Reviewing your client’s Will

When a wealth planner or financial adviser takes on a new client it is usual to ask to see the client’s Will if they have one in place.

Although we recommend that Wills should be reviewed every five years, or on a major change of circumstances, clients may have Wills that were drawn up some time ago. Recent changes could have an impact on how the Will has been drafted or trigger a full scale re-consideration of the terms of the Will.

Residence nil rate band (the RNRB)

The RNRB was introduced in 2017 and is a valuable relief which can exempt up to £350,000 of a couple’s home from IHT if it is closely inherited by their children, grandchildren or their descendant’s spouse. The RNRB is, however, a complicated relief and the way a Will is drafted can impact on its availability. Although changes may not be necessary to the Will for this reason alone, clients should be aware of the necessity to plan for action to be taken after their death.

For example, discretionary trusts are common in Wills and used because of their inherent flexibility and potential IHT saving over a generation. However, a house that falls into a discretionary trust will not be regarded as “closely inherited”. This means that action will have to be taken within two years of your client’s death to ensure that at least part of the house is either passed outright to the children, or possibly put into a life interest trust for them. If your client has a Letter of Wishes it would be advisable if this were amended to flag this issue for the executors of the Will.

If the client has assets in excess of £2.3 million (£2.7 million for a couple) then the tapering of the RNRB’s availability means that they will have no entitlement to the RNRB, in which case the creation of trusts on the first death or planning lifetime gifts may be advisable.

Pilot trusts

Pilot trusts were often used before 2015 as each trust could benefit from a full IHT nil rate band; so you may still come across older Wills with gifts to pilot trusts in them. These trusts no longer have the same IHT advantage and multiple trusts will trigger multiple registration requirements with the Trust Registration Service (TRS) and will incur higher administration costs. Some clients prefer to have separate trusts for each branch of the family, but, if this is not a concern, re-drafting the Will and winding up the pilot trusts could be considered.

Nil rate band discretionary trusts (NRBDTs)

NRBDTs were used before 2007 to achieve IHT efficiency for couples, but following the introduction of the transferable nil rate band for married couples and civil partners  they no longer enjoy the same level of popularity. NRBDTs can, however, still offer benefits including reduction of the survivor’s estate to increase entitlement to the RNRB, IHT efficiency for couples where one or both of them have been previously married and then widowed, and protection against care fees and other third party claims.

If your client is the survivor of a couple, and the deceased partner’s Will included a NRBDT, a check should be carried out to determine whether it has been properly constituted as the NRBDT can be ignored in estates which have not been administered by professionals and this can have unwelcome IHT consequences.

If the NRBDT has been set up using a loan and charge arrangement over the family home, it should be checked to confirm that the surviving spouse has sufficient equity in the house to fully utilise the RNRB .

The Trust Registration Service (TRS)

If your client’s Will sets up a trust of any kind they should be made aware that if the trust is in existence for longer than two years from their death it will have to be registered with the TRS. For example, a discretionary trust in a Will which distributes its assets within two years of the deceased’s death will not have to register. If, however, the same trust is still in existence two years and one day after the deceased’s death it must be registered.

It is common for Wills to include legacies to minor beneficiaries, for example, grandchildren, and often such legacies are conditional on the beneficiary reaching a certain age such as twenty-one. If the beneficiary has not reached the specified age at your client’s death, and does not do so within two years, a trust arises which will have to be registered with the TRS.

For example, Margaret dies in March 2023 leaving a legacy of £5000 to her grandson George contingent on him reaching the age of 25. George was born in January 2007 and is 16 at the time of Margaret’s death. When two years have expired from Margaret’s death the trust must be registered with the TRS as George is under 25. By comparison if there were no contingency as George will reach 18 within two years, he will be entitled to the legacy and there will be no TRS requirement.

In the example above, the trustees of the legacy could decide to advance the money to George at 18 to bring the trust to end within the two-year period. Alternatively, if the legacy is not a large one your client might consider whether the age specification in their Will should be removed; no TRS registration will then be needed provided the legatee is over eighteen at the time of your client’s death (or within two years of your client’s death), which is when they will become entitled to the legacy. Legacies to your client’s children are not generally caught by this, provided the age specified is 25 or under.

Age contingencies on gifts of residue to grandchildren can also potentially cause problems with entitlement to the RNRB as the gift to them will not be closely inherited if they are under the specified age.