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Solicitors for the Elderly – What does it mean?

Some of our literature refers to the fact that our Wills, LPAs, Tax & Trust team includes members of Solicitors for the Elderly (SFE) but for those of you who are perhaps not involved in the legal or financial world the organisation name itself, and more importantly the reasons for choosing SFE members for legal advice, may be largely unknown. Being part of a select group of law firms in Darlington with SFE members (only Clark Willis, Latimer Hinks and Hewitts) we think it is vitally important to explain why, for legal issues involving those in advancing years, a SFE member should be a preferable choice.

Who are Solicitors for the Elderly?

SFE was founded in 1996 and set out to be a specialist group to help, support and make a difference to older people. It has now grown into a national organisation of over 1500 lawyers all committed to its founding principles. It is a not for profit organisation to meet the needs of its members, so that they can provide good quality legal advice to older and vulnerable clients, their families and carers.

Why use a Solicitors for the Elderly member?

SFE is a national association of independent lawyers who specialise in older client law. As specialists, SFE members are also trained in older client care so that they are able to take into account any difficulties both mental and physical which can affect older and vulnerable clients and are aware of the health and social problems that people may face.

SFE members will provide independent advice, which is in the best interests of older or vulnerable clients, respecting their dignity and understand their need for a holistic approach to problem solving. All advice given is confidential. They will endeavour to follow a plain English policy ie they will always communicate in easy, understandable language and will explain any necessary legal terminology. Their wealth of experience and training will help to put people at their ease when dealing with complex, life changing issues.

Our solicitors who are members of SFE:

  • Are specialists in advising older and vulnerable clients on legal matters
  • Are fully qualified solicitors, barristers and chartered legal executives who have all undertaken additional specialist training in older client law
  • Have spent a substantial amount of their time working with older and vulnerable clients
  • Have gained the Older Client Care in Practice Award which is accredited by SJF (Skills for Justice) a government body which shows that they have the required additional skills to be able to advise and support older and vulnerable people
  • Follow a strict code of practice
  • Are committed to providing affordable, good quality legal advice
  • Are regulated by their professional bodies such as the Solicitors Regulation Authority
  • Keep their knowledge and skills up to date by undertaking regular training

What sort of legal matters do members deal with?

Solicitors who are members of SFE , including ourselves, undertake the following types of work:

  • Wills, Estate planning, tax planning, trusts and probate
  • Mental Capacity issues: Powers of attorney, Deputyships, Court of Protection
  • Advanced Directives (often known as Living Wills)
  • Care funding including asset preservation
  • Deprivation of Liberty safeguards
  • Abuse issues

How can we help?

You can be confident in speaking to our solicitors that you, or your elderly relatives, are receiving experienced advice. Often this involves working alongside your financial adviser to ensure that the relevant expertise is brought into play where necessary and a holistic approach is taken.

Our initial appointments are complimentary and our clear, fixed pricing for any legal matters you may then choose to instruct us in, means you can have peace of mind that accessing the right advice will not cost you earth and tackle the myth that taking advice from solicitors is expensive. If we can help you, your elderly relatives or someone you are perhaps a carer for, either get your affairs in order or deal with pressing issues, such as financial abuse or moving into residential care, then contact your local Clark Willis office (Darlington or Catterick Garrison)  and ask for one of our trusted team.

For more information on SFE, please visit their website.

Trust Advice Darlington

Trustees – Managing trust money correctly.

One of a trustees main roles is to manage a trust fund correctly for the beneficiaries. This will often involve making decisions and investing money held by the trust correctly. Whilst this sounds easy, this is often one area that trustees find themselves in error, especially when family or friends are acting as trustees and can lead to personal liability for not achieving a reasonably return, failing to take advice and the potential for family disputes. Where a professional is appointed as a trustee they are expected to exercise an even higher standard of care and skill.

Investment Choice

The general financial principles are contained in the Trustee Act 2000 (s3) and may also feature in the trust instrument itself, to give the trustees power to put trust assets into any investment which they would be able to invest in if they owned the funds themselves. This is obviously a wide ranging power however, there is further guidance as to how the trustees exercise this function.

– Trustees must consider the suitability of proposed investments for the trust.

– The investment strategy should be diversified if appropriate to spread risk.

– Where trustees do not feel they are suitably experienced to take qualified financial advice to ensure the trustees are complying with their obligations.

 

Dependent on the nature of the trust other factors may need to be considered in the appropriateness of any investment, for example an Income in Possession trust (IIP) to produce income for a beneficiary for life before being distributed to remaining beneficiaries must way the balance between producing the income for those currently entitled against preserving or increasing the capital for those ultimately interested following the termination of the life interest.

Often something as simple as this can be overlooked and recently the writer has been involved in assisting a trust where a capital sum of approximately £10,000 was placed onto a trust in the 1980’s for the benefit of a surviving widow were only consideration was given to generating income for that surviving widow and not any subsequent capital growth.  In the 1980’s £10,000 had a significantly greater value then £10,000 in 2018 and had the fund been invested to both generate income and increase the capital then the trust fund wild have been substantially more, all beneficiaries would have been happy and more importantly the trustees would have acted correctly.

Beneficiaries age or tax position may also be relevant to investment choice of trustees and should be considered. If only £1,000 is held for a child until they reach 18 and they are currently 16 then a low risk choice would be sensible but if £25,000 is held for a 2 year old so there are 16 years to manage the fund, a longer term approach to grow capital would be more sensible. Income tax and reporting requirements to HMRC will be covered in a speedster blog but as a note of caution where trust funds are to be held for minor beneficiaries then trustees may consider a investment strategy to mitigate the need for income tax accountable to HM Revenue & Customs.

Investment Review

Following initial investment choices by trustees regular reviews should be undertaken and if necessary amendments made to ensure that trustees continue to discharge their professional duties and responsibilities.  Where financial advisors are utilised by trustees in relation to investments, this obligation is often met by the financial advisors submitting regular investment reports to the trustees.

With the uncertainty over Brexit and market reaction it is perhaps an ideal time for trustees to consider the investment strategy of their trust funds and as always document any decisions made to confirm that trustees have considered the investment.

Failure to Manage Correctly

Where trustees do not manage a trust fund correctly they can be held to have breached their position and be held accountable for loss. Where a loss has been incurred but the trustees have acted in accordance with their duties, for example if the stock market fell, trustees will not normally be liable if they have acted appropriately.

Often it is inaction of trustees rather than a incorrect informed choice that can lead to a question of negligence and in the pre-trustee act case of Nestle v National Westminster Bank PLC (1994) the beneficiaries argued that the trustees had exercised their investment powers too restrictively and that if the trust had been properly invested, it would have been worth a significantly greater value (over £1 million) Whilst the Court accepted the beneficiaries’ arguments they dismissed the claim because the trustees could not be held as following a investment strategy which no reasonably confident trustee would have done in the same circumstances.

Had they not taken any action at all in considering investments the outcome would have been significantly different with the trustees facing liability for the loss.

How We Can Help?

Our private client solicitors include members of the Society of Trusts and Estates Practitioners, the internationally recognised body of leading professionals in the areas of estate planning and trusts, and are available to provide advice on trust establishment, administration and winding up a trust to ensure trustees are complying with their obligations and reporting matters to HMRC correctly.

We can assist with ad hoc advice to trustees or undertaken a full administration service. We can also act as a trustee should you require a professional trustee to be involved in the trust administration.

Should you consider that you may need advice in relation to your role as trustee then contact our trust team at our Darlington office on 01325 281111 or visit www.clarkwillis.com or call into your nearest office.

Life Interest Will Trusts – Protecting Property & Assets by Alex Spurr, Solicitor

Life Interest Trusts In Wills – Why You Might Need One To Protect Your Property & Assets

What is a Life Interest Trust?

Life Interest Trusts, sometimes called Asset Protection Trusts, are the familiar term given to a legal arrangement called an Interest In Possession Trust. They are termed Life Interest Trusts because they give a particular person (the life tenant) the legal right to benefit from the assets being held under the trust. If this is a residential property, this would include a right to reside in the property, or if it is liquid assets, such as cash or investments, the right to receive the income.  This right normally lasts throughout the beneficiary’s lifetime, hence the name life tenant, although sometimes the right might end earlier, for example if the beneficiary required full time residential care or on remarriage.

A Life Interest Trust can hold money, but the arrangement is most often used over a residential property by spouses, civil partners or cohabiting partners.

The Will would specify what happens to the trust property when the life tenant dies (or stops having a benefit if an earlier event occurs) for example passing down to children or other nominated persons.

Normally, the trust allows the assets of the trust to be altered so that if the life tenant wished to move for example, the trust could dispose of property A and acquire, or part acquire, property B to enable the trust to adapt to life events and circumstances.

If the trust held other financial assets, a property sold and the trust held funds not used entirely in the purchase of a new property, then the life tenant would normally be entitled to the income generated by these funds although the trust could be drafted to enable the trustees to pay out capital sums to the life tenant or ultimate benefactors.

Why Might I Want One in My Will?

The main reason is to preserve whatever is in the trust, such as a share in the family home or financial assets. As the life tenant does not physically own the trust assets they cannot be included in their own financial affairs. This can be important post retirement for safeguarding assets from long term residential care costs and throughout life to safeguard assets for the bloodline, to ensure your children inherit. If you consider multiple marriages are now common place and an ageing population means care costs are a increased risk, you may appreciate that building in levels of security for your financial affairs can have long term benefit.

Example One – Care Fees

Alan and Rita are retired and live in a 3 bedroom detached property valued at £250,000 and have £20,000 each in the bank. Alan dies and leaves his property share and money in the bank to Rita. Rita later requires care and all of the property and cash in the bank can be used to fund that care. Rita is self-funding and when she passes away, is left with the bottom threshold of £14,250 which passes between their 2 children.

If Alan and Rita had included a Life Interest Trust in their respective Wills over the property only, in the above scenario, after Alan died, Rita would own her half of the house outright and have the benefit of Alan’s whilst she was alive, meaning she had security, but Alan’s Will specifies that ultimately his 50% of the property passes to the children after Rita’s death. When Rita went into care this time, only her 50% of the property and the savings could be used to fund her care, meaning the children would inherit the £14,250 from Rita’s assets on her death and 50% of the home that was subject to the Life Interest Trust, being an extra £125,000.

Example 2 – Young Family

Neil and Sue are in their 30s with three children under 10. Sue has a fatal accident and Neil inherits her estate. After a few years of being a single parent, Neil meets Helen, another single parent with one child, and several years later they cohabit and ultimately marry. Neil then dies at 76 leaving Helen as his surviving widow. Helen inherits everything and then makes a Will leaving her entire estate to her child and nothing to Neil’s three children. Neil’s original three children are disinherited.

If Neil and Sue had included a Life Interest Trust in their respective Wills over the property, in the above scenario, after Sue’s death, half of the matrimonial home would always have been protected for her three children rather than them being disinherited.

Who are the Trustees?

The executors, or possibly alternative specified trustees by you in the Will, have the job of safeguarding the trust assets and must always act in the best interests of all the beneficiaries.  Care must be taken when choosing who should act in this role.  The surviving partner can be a trustee, but should not be the only one, and perhaps a adult child or sibling should act together with them.  Unless the Will provides otherwise, the trustees will have to act unanimously, so that a surviving partner cannot override the terms of the trust or act in their own best interest.

If there is a property share involved, the trustees would usually go on the title deeds together with the surviving partner and a restriction placed on the title deeds to make reference to the trust.

Inheritance Tax (IHT) Issues?

The life tenant is treated as if he or she owned the trust property for the purposes of Inheritance Tax (IHT) and so will attract the usual spouse exemption if established under a spouses Will. On the death of the surviving spouse they may also have the ability to use the unused element of the predeceasing spouses tax free level, and unused extra residential property allowance, which will not have been decreased by establishing the trust.

If cohabiting partners include Life Interest Trusts then no similar spouse exemption is available although the level of IHT, if payable, will be no different by including this arrangement. There can be circumstances, if each cohabiting partner has their own children that the arrangement can cause the full or partial loss of the additional residential property allowance dependant on circumstances.

The primary position is Inheritance tax (IHT) is payable at 40% on a person’s assets over £325,000 on death and certain gifts made during their lifetime. There are also additional residential property allowances, transferable allowances between spouses and a range of exemptions and reliefs before IHT becomes payable.

On the life tenant’s death, subject to any exemptions or reliefs which then apply, IHT will be payable on the combined value of the trust assets and the life tenant’s own estate.  The trustees will be responsible for paying the proportion of the IHT payable in relation to the trust assets and the executors of the life tenants other estate, on the estate other than the trust.

Other Taxation Issues?

The trust may also be liable for Income tax and Capital Gains tax.

If the trust only includes a share in a residential property then no income tax is likely to arise or capital gains tax issues if the equivalent of an individuals main residence relief is available. For most Life Interest Trust this is the outcome.

Where the trust holds other assets then the taxation position may change. If the trust holds income producing assets, trustees will be liable for tax at the normal rates for income or dividend income.  Where any income is mandated to the life tenant, for example interest credited straight to their bank account so the trustees do not touch the income, then the life tenant would simply reflect this on their own tax returns as their own income.

If the assets held on trust increased above the trustee annual exemption for Capital Gains tax (currently half of an individual’s allowance) then the trustees may be liable for paying CGT if no reliefs are available.

Summary

In modern society, second often third marriages are common place and healthcare advances coupled with lifestyle changes mean that life expectancy has increased causing greater demand on residential care in later stages of life. These two factors alone mean that taking simple steps like including a Life Interest Trust arrangement in a Will for a spouse, civil partner or cohabiting partner can ensure protection for your descendants but without compromising the survivor’s ability to benefit during their lifetime. Where the residential home is included in such arrangements, the taxation side of things is often a non issue.

Whatever stage of life you are at, when owning a property jointly and making a Will, or where one person owns the property in their sole name but cohabits, then we will always discuss with you protection opportunities, including Life Interest Trusts, so that you can make an informed decision on planning your affairs.

As with all legal advice, your own particular circumstances may impact on the suitability of such an arrangement and so we would recommend you contact our specialist Wills team at your local office to discuss your affairs. Call us today on 01325 281111 or 01748 830000 to arrange your no obligation, complimentary discussion.

Relax & Enjoy Your Retirement Knowing You Are Covered – Wills, LPAs, Care Fee & IHT Planning by Alex Spurr, Solicitor.

Retirement is a significant life event and often coincides with a change in your financial circumstances. Whilst sorting your legal affairs might not be the first priority on your to do list, dealing with matters at the start of retirement, or even better whilst planning your retirement with your financial adviser, means that you are free to enjoy your retirement years with peace of mind that you are protected.

Wills

The most important consideration is to make a Will. A Will is the only way of ensuring your property and affairs benefit those whom you would wish to do so. People who do not make a Will are leaving unnecessary work, possible complications and costs to their family.

If you do not make a Will the “Intestacy Rules” will decide which family members will receive your money and possessions after you die. Your whole estate may not automatically pass to a surviving husband, wife or civil partner as most people presume. Unmarried partners will not automatically inherit often causing financial hardship and distress. Surely it would be better to make sure that the people you wanted to benefit following your death was controlled by you?

Wills are also a useful way of including any specific funeral wishes you may have. Even a basic decision as to whether a family member wanted cremating or a burial can cause conflict or be emotionally challenging during a period of grief.

If you already have a Will it is also important to consider reviewing it. Changes in family, financial circumstances or the law may no longer reflect your current wishes or include unnecessary complications. Since 2007 there have been significant changes to inheritance tax for married couples/ civil partners and the introduction of a residential property inheritance tax allowance which may make Wills made over 5 years ago, and certainly prior to 2007, no longer appropriate for estate planning or certainly worth a review.

Lasting Power of Attorney

Have you considered what would happen if you were unable to manage your financial affairs or make decisions over your healthcare treatments due to an accident, old age or illness? This may be temporary, such as hospital stay, or permanent with an illness such as Dementia.

Lasting Power of Attorney (LPA) allow you to appoint the person or people you would like to take those key decisions for you. Without it, a family member or friend would have to make an expensive and time consuming Court application and suffer annual administrative requirements.

You can give authority to assist you with your financial affairs, including property, and/or your health and welfare.

It is important to note that an LPA does not take away your independence or control whilst you have capacity and you can limit the decisions you may wish your Attorney(s) to take on your behalf.

An LPA can only be drawn up whilst you have mental capacity and whilst it might sound daunting, the key is to deal with it sooner rather than later whilst your health is not an issue. Think of LPAs like an insurance policy to protect you should you need it in the future.

Asset Protection & Long Term Care Costs

As a population we are living longer and an increasing number of us face the real possibility of going into residential care in the future. Most people are concerned about funding long term residential care with an average cost of £700 per week in the North East.

Currently, if your assets exceed £23,250 (including the value of your property) then you will be self-funding and have to pay for your care yourself with the exception of certain medical conditions. Life savings are being eroded and family homes intended to pass as inheritance may be utilised to fund care for those without planning in place.

As the need for residential care approaches, people may be tempted to transfer their homes into the names of children or to give away large sums of money. If you do so and the Local Authority claim you have purposely done so to avoid the asset being used to pay for care you can still be treated as owning that asset. There is also a significant risk that children may get divorced, have financial difficulties or predecease you causing someone outside the family to get an interest which ultimately could cause you to lose your own home.

It is important to take advice on what assets are considered in any funding assessment, financial options available to you and the structure of your finances to appreciate how residential care may apply to your circumstances. Steps can be taken that can preserve your assets from funding long term care but these have to be considered based on your planning as a whole and reviewed whilst you are in good health. It is essential to take expert legal advice to fully understand your options as early as possible.

Inheritance Tax Planning

In 2018/2019 tax year, the money received by HMRC through Inheritance tax (IHT) was £5.4bn, a staggering level considering it is often termed a voluntary tax as with correct planning the amount of tax payable can be significantly reduced.

The basic principal is that each individual has a tax free estate of £325,000 with additional allowances (currently up to £150,000) being available if residential property is left to direct descendants.

People wrongly assume that tax planning is complicated and whilst it can be for very significant estates, it is often very straight forward with a strategy of steps to achieving tax mitigation. This may include working with financial advisers on arranging your wealth, looking at lifetime gifts or the beneficiaries of your estate to maximise exemptions and reliefs available with the combined aim of minimising the tax bill whilst achieving your succession aims.

Your Next Steps

The Private Client team at Clark Willis not only have a wealth of experience in these matters but also include members of Solicitors for the Elderly and the Society of Trust and Estate Practitioners (www.step.org) so you can have peace of mind that your retirement plans are in safe hands. Take the first steps to your peace of mind by contacting our team today on 01325 281111.