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Expat Investor : November 2008
ESTATE MANAGEMENT Minimise the IHT bill on your family home Six tips from Vantis to help expats take advantage of existing exemptions and preserve the family home. becoming a more popular solution. 2) Spousal exemption. A more esoteric option is for married couples to utilise the exemptions for couples in the various tax acts. Using this method, a sale of assets takes place and a debt is created between spouses. This is then given away to children or grandchildren. The value of the asset is removed from the estate while the couple retain the benefit of the asset in their lifetime. Stamp duty is payable on the sale of the asset. 1) Raise cash using the house as security. Then gift the cash absolutely or to a trust, both options would require the donor to survive seven years. Although this is the simplest solution, people generally have been reluctant to encumber themselves with debt late in life. But attitudes are beginning to change and this is 3) Gifting a property into trust and then paying rent. Gifting a property outright whilst continuing to enjoy the use of it is not possible because of various anti-avoidance provisions. However, a person can still either gift a property outright or into a trust and continue to occupy it provided they pay full commercial rent. In this scenario, there are income tax and capital gains tax liabilities arising, so calculations need to be made to ensure the process is worthwhile. 4) Gift followed by lease back. In cases where there is a main residence and substantial cash assets the property can be gifted as above and, after a suitable period of renting, the occupiers can decide to buy the lease to live there for the rest of their lives. The value of the lease must be calculated by actuaries and is either paid to the beneficiaries or into a trust. This provides the opportunity to remove the cash from the estate without the seven year run-off associated with gifts. 5) Purchased outright by children. In some cases the beneficiaries of the property, usually the children, are able to buy the property outright subject to the parent’s right to occupy it for the remainder of their lives. Trusts may be used in certain situations to acquire the property from the parents and would have to be considered on a case-by-case basis to ensure that there are also beneficial CGT consequences. 6) Cohabitation and co- ownership. A parent can give away as much of the family home as they want provided they co-own and co-habit the property. However, they must prove that they are not benefiting from the gift by paying equal amounts or more in rates and utility bills as their donees. Contestants for your last Will and Testament How often do we hear of families permanently falling out over a controversial Will? Manchester law firm Rowe Cohen, explains how to avoid a battle starting up over your Will. be established to contest a Will are lack of mental capacity, and undue influence or failure to comply with formal requirements. However, others who feel they have been unfairly overlooked may make a claim under the Inheritance Provisions for Family & Dependents Act 1975. Claimants should be aware that this is not the same thing as claiming a Will is invalid. Making and distributing copies of your updated Will is advisable if you wish to avoid bitter family wrangles: There are no formal requirements to make copies of a Will or inform beneficiaries that they are included. However, it is common sense to keep people up- to-date with your plans and to be transparent, particularly if there are particular family issues or conflicts in the background. If a close relative isn’t included in a Will it is good practice to make a declaration in that Will as to the reasons why. Solicitors should offer a safe storage service where the original copy can be kept. If you want to keep the original then a good solicitor will also retain a copy. If you update or change your Will then you don’t have to use the same solicitor. Faking a Will is a criminal When someone dies there are often family members or friends who are disappointed that they didn’t get left enough, or anything at all, of an estate. Getting together enough evidence to contest a Will is 14 EXPAT INVESTOR ? complicated and can be expensive. People must tread carefully; these matters can take years to resolve. With smaller estates, any benefit gained from contesting a Will may be counterbalanced by legal costs November 2008 draining the estate. Although the grounds for contesting a Will are limited, there is always the chance a good claim can be made. The key grounds which need to expatinvestor.com offence and offenders could face jail. This is why it is so important that people invest in a professionally prepared Will rather than buying a so-called DIY Will. Getting it wrong can be costly and a straightforward professionally drawn up Will is not as expensive as some people may imagine. Anybody making a Will should also consider making an Enduring Power of Attorney (EPA) in case of illness or accident which prevents them from looking after their own financial affairs. This allows named and trusted individuals to take care of their financial affairs in those eventualities. For example, people in the early stages of Alzheimer’s should make an Enduring Power of Attorney (EPA) as long as they understand the nature and effect of the document. In some cases, if the condition is too advanced it may be too late and it would then become necessary to involve the Court of Protection. However, the procedures are soon to change and it will become more expensive and complicated when the Mental Capacity Act comes into force. People should act now if they want to secure their finances against this eventuality. Six top Will tips 1) Inform the family of your plans, especially any Will changes. 2) Ensure that your executors know the whereabouts of the original Will. 3) Ensure your solicitor always has your up-to-date original Will locked away. 4) If a close family member is excluded, record the reasons why in the Will. 5) Have your Will drawn up professionally. 6) Consider nominating an Enduring Power of Attorney (EPA).