Making Provisions For Your Family’s Future

“In the world nothing can be said to be certain except death and taxes “ Benjamin Franklin, American writer, inventor & diplomat (1706-1790)

The comments made by Benjamin Franklin in the 18^th century are just as applicable today: ensuring your family’s financial security in the event of your death (often known as estate planning) means planning for these two certainties. Although it is a subject that has limited appeal for most of us; forward planning is the only way of guaranteeing tax-efficient arrangements for the benefit of your family.

So what should you do? Before taking any professional advice, you can do some really worthwhile preparation by asking yourself two questions:

• for whom am I responsible?
• what do I own?

1. Obviously most of us can readily identify our spouse (or partner) and children. However, what about other dependants such as stepchildren; a partner’s own children; or any grandchildren?
2. In addition to obvious assets such as a house, contents, cars, investments and savings, you may also have business assets. Different legal entities will need different approaches to estate planning and legal documents, other than a will, may be needed such as a partnership agreement or a shareholders agreement. There are valuable inheritance tax reliefs for the businesses. What about holiday homes in  or abroad (where different succession and tax rules may apply), your life cover and pension arrangements?

There is sometimes confusion over jointly owned assets and property. Under English law there are two types of joint ownership which do not have much practical difference whilst both joint owners are alive, but do have significant differences in the event of a death.  The first type is a joint tenancy and, in the event of death, the asset automatically passes to the surviving owner. The provisions of a will or the rules of intestacy have no bearing on assets owned as joint tenants. There is no need to obtain a grant of probate and legal title passes on production of a death certificate.

The second type is a tenancy in common and on the death of one owner, his or her half share passes in accordance with a will or the rules of intestacy.

A joint tenancy would typically be appropriate for a married couple if they are satisfied that the survivor will provide for their children on the second death.  However, it may not be appropriate for a couple (married or unmarried) without children or couples who have children from previous marriages or relationships whom they wish to protect. For example with a tenancy in common you can leave your half share in your house in trust to your spouse or partner and then, on his or her death, to your children. An up to date will is essential in this case. 

Turning to life policies, given that you will not benefit from them, you need to consider with every life policy whether it should be written in trust for your spouse/partner or children. The main exception is for policies which are taken out to provide funds to pay off a loan or mortgage in the event of death. Often people forget how many life polices they have. The main issues to review are: amount of life cover; monthly premiums; term of policy or its maturity date; purpose for which it was taken out; whether on your life alone or joint lives of yourself and your spouse/partner.

Pensions can sometimes be as confusing as life policies. You need to list your pension policies, including your membership of any occupation pension scheme run by your employers. The main issues are: value of fund; what happens to the fund if you die; and monthly premiums. Death payments under pension policies are normally outside your estate for Inheritance Tax purposes and often nominated in favour of a spouse/partner. With larger sums, however, it often makes sense to nominate them in favour of a specific trust for the benefit of your family to keep the value of the funds outside the estate of your spouse/partner for IHT purposes but with a power to lend the funds to him or her interest free.

If you own a holiday home in a civil law country, such as Spain or France, the succession rules normally dictate to some extent who will inherit at least a proportion of the property. As English Courts do not normally assume jurisdiction over foreign, it is sensible to make a separate foreign will to cover assets in that country. However, it is most important that the will is restricted purely to assets in that country and that it does not accidentally revoke an existing English will. Your English will can then exclude assets in that country.