Case Studies
We understand that the law surrounding Probate and Inheritance Tax can be daunting and difficult to understand for a lot of people. Our clients often find it hard to make sense of all the legislation that is spouted at them and end up feeling confused and frustrated. It should be the aim of all legal practitioners to avoid this situation and make sure their clients fully understand the process and work being undertaken on their behalf.
One of the best ways we have found of explaining both the Probate Process and some of the additional work that can be completed to suit individual needs is by using case studies. Please find below two case studies from different departments in which we have outlined what we have done for each client and why (names have been changed to protect client's privacy):
The Estate of the late Alfred Jones (Deed of Variation)
Our administrator Charlotte has recently administered Probate for the Alfred Jones estate. Mr Jones died leaving only an elderly wife who under the terms of his Will was the sole beneficiary of his estate. Mrs Jones stood to inherit around £20,000 as well astheir property held in Mr Jones' sole name.
One of our advisors, went to visit Mrs Jones to discuss the estate with her and provide free Probate advice. At the meeting, we established that Mrs Jones didn't actually need the money she was due to inherit as she held sufficient funds in her own name. Mrs Jones didhowever have concerns about both Inheritance Tax and the possibility of carefees in the future.
Our advisor recommended that she should effect a Deed of Variation leaving the cash in a Discretionary Trust for the benefit of her and her three children from a previous marriage. He suggested that the property, worth £215,000 should also be placed in Trust protecting it in the event that she has to go into long-term care in the future. As long as the total value of an estate is under £325,000.00 (the Inheritance Tax threshold) it is possible to protect the whole estate in trust.
After discussing it with her children, Mrs Jones decided to draft the Deed of Variation and the entire estate was transferred into trust. Charlotte assured Mrs Jones that,should she need access to the funds in the future, it would not be a problem. She could either simply withdraw the funds from the Trust and use them for whatever she needed, or alternatively, a Loan Note could be prepared to lend her money from the Trust whilst keeping it protected under the ‘Trust-wrapper'.
Not only will the assets held in trust benefit from protection against care fees and Probate should not be needed on her death and her children would immediately assume control of the Trust, saving them both time and considerable expense.
The Estates of the late Eric Anderson and Joanna Anderson (Trust work)
The Probate Bureau were appointed by Mrs Anderson to deal with her late husband's estate after his death in December 2008. Whilst his estate was ongoing, in September 2009 her daughter also died unexpectedly. Not only was the proximity of both her loses devastating but it also meant that she would inherit around £505,873 from both estates leaving her own estate liable for a large Inheritance Tax bill.
It was decided to effect a Deed of Variation in her husband's estate to sever the tenancy of the jointly owned property leaving his half share into a Discretionary Trust. As a result the half value of the property (£105,000) is now protected in trust and does not form part of Mrs Anderson's estate.
A similar course of action was recommended for her daughter's estate and with Mrs Anderson's agreement a Deed of Variation leaving the entire estate in trust was drafted. This allowed the total value of the estate (£195,000) to bypass Mrs Anderson (who would otherwise have been the sole beneficiary) and pass directly into trust.
So far, by the effective use of Deeds of Variation Mrs Anderson had managed to protect £300,000 in two separate trusts. However, she still held half of the property in her own name worth £105,000 and had inherited a Death in Service benefit worth £144,203 and a jointly held Nationwide account worth £61,670 from her daughter. Besides this, she also had liquid assets worth £133,830 held in her sole name.
Mrs Anderson was advised that should she go into care, the remaining assets in her sole name worth £444,703 would be attackable by the local authority and should she remarry her new husband would also have a claim on them meaning that her remaining daughter may lose out on her future inheritance. It was recommended that she create a third trust which she could move her own assets into. Up to£325,000 (the current Inheritance Tax threshold) can be protected in such a trust which would leave only £119,703 outside of the Trust.
After deliberating, Mrs Anderson decided to go ahead and set up the Trust. The benefits of doing so are numerous. Firstly, she has now protected her entire property in trust, preventing it from being sold to pay for care fees, should this become an issue in the future. Secondly, she has ensured that upon her death, all the assets held in trust will pass immediately to her chosen beneficiaries, without having to wait for process to be granted. Finally, she has saved around £38,000 in Inheritance Tax which would otherwise have been chargeable at 40% on any assets over the value of £650,000 (twice the Inheritance Tax threshold, as her husband's unused allowance could have been transferred to her).
Furthermore, although Probate will still be required in her estate (£119,703), the fees for obtaining it will be substantially less than if her estate had remained at the originalsum of £744,703.
This case clearly demonstrates the many benefits of careful estate planning and effective trust work. For free advice or help in planning ahead, call 0800 028 2837.
