferring a property or shares to a Trust of which they are the Trustee and the main beneficiary. Where there is a proposed gift – for example, the individual is happy to give the property away – it’s also possible to dispose of that asset to a Trust that they are not a beneficiary of and, as such, ‘holdover’ or defer the CGT charge.”

 

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Increasing international mobility means that many more clients own assets outside the UK or have beneficiaries resident outside the UK. This needs to be taken into account when making wills as it is important to consider the tax position in different jurisdictions and ensure that a will works effectively in each jurisdiction in which the client holds assets. “Forced heirship” provisions in many European countries will need to be considered.  Planning properly ensures that all these issues are dealt with so that cost and delay following a death are minimised.

Wills need to cross refer to each other and operate independently and concurrently with each other. It is important for a solicitor who specialises in cross border estate planning to look at all the Wills together and to liaise with the lawyer in other jurisdictions to ensure that a coordinated approach is adopted. All too often, clients make Wills in different jurisdictions without the oversight of a specialist estate planning lawyer, with the result that Wills can revoke each other or refer incorrectly to the property they are seeking to dispose of.  This causes confusion, cost and delay in the future and can even result in assets passing to the wrong people.

When thinking about property overseas or beneficiaries in different countries, it is important to consult a specialist solicitor who is familiar with dealing with lawyers in different jurisdictions and can identify any relevant tax or legal issues, which are likely to cause problems in the event of your death. A coordinated approach will ensure that the minimum amount of tax is paid and that assets are passed to the correct beneficiaries.

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It is easy to believe that estate planning “is only for the wealthy ”. However,  most people want to ensure that home, savings or other belongings of value pass to the right people in the right way and at the right time. A properly drafted Will ensures that your assets are available to benefit the people you choose and that if necessary, are protected for the future

Below are some common traps clients fall into:

Not Planning

This sounds obvious, but one of the most common mistakes is to not have a Will at all.  This usually has undesirable tax implications and often means that your assets will not pass to the people you want them to. Death does not always come when expected and none of us knows when we are going to die!

An Outdated Will

Marriage, divorce and changes in relationships mean that many people’s Wills become invalid or unenforceable without them realising or making a new Will. We advise clients to review their Will every five years to ensure that it remains appropriate.

Inheritance tax (IHT)

Many clients fail to appreciate the impact of inheritance tax and miss out simple steps such as making lifetime gifts (outright or to trust) or structuring their Will appropriately to minimise IHT. Specific opportunities exist in relation to clients with business assets. Specialist advice is always required to mitigate any tax payable. A worse mistake is deciding yourself without the benefit of advice to make gifts. For example, many clients give away their home and continue to live there, not realising that it is not only useless from an inheritance tax perspective but also creates other significant tax problems and increases the amount of tax payable overall.

Second Marriages

Children from first marriages often get disinherited because assets have passed to a stepparent first.  A properly drafted will can enable you to provide for a spouse during his or her lifetime whilst still making sure that on their death your estate passes to your children and not anyone the spouse may choose to leave it to.

Powers of Attorney

Failure to make a Power of Attorney in time means that clients will not be able to choose who handles their estate if they are unable to do so themselves. Choosing the right person for this role can have a significant impact on how assets are protected for the next generation.

Picking the Wrong Executor!

It is vital that you trust your executor(s) to deal fairly, practically and cost-effectively with your estate and avoid any possible disputes which can give rise to significant delay and legal costs.

Our specialist Estate Planning Team ensure that our clients deal with all of the above issues in good time and minimise the overall cost of inheritance tax and legal fees relating to death and the transfer of assets to next generations.

 

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