Inheritance

Legal Framework

Inheritance in the UK is governed by a combination of statutes, common law principles, and case law. The key pieces of legislation include the Wills Act 1837, the Administration of Estates Act 1925, the Inheritance (Provision for Family and Dependants) Act 1975, and the Inheritance Tax Act 1984. These laws outline the procedures for drafting wills, administering estates, and ensuring that the deceased’s wishes are carried out while protecting the rights of dependents and beneficiaries.

1. Wills Act 1837: This Act sets out the requirements for creating a valid will, including the need for it to be in writing, signed by the testator (the person making the will), and witnessed by at least two independent witnesses.
2. Administration of Estates Act 1925: This Act provides the legal framework for administering the estates of deceased persons, detailing the roles and responsibilities of executors and administrators.
3. Inheritance (Provision for Family and Dependents) Act 1975: This Act allows certain individuals to make claims against an estate if they believe they have not received reasonable financial provision.
4. Inheritance Tax Act 1984: This Act outlines the rules and rates for inheritance tax, a levy on the estate of a deceased person above a certain threshold.

Key Aspects of Inheritance

1. Wills: A will is a legal document that sets out how a person’s estate should be distributed after their death. It allows individuals to specify beneficiaries, appoint executors, and make provisions for dependents. A well-drafted will can prevent disputes and ensure the deceased’s wishes are respected.
2. Intestacy: When a person dies without a valid will, they are said to have died intestate. In such cases, the distribution of the estate is governed by the rules of intestacy, which may not reflect the deceased’s wishes. The intestacy rules prioritise spouses, civil partners, and close relatives in a predetermined order.
3. Executors and Administrators: Executors are individuals named in a will responsible for administering the estate. If there is no will, administrators are appointed to fulfil this role. Their duties include collecting and valuing assets, paying debts and taxes, and distributing the remaining estate to beneficiaries.
4. Probate: Probate is the legal process of proving a will’s validity and administering the estate. It involves obtaining a grant of probate (if there is a will) or letters of administration (if there is no will), which give the executors or administrators the authority to manage the estate.
5. Trusts: Trusts can be established through a will or during a person’s lifetime to manage and protect assets. They involve appointing trustees who hold and manage the assets for the benefit of beneficiaries, according to the terms of the trust deed.

Inheritance Tax (IHT)

Inheritance Tax is a significant consideration in estate planning. It is levied on the estate of a deceased person if the value exceeds a certain threshold. Understanding the rules and strategies for minimising IHT is crucial for effective estate planning.

1. Thresholds and Rates: As of the current tax year, the IHT threshold (or nil-rate band) is £325,000. Estates valued above this amount are taxed at 40% on the excess. An additional residence nil-rate band (RNRB) of £175,000 may apply if the deceased leaves their home to direct descendants.
2. Exemptions and Reliefs: Various exemptions and reliefs can reduce the IHT liability, including:
   • Spouse or Civil Partner Exemption: Transfers between spouses or civil partners are generally exempt from IHT.
   • Charitable Donations: Gifts to registered charities are exempt from IHT.
   • Annual Exemption: Individuals can give away up to £3,000 each year without it being added to the value of their estate for IHT purposes.
   • Business and Agricultural Reliefs: Significant reliefs are available for qualifying business and agricultural property, potentially reducing the IHT on these assets by up to 100%.
3. Lifetime Gifts: Gifts made during a person’s lifetime can also affect the IHT liability. These include Potentially Exempt Transfers (PETs), which become exempt if the donor survives for seven years after making the gift, and Chargeable Lifetime Transfers (CLTs), which may incur immediate IHT if certain thresholds are exceeded.

Practical Considerations

Effective inheritance planning requires careful consideration of various factors to ensure the deceased’s wishes are fulfilled, and the beneficiaries are adequately provided for.

1. Drafting a Will: A well-drafted will is the cornerstone of effective estate planning. It should be clear and unambiguous and regularly reviewed to reflect changes in circumstances, such as marriages, divorces, births, or significant changes in asset value.
2. Choosing Executors and Trustees: It is vital to select trustworthy and capable executors and trustees. They should be willing and able to fulfil their duties, and it may be prudent to appoint professionals for complex estates.
3. Estate Valuation: Accurately valuing the estate is essential for calculating IHT and ensuring fair distribution. This process involves valuing all assets, including property, investments, personal belongings, and any business interests.
4. Addressing Debts and Liabilities: The estate must settle all debts and liabilities before distributing assets to beneficiaries. This includes outstanding mortgages, loans, credit card debts, and any taxes due.
5. Communication with Beneficiaries: Clear communication with beneficiaries can help manage expectations and prevent disputes. Providing regular updates on the probate process and explaining decisions can foster transparency and trust.
6. Mitigating Inheritance Tax: Implementing strategies to reduce IHT liability is a critical aspect of estate planning. These strategies can include lifetime gifting, making use of exemptions and reliefs, setting up trusts, and considering the timing of asset transfers.
7. Dealing with Disputes: Disputes can arise among beneficiaries or between executors and beneficiaries. Having a well-drafted will and clear communication can help prevent these issues, but legal advice may be necessary to resolve disputes effectively.

Case Studies

Case Study 1: Family Estate

John, a widower with two adult children, passes away with a sizeable estate valued at £1.5 million. He has a will that leaves his entire estate to his children equally. The estate includes a family home worth £800,000, investments, and personal belongings. John’s will appoints his solicitor as the executor.

The solicitor first applies for a grant of probate and then proceeds to value the estate. They claim the RNRB due to the home being left to direct descendants, reducing the taxable estate. After settling all debts and IHT, the executor distributes the remaining estate to John’s children as per his wishes.

Case Study 2: Blended Family

Sarah, who has remarried and has children from both her first and second marriages, dies without a will. Her estate, worth £600,000, is subject to the rules of intestacy. Under these rules, her current spouse inherits the first £270,000 and personal belongings, with the remainder split between the spouse and Sarah’s children from both marriages.

The absence of a will complicates the distribution, leading to potential conflicts among the beneficiaries. The appointed administrator seeks legal advice to navigate the intestacy rules and ensure fair distribution, emphasising the importance of having a valid will to address the needs of a blended family.

Legal Advice and Support

Navigating the complexities of inheritance requires expert legal advice. At DLS Solicitors, we specialise in probate and estate planning, offering comprehensive services to ensure that our clients’ wishes are respected and their beneficiaries are protected.

1. Will Drafting and Review: We assist clients in drafting clear, legally sound wills tailored to their unique circumstances. Regular reviews ensure that the will remains up-to-date with any life changes or legislative updates.
2. Probate and Estate Administration: Our experienced solicitors provide support through the probate process, from applying for grants of probate to valuing and distributing the estate. We ensure compliance with all legal requirements and handle any arising disputes.
3. Inheritance Tax Planning: We offer strategic advice on minimising IHT liabilities, including utilising exemptions, reliefs, and lifetime gifting. Our goal is to help clients protect their wealth for future generations.
4. Trusts and Estate Planning: We advise on the creation and management of trusts, ensuring that assets are protected and managed according to our clients’ wishes. Trusts can provide significant tax advantages and offer flexible solutions for complex family situations.
5. Dispute Resolution: When disputes arise, our solicitors provide expert mediation and legal representation to resolve conflicts efficiently and fairly, ensuring the estate is administered smoothly.

Conclusion

Inheritance is an important aspect of estate planning, which includes drafting wills, estate administration, and strategic tax planning. Understanding the legal framework, key components, and practical considerations of inheritance can ensure that a person’s wishes are fulfilled and their beneficiaries are well provided for.

At DLS Solicitors, we are dedicated to providing expert legal services tailored to our clients’ unique needs. Whether it’s drafting a will, navigating probate, or planning to minimise inheritance tax, our team of experienced solicitors is here to offer clear, practical, and client-focused advice and support.

Through careful planning and professional guidance, we help our clients manage the complexities of inheritance, ensuring peace of mind and the protection of their legacies for future generations.