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Why you must make sure your will is accessible

Archive for December, 2019

Why you must make sure your will is accessible

Wednesday, December 18th, 2019

Do you know where your will is? Even more importantly, do the people who will act as your executors, in the event of your death, know where your will is stored?  

The recent discovery at Lloyds Banking Group that 9,000 wills had been left in storage and not passed on to customers serves as a stark, cautionary tale. The bank is now desperately trying to match envelopes with the relevant families.  

The wills were kept in the bank’s ‘Safe Custody’ service – an ironic name given that the custody actually proved too safe, with no one knowing about the wills’ existence. The service closed to new customers in 2011.

The error means that some executors may have administered a deceased’s estate using what turned out to be the wrong will, unaware that the right one was stored at Lloyds. As a result, some families are having to re-examine old bequests years after they were thought to have been settled.     

Not only will this have caused great inconvenience, it will also have been incredibly distressing for those involved. 

Michael Culver, chairman of Solicitors for the Elderly, commented that the processing failure could lead to estates being wrongly distributed, contentious probate claims, negligence claims against executors and administrators, issues with tax payments and, ultimately, the last wishes of the deceased not being honoured.     

The bank, however, has said that it was only in a small percentage of cases that they did not trace the will when a customer died. According to their spokesperson, 90 per cent of the newly discovered wills had already been superseded by a later will or there were copies available elsewhere. In some cases, the estates were declared intestate but had been distributed in line with the deceased’s wishes anyway.         

What action can be taken? Families affected should make a complaint to the Financial Ombudsman and a counter claim against Lloyds directly. Compensation will be offered, including legal costs, and LLoyds have promised that it won’t claw back assets given to the wrong people. 

As for the future, what lessons can be learnt? It is recommended to always register a will. This case illustrates that it is often better to use a solicitor, who will be specialised in making and storing wills, rather than a high street bank. You can also register a will with the Probate Service for a one-off fee of £20. 

The Society of Trust and Estate Practitioners (STEP) advises against safety deposit boxes for wills as it means the executor cannot get access until they get probate and this cannot be granted without a will, so it becomes a bit of a Catch 22 situation.  

If you do have a will stored in a safety deposit box, consider moving it elsewhere to ensure it is accessible. Make sure its whereabouts is known to your executors. It may not be something you or your family want to think about right now but it could save a lot of stress and worry at a difficult time later.

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What can go wrong with the Bank of Mum and Dad?

Wednesday, December 18th, 2019

Being part of the sixth largest lender in the whole of the UK can be a challenge. Especially when you’re completely unregulated and financial qualifications are a rarity. But it hasn’t stopped the Bank of Mum and Dad from lending or gifting over £6.3 billion in 2019. 

A report, published in January 2019 by the London School of Economics, found that around half of the funds provided were for deposits for house purchases, with the remainder being used for associated costs, such as stamp duty and legal costs.

While the name contains the word ‘bank’, most parents don’t actually act like one. Few take legal or financial advice on either side of the exchange. There is rarely a written record of the transactions and families tend not to discuss arrangements for repayment. That’s because people, in general, are uncomfortable talking about money. 

So, how do we remedy this?

Gifts

Though it can feel overly official, preparing a Living Together Agreement (LTA) with the advice of a solicitor is one of the preventative tools available. Creating a legal framework will help to give you peace of mind, knowing that the gifts will remain in the hands of intended beneficiaries. 

Stamp Duty Land Tax

There is a higher rate of SDLT for property purchases when the buyer is already a property owner. Tax equal to 3% of the total purchase price will be added to the standard rate of SDLT. Although the rate is nil on the first £125,000 of the purchase price with the standard rate, the same does not apply for higher rates. So it’s worth thinking about who is actually going to  make the purchase of the property if you’re planning to help your children out this way. 

Buying with a friend or partner

If your child is unmarried and buying with a partner, it’s worth considering an LTA. This provides an opportunity for all parties involved to discuss and record any third party contributions from the Bank of Mum and Dad. An LTA also creates a safety net should the relationship breakdown. 

If the child intends to allow another person to live in the property, it’s a good idea to make sure a Tenancy Agreement is also drawn up alongside the LTA in order to set out the exact responsibilities of both parties. 

Joint mortgage

Many parents are turning to joint mortgages between themselves and their children, however it comes with financial implications for Mum and Dad. The property would be taxed as a second home and the additional 3% SDLT would be applicable. If the house was sold in the future, the parents could be landed with a Capital Gains Tax bill of up to 28% on the increased value. 

It may be worth considering a Joint Mortgage Sole Owner Arrangement (JSMO) instead, meaning that borrowers can call upon the support of their parents by combining family resources in the short term to achieve home ownership with less difficulty than if they were to apply alone. In short, a JSMO means that the family members join the mortgage in support of the owner, and will not be counted as joint owners, therefore avoiding the additional SDLT charge. 

It isn’t easy being part of one of the largest lenders in the country and it’s a given that you’ll want to support your children as they grow up and fly the nest. But by thinking ahead and carefully considering the options, you can give yourself greater peace of mind. If you’d like to discuss any of the issues mentioned, please do not hesitate to get in touch.   

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Gender gap even affects children’s pensions

Thursday, December 5th, 2019

 We’re familiar with the gender gap in pensions for adults but there is evidence that this actually starts much earlier on. According to data from HMRC, parents and grandparents are more likely to save into a boy’s pension than a girl’s.

A Freedom of Information request by Hargreaves Lansdown revealed that 13,000 girls aged 15 or under had money paid into a pension for them in 2016/17 compared with 20,000 boys. The disparity means the pension gap can actually start from birth onwards. 

This only exacerbates the situation as women are likely to have less in their pension due to the gender pay gap. Nest found men are twice as likely to be in the highest income bracket and women are three times as likely to be earning less than £10,000 per year, which is the auto enrolment threshold for a single job.

Women are also more likely to take career breaks or work part-time to bring up a family. Added to which, they are more likely to live longer and spend longer in retirement so, in reality, will need more in their pension pot than men.       

Research in 2017/18 by the union Prospect found that the pensions gender gap equated to 39.9 per cent or a £7,000 gap in retirement income between women and men.  

Hargreaves Lansdown has calculated that paying £100 per month into a child’s pension until the child reaches 18 can increase their savings by as much as £130,000 by retirement. Yet the cost is only £21,600 plus tax relief of £5,400. Forward planning pays off!

Someone without any earnings can pay up to £2,880 each year into a pension and receive 20 per cent tax relief (up to £720) so it’s possible for parents and grandparents to make a significant difference to a young person’s financial future by starting a plan early. An added advantage is that once the money is in a pension, it can grow without attracting capital gains tax.              

It’s unclear why the anomaly between paying into boys’ and girls’ pensions has existed in the past. Some feel it may be because gifting has traditionally come from the baby boomer’s generation where men were more likely to have had the greater share of pension in retirement. 

Whatever the reason historically, the current message is to use children’s pensions to give the younger generation a helping hand but to do it equally.

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Sole trader vs limited company?

Thursday, December 5th, 2019

When people are setting up a business, one of the first questions they have to grapple with is what legal structure they are going to trade under – sole trader, limited company or partnership.

If you’re one of our clients, you will already have made this decision but we thought it would be useful to give a quick outline of the differences.  

Sole trader

Being a sole trader is the most popular legal structure. Approximately 3.4 million sole proprietorships were created in 2017 and they accounted for 60% of small businesses in the UK. 

On the plus side, there are no set up costs and it’s very simple to get up and running. The only requirement is to inform HMRC by 5th Oct of your business’ second tax year. There is very little paperwork and you don’t have to have any dealings with Companies House. None of your information is held on the public record.    

As a sole trader, however, you are completely responsible for your business and its finances. You need to be aware that if your business goes bust or you have any business debts, your personal finances and assets could be in danger. Legally, your liability is unlimited.

It’s advisable, therefore, to take out small business insurance policies. This way you can avoid getting sued personally should there be any legal disputes. Remember, the buck stops with you! 

You and your business are treated as a single entity, which is also significant for tax purposes. You will have to pay tax on the profits that are above your personal tax allowance (£12,500 for the 2019/20 tax year). This is calculated through the self-assessment system and you will also pay Class 2 and Class 4 NICs.

Being a sole trader is thought to be less tax efficient than being a limited company as there is less opportunity for tax planning via the self-assessment system. 

Limited company

The second most popular legal structure is a limited company of which there were 1.9 million in 2017. There is a certain amount of paperwork required and you need to deal with Companies House but it is relatively straightforward. Note that your company details will be on public record.   

The main advantage of having a limited company is that you have limited personal liability should something go wrong. The business is treated as a separate entity from its owners so your own assets are protected.    

Despite the higher dividend taxes that were introduced in 2016, a limited company is still  considered to be more tax efficient. The company will pay corporation tax and dividend tax and employer’s Class 1 NICs on salaries, while staff pay employees’ Class 1 NICs on salaries. Under the limited company structure, there are more possibilities for tax planning by delaying dividends, for example, until a future tax year to minimise the tax liability. 

One of the disadvantages, though, is that you are obliged to prepare annual accounts which need to be filed with Companies House. You also need to file a full set of corporate tax accounts for HMRC. As a limited company, it’s advisable to use an accountant to make sure the accounts are done thoroughly.

In our article next month, ‘Do you need an accountant?’, we’ll be looking at this in more detail.  In the meantime, if you know anyone who has any questions about the right company structure for them, we’re always happy to have a chat.    

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