If you own business assets or are unsure of the best way to leave your assets it is possible to retain flexibility for your spouse / partner or your children to administer your estate in the most tax efficient manner according to the circumstances at the date of your death.
The problem
The main problem when making a will or carrying out tax and estate planning is that there are a number of variables, such as what assets will you own at the date of your death? What will be your spouse or partner’s circumstances? What will be the tax rates and what will be the HM Customs & Revenue policy at the date of your death?
The solution
Fully discretionary wills give the executors the most flexibility. The entirety of the estate passes instead into a discretionary trust. The class of beneficiaries may include the surviving spouse, the children, any grandchildren and any other potential beneficiaries. The trustees are able to apply the estate assets in whatever way seems best to them in the light of the conditions prevailing at the date of the first death. They can make immediate distributions of income or capital to any or all of the discretionary beneficiaries or they can decide to hold the estate on trust for a longer period.
The powers conferred on the trustees are extremely wide and it is important that the trustees are chosen carefully and that they are also provided with guidelines in the form of a letter of wishes stipulating the Testator’s intentions and how the estate should be administered. Tax planning can then be put in place when all the circumstances are known.
Should a surviving spouse require any funds or assets from the trust of the residue then this can be dealt with by way of an IOU or Equitable Charge. The loan or charge is deductible from the value of the surviving spouse’s estate. Any business assets or agricultural property can be left to the appropriate beneficiaries with full knowledge of the Revenue’s attitude and policy prevailing at the date of death.
Why use a solicitor...
Fully discretionary wills are flexible and potentially the most tax efficient form of will. However, they do require a great deal of confidence to be placed in the trustees and it is advisable to consider the appointment of professional trustees. As with the Debt Scheme, the Revenue has indicated that any debt or loan scheme utilized by the trust must be set up correctly, with all the correct procedures and documents used.
