In recent days, two major issues highlighting what the state can take from your estate when you die have been in the national news.
The first is the increase in probate courts fees. Whereas previously a flat fee of £155 or £205 was payable regardless of the size of your estate, the fees now payable are as follows:
- £300 for estates worth more than £50,000 and up to £300,000
- £1,000 for estates worth more than £300,000 and up to £500,000
- £4,000 for estates worth more than £500,000 and up to £1m
- £8,000 for estates worth more than £1m and up to £1.6m
- £12,000 for estates worth more than £1.6m and up to £2m
- £20,000 for estates worth more than £2m
These huge increases are viewed by many as yet another stealth tax, levied on an easy target.
The second eye opener is the recent case of Illot v Mitson, which went all the way to the Supreme Court and concerns how to apply the law that is contained in the Inheritance (Provision for Family and Dependents) Act 1975 (IPFDA).
IPFDA law states that where an individual has died without making ‘proper’ provision in their Will for a relative or dependent, a judge has wide discretion to order a redistribution of the deceased’s assets in order to produce what he/she regards as a ‘fair’ result.
Relatives and dependents who can make an IPFDA claim include a spouse, a child, and the deceased’s common law partner. The Act takes effect even if you are estranged and have good reason for not wanting the ‘dependent’ to benefit.
In Illot v Mitson, the estranged daughter (Mrs Illot) eventually received £50,000 from the estate despite the deceased’s very specific instructions to the contrary.
Whilst the case wound its way up through the lower courts and all the way up to the Supreme Court various different judges gave their divergent views on just what ‘proper provision’ and a ‘fair result’ means. So despite the Supreme Court ruling, there is still considerable doubt as to which claims will succeed and the amounts that may be awarded.
If you have immediate family or dependents who you do not wish to benefit on your death, IPFDA is a potential problem you need to be aware of.
So what can you do to avoid or mitigate the above costs?
One alternative is to consider settling some of your assets on a lifetime trust. That will reduce the value of your estate and therefore the probate court fees, and it should also prevent an IPFDA claim on any assets that are in trust (provided the gift is made at least 6 years prior to death).
Importantly, a gift into trust (as opposed to an outright gift) allows you to retain significant control over the assets gifted, even though you are no longer the beneficial owner.
For example, you could put your home into trust during your lifetime and retain the right to live there for the rest of your life, and the property will not form part of your estate.
Lifetime trusts also come with other benefits:
They can protect against your assets being used to contribute towards care fees.
Assets placed in trust at a point in your life when care home fees are not a realistic prospect cannot be appropriated for payment of fees if you subsequently go into care.
A trust gives your loved ones immediate access to assets and funds held within them following your death.
By contrast, it may take months to access assets in your estate because of the probate process.
The administration of an estate following a death is a heavy burden at a very difficult time. The process can take anything from a few months to several years to fully complete, and to do the job correctly requires specialist knowledge of law, tax, and accounting matters.
That means employing professionals which comes at a significant cost. If your assets are in trust, the professional fees for estate administration can be greatly reduced or even eliminated.
Sutton McGrath Hartley is a multi-disciplinary firm of Accounting & Business Advisory, financial advisers and lawyers offering comprehensive financial expertise for all business, personal and family interests.
Our specialist Wills & Probate department can help with wills, trusts and estate planning. To discuss your requirements please contact any of the following:
David Sutton (Sheffield office): 0114 2664432, or dsutton@suttonmcgrathartley.co.uk
Ben Schofield (Rotherham office): 01709 872106, or bschofield@smh.group
Katy Burgin (Chesterfield office): 01246 274121, or kburgin@smh.group
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