Alex Boden

Gifting and inheritance tax: Explained

With Chrismas only a few short weeks away, the giving and receiving of gifts will be high on everyone’s agenda. As part of your inheritance tax planning, you may consider gifting money or property to family or friends, but what should you be aware of?

In this article, we give a brief overview of gifting and inheritance tax, including who you can gift to, how much you can gift, and what it means if you continue to benefit from the gift.

Giving away money or property to avoid inheritance tax 
One of the easiest ways to mitigate your inheritance tax liability is to gift money (or property) to friends, family, or charity while you are still living. There are some gifts you can give in your lifetime which will not incur tax after your death, including gifts to your spouse or civil partner. If you make a gift seven years before your death, it will usually be excluded from the value of your estate for inheritance tax purposes. Gifting can be a complex area, so you should speak to a solicitor about gifts as part of your estate planning process.

Who can I give gifts to and how will this impact the inheritance tax position of my estate?
Gifts to your spouse or civil partner are usually tax-free, however, this does not apply to unmarried partners or cohabitants. If you wish to leave gifts to an unmarried partner or cohabitant, other family members or friends, you should seek estate planning advice to determine the most tax-efficient way to do this.

Annual Exempt Allowance
Each individual is allowed to give away up to £3,000 in any one tax year. You can carry forward your exemption amount for up to one year. So, for example, if you do not use any of your allowance in 2021, you can gift up to £6,000 in 2022.

Small gifts 
You can give small gifts of up to £250 per person, such as for birthdays or Christmas presents, unless another exemption has been used for the same person.

Wedding gifts 
There is also an exemption for wedding gifts, with how much you can gift dependent on your relation to the couple getting married. If you are a parent, you can gift up to £5,000, if you are a grandparent or great-grandparent you can gift up to £2,500, and for everyone else, the exemption threshold is £1,000.

Potentially Exempt Transfers
Outright gifts that exceed any of the above allowances are known as potentially exempt transfers. If you die within 7 years of making the gift, the gift will be brought back into your estate for inheritance tax purposes. This will reduce, or use up, your nil rate band allowance (the nil rate band is the amount each individual can leave without incurring inheritance tax).

Retained benefit 
You must be aware of the consequences of making a gift which you will still benefit from during your lifetime. The most common example is where a parent gifts their home to their child but continues to live in the property rent-free until they die. When this is the case, the property will still form part of the estate in the event of death, regardless of whether seven years have passed since the date of the initial gift.

If you would like a free initial consultation with one of our specialist Wills, Trusts & Estates team, contact us on 01244 356 789 or email info@cullimoredutton.co.uk.

Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Alex Boden

Should you make your Powers of Attorney online?

It is possible to make a Power of Attorney online, but whether you should is a different matter.

The process of making a Power of Attorney seems straightforward, but for those who are unfamiliar with the process, there are many potential pitfalls which could result in your application being rejected or your wishes not being carried out correctly.

In this article, we look at some of the reasons why it may be preferable to instruct a solicitor to advise you and to prepare your Power of Attorney rather than attempting to prepare your own online.

How do I make a valid Power of Attorney? 
Strict formalities must be followed for a Power of Attorney to be valid. For example there is a strict order as to who signs the document and if not followed, your Power of Attorney will be rejected by the Office of the Public Guardian. To be valid, and to be able to use the Power of Attorney, it must be registered with the Office of the Public Guardian.

Why use a solicitor to set up a Power of Attorney? 
When you instruct a solicitor to set up your Power of Attorney, your solicitor will be able to guide you through the two different types of Lasting Power of Attorney, explaining how and when each one can be used and by whom. Your solicitor will be able to tailor their advice to your individual circumstances, which can be invaluable when preparing important documents such as these.

Your solicitor can explain who can be appointed to act as your attorney(s) and can explain what duties and obligations they will have as your attorney(s).

A Power of Attorney can operate in a number of different ways and your solicitor will explain the various options to you. Can attorneys make decisions alone, or must they make decisions jointly with others? Would you rather stipulate which decisions are to be made together and which they can make separately? Would you want your Attorneys under your Property and Financial Affairs Lasting Power of Attorney to be able to use the document as soon as registered, with your consent? Or only once you have lost capacity? These are just some of the questions that may arise during discussions with your solicitor that may otherwise be overlooked should you attempt to set up a Power of Attorney yourself.

Your solicitor can explain what would happen with your Power of Attorney documents should one of your attorneys predecease you or be otherwise unable to act (for example, if your attorney loses capacity).

Your solicitor will analyse your assets and liabilities to identify whether you need a separate power of attorney to cover any business interests.

You may also wish to set out your wishes for how your affairs should be managed; your solicitor will help you to express any wishes you have clearly. They can also advise on how these should be set out to ensure that all eventualities are covered, and your wishes can be carried out as you intended.

Your solicitor will explain the effects of a Power of Attorney to you clearly to ensure that you understand the effect of the document and the power you will be giving to your attorney(s), which can prevent the validity of the Power of Attorney from being challenged at a later date.

If you instruct a solicitor to prepare your Power of Attorney, you can be confident that it will be set up correctly and tailored to meet your individual needs and circumstances. In addition to this, your solicitor can also advise you on any additional steps you may wish to take, such as revising your will or inheritance tax planning.

If you would like a free initial consultation with one of our specialist Wills, Trusts & Estates team, contact us on 01244 356 789 or email info@cullimoredutton.co.uk.

How an AIP will help you secure your dream move

Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Alex Boden

Five reasons you should use a solicitor to write your will

If you are thinking about writing a will, you may have considered doing it yourself. However, there are significant benefits to using a solicitor along with many pitfalls which can be avoided.

In this article, we look at five reasons to use a solicitor such as ourselves to write your will.

As solicitors we know what to ask?
The benefits of instructing us begin at the outset, it is not just the drafting of the will which is important. Writing a will is part of estate planning, and while it is a crucial part, there are many practical and legal matters you may also wish to get in order. We will consider all of the property and interests that make up your estate, ensuring that nothing is forgotten about. We will work with you to create a comprehensive will that accurately reflects your estate and your wishes. Did you know that in your will you can appoint guardians for your minor children?

Your will, will be properly drafted
A will is a formal legal document and, as a result, must meet certain legal requirements. While you may have read and understood what these legal requirements are, can you be confident that you will be able to meet them? If your will is not properly drafted, even the smallest error may render it invalid or leave it open to challenge. An invalid will would result in your estate being distributed in accordance with the rules of intestacy, which may not accurately reflect your wishes. This could result with people you would not wish to benefit receiving monies from your estate. You can save your loved ones difficulty later on and put your mind at ease by instructing us to draft your will properly.

As solicitors we can word the document correctly
Drafting a will is complicated. It requires careful wording and understanding to ensure that your wishes are reflected accurately. Many will disputes arise out of unclear wording, but by instructing Cullimore Dutton you can ensure that your directions are expressed clearly and not left open to interpretation.

As solicitors we understand how to draft a will for complex finances or family structures
If you have complicated finances, or you have even a slightly complex family structure, we would advise you to use a solicitor to draft your will. Drafting a will to account for stepchildren for example, can be complicated. If you prepare a DIY will, you could end up unintentionally leaving those closest to you with no inheritance. Did you know that if you are not married or in a civil partnership, your partner would not inherit from your estate unless you have a will which provides for them?

Inheritance tax planning and Powers of Attorney
As discussed above, writing a will is about more than just setting out where your property will go. With our specialist skills and knowledge you can also plan to mitigate your inheritance tax liability, allowing you to leave more behind for your loved ones. Similarly, when making a will, many people choose to make Lasting Powers of Attorney too. Lasting Powers of Attorney give you peace of mind that, should anything happen to you and you become incapable of managing your own affairs, you know your chosen attorneys will take care of your affairs as you wish.

If you would like a free initial consultation with one of our specialist Wills, Trusts & Estates team please call 01244 356 789 or email info@cullimoredutton.co.uk

Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Alex Boden

Probate: What happens to debt after someone dies?

Many people believe that when a person dies, the debt dies with them, but that is simply not the case.

Similarly, it is a widely held belief that family members are personally responsible for paying debts, but this is not always true.

In this article, we take a look at what happens to a person’s debts after they pass away.

When someone you love has passed away, the last thing you might be thinking about is debt. However, there are many misconceptions about debt and inheritance, and it is essential to understand your position.

What happens when there are debts on an estate?
If a person passes away with debt, debts will typically be paid out of their estate. The estate is made up of all of the person’s assets, including their home, cash, business interests, investments and any other property they may own. It is the role of the executor or administrator to find out what debts have been left behind and work out whether there are enough assets in the estate to cover the debts due. It is important to go through the deceased’s paperwork in detail in order to identify any debts owed and what type of debt it is. It is also important to find out whether there are any guarantors for any of the debts as the guarantor(s) may remain liable for the loan if it is not to be paid from estate monies.

When there is not enough money from available assets to cover all the debt, creditors will be paid out in a certain order until all of the money is gone.

What is the order of priority for debts on an estate? 
Before the executor pays off any debts from the estate, they are permitted to cover costs of the funeral and costs involved in administering the estate. Once they have a grant of probate, they can then begin the process of paying off the debts. Debts must be paid before any money is distributed to the beneficiaries due to inherit either by the terms of the Will or under the rules of intestacy. If there are assets such as a car or valuables, the executor may sell these to pay off debts on an estate. The order in which debts must be paid is as follows:

• Secured debts (for example, mortgage repayments)

• Priority debts (such as income tax and council tax)

• Unsecured debts (such as credit cards and utility bills)

Where there is not enough money to cover all of the debts, this hierarchy ensures the most important are paid off first.

What happens if a debt is held in joint names?
Where a debt is held in joint names, such as a mortgage, the surviving party who is named on the lending documentation will take on liability for the full outstanding amount.

Can debt pass to a spouse or civil partner?
If the deceased borrowed in their name only, the debt will not pass to a spouse, civil partner or any other person, unless they have provided a guarantee on the loan.

If you would like a free initial consultation with one of our specialist Probate team, contact us on 01244 356 789 or email info@cullimoredutton.co.uk

Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.