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Wills: a few words

12 June 2018


Karl Tausch seems to have been a man of few words.  His will read simply “Vse zene” (which is apparently Czech for “all to wife”) and is said to be the shortest valid will on record, beating the testator in the 1906 English case of Thorn v Dickens, whose will read “All for mother” (by which the testator meant not his mother, but his wife!).

Wills, then, do not need to be lengthy.  But whether long or short they do need to be appropriate and up to date.

One way in which existing wills may benefit from review is in relation to the transferability of the Inheritance Tax nil rate band (“NRB”) between spouses or civil partners, which was introduced as long ago as 2007.  Before the law was changed, wills such as that of Mr Tausch (had his estate been subject to UK IHT) were potentially inefficient.  Although the exemption for inter-spouse transfers ensured that there was no tax due on the death of the first spouse to die, there would be only one NRB available on the subsequent death of the surviving spouse.

The conventional solution was to draft wills so as to ensure that on the death of the first spouse the value of assets left other than to the surviving spouse was sufficient to utilise the NRB that would otherwise be wasted.  Sometimes this might be achieved by leaving assets to children: alternatively, a trust would be used.  Hence the prevalence of the “nil rate band discretionary trust” in wills of that time.

Since 2007, any NRB that is not used on the death of a spouse is available (broadly speaking) to be used on the subsequent death of the surviving spouse.  Thus nil rate band discretionary trusts become in some cases an unnecessary complication to a will and potentially a burden to the executors: consideration should be given to removing them.

But as one door opens another closes.  2017 saw the introduction of the “residence nil rate amount” (“RNRA”).  This is an extra nil rate band which is available only against the value of the deceased’s home (or in some circumstances against other assets where the deceased used to own a home but doesn’t do so at the date of death – the rules are complicated).  The point here is that although any unused RNRA is in principle transferred to a surviving spouse in much the same way as the NRB, the RNRA is restricted or denied if the death estate exceeds £2m.

So, in a case where the joint estate of a husband and wife (or civil partners) exceeds £2m but the individual estates of each spouse (or civil partner) do not, any RNRA that is unused on the death of the first to die is indeed transferred; but is then restricted, possibly to zero, in the hands of the second to die.  In situations like this, it may be worth drafting the will so as to ensure that the RNRA is used on the first death.

It’s also worth pointing out that for some years now a reduced rate of IHT has been chargeable (36% in place of 40%) if the amount that you leave in your will to charities is (broadly – the computations can get quite involved) at least 10% of your estate.  The “take-away” point here is that if your current will makes charitable gifts that are below the critical threshold, the tax saving effected by increasing the gifts up to 10% may be greater than the increase itself and thus increase the net-of-tax estate available to your other beneficiaries: a win both for the charity and for the beneficiaries.

For more on updating wills, please get in touch with your usual BKL contact or use our enquiry form.