Financial Planner Carl Martin CFP^CM helps a family deal with the loss of two relatives and untangles a multitude of problems caused by one member's poorly drafted will.

Siblings William and Bella came to see me following the death of their father and their older brother, Alan, within six months of each other. Both were married with dependent children. They were worried about their mother, Vera, who was just getting over the death of her husband only to lose her eldest son too. Vera had developed a drinking problem.
They required help in making sense of Alan's Will, his assets and their responsibilities as executors. Alan was an NHS surgeon, never married and with no children. He was not meticulous and he had a lot of policies to get to grips with.
Alan's Will left legacies to the children, family and friends and instructed that all other assets should go to his mother and he wanted the children to benefit following Vera's death. The Will stated that the NHS Death in Service payment was to go to William and Bella equally. Bella was referred by her father in law, an existing client, following issues with other advisers. Both agreed to utilise me for the financial administration of the estate.

My first meeting with William and Bella was to gather information about Alan, his finances, the other professionals I would be liaising with and review the Will itself. There were several large files with various documents contained in each and gathering the information on each of these for probate purposes was going to take a long time. Included within this file was paperwork relating to the NHS pension scheme. Alan also had a home worth £400,000 with no mortgage secured against it. The Will was potentially a problem. It quickly became apparent that it was a very poorly drafted Will; put together by a company that churn them out for a very small fee but write themselves in as an executor for a fee of five per cent of the new estate value. On seeing this, I advised William and Bella to see if they could get out of this clause and use a professional solicitor. This would still be expensive but less than five per cent of the estate value. I reminded them to obtain a fee estimate in advance of authorising them to undertake any work.
At this stage it appeared to be a simple enough task of gathering the assets and providing a summary to the solicitor with evidence so they could agree the figures to be provided to HMRC. We agreed a fee, signed authority letters and got to work.

Three weeks later, we had most of the information and I called Bella to provide an update. She confirmed that they had been able to remove the executor company and asked if I could recommend a good solicitor to them to undertake the probate work; which I did and following an initial discussion they where happy with the fee estimate. This was good news.
A week later I had to report back some bad news. Bella came in to see me. It appeared that Alan had not completed a nomination form for the Death In Service benefit from the NHS scheme. Normally this would not be an issue but as the NHS scheme is not established under discretionary trust law, but under statute instead, any payments made without a completed nomination form (except to a spouse) must form part of the deceased's estate. The payment from the NHS was for £480,000.
As Alan's other estate assets already exceeded the available Nil Rate Band, this entire amount would be subject to IHT at 40 per cent. We made a petition to the Trustees of the NHS scheme to follow the instructions of the deceased as per his Will – ultimately though; this was rejected due to the scheme rules. The executors decided to also make an attempt at reversing this by writing to the Secretary of Health – again this was rejected.
As a final last-ditch attempt, I decided to contact the financial adviser of the deceased to see if any of this was ever discussed. The adviser confirmed that they had discussed it and had a copy of the completed nomination form and acknowledgment of receipt from the NHS and was more than happy to send the executors a copy. Upon presenting this to the NHS, they conceded to pay out the sum as per the copy form – although they confirmed that this was not usually the case as they insist on the presentation of the original form.
With details of Alan's estate gathered together I scheduled a meeting with the executors to present the details, hand back any original documents and settle the agreed fee. During the discussion that followed, it became apparent that both William and Bella were concerned about Vera's deteriorating health and the fact that she inherited most of the estate from Alan. Also, they were unsure what was best for the £240,000 each they were about to inherit. The whole family's next financial step needed to be clarified. I confirmed that I would be more than happy to advise them all, either together or individually if they preferred, in order to help them meet their financial goals.
It was agreed the first step would be to finalise Alan's estate and then to schedule a meeting to handle their financial plan.

Unfortunately, as should be expected when dealing with HMRC, a review was carried out on the estate of Alan. HMRC argued that as the NHS Death In Service payment was not made to a spouse, it was subject to IHT as it was paid into the estate.
The executors argued that the trustees of the NHS scheme agreed it was not to form part of the estate and that is why they drafted a cheque payable to them personally rather than the executors of Alan's estate. The trustees decided not to volunteer any information and just answer the questions they were directly asked in writing.
As this point is still in contention, I advised William and Bella that they should keep the funds safe until a conclusion is reached and then we would look to discuss their personal next step which was advising Vera. Vera, prior to the inheritance from her son, had a total estate estimated at £1 million. Vera felt she had just the right amount of income to support her lifestyle and drew down on the capital for holidays and other luxury expenses.
Vera's estate benefitted from a total Nil Rate Band of £650,000 following the death of her husband, which resulted in her inheriting the whole of his estate. From Alan's estate she inherited his home, which was valued at £400,000, and £100,000 of cash. Right at the start of our meeting, Vera confirmed to me that she wished to follow the spirit of Alan's Will (that is that she could benefit from the assets but that they were ultimately to go to her grandchildren – of which there were four aging from one year old to 17 years old).
We proceeded to talk about Trusts and how they could work in this situation. How they could protect the assets for the benefit of the children and even benefit any future grandchildren. I highlighted how the Trust could help stop the loss of assets on deathordivorce. Most importantly though,as long as one particular type of trust was not used, the decision over when the children benefit from the trust is entirely in the hand of the trustees, people who Vera could choose.

I then proceeded to highlight the benefits behind undertaking a Deed of Variation to change Alan's Will to pass the assets into the Trust, thereby not utilising any of Vera's Nil Rate Band for IHT purposes. Under this route, it would be possible to establish an 'Immediate Post Death Interest In Possession' Trust. Vera herself could be nominated as the 'Life Tenant' and reserve the right to draw upon any income produced by the Trust during her lifetime. The grandchildren would then be listed as the 'Remaindermen' who only benefit at the discretion of the Trustees and only after the Life Tenant has died.
I explained that this type of Trust would benefit from the advantages of the Discretionary Trusts (that is ability to accumulate income, trustees discretion over distributions to the remaindermen) but should not be subject to the high income and capital gains tax treatment of discretionary trusts (as the Trust pays at the basic rates and the beneficiaries pay the additional or reclaim under self assessment using HMRC R185 forms). The Trust should also be able to avoid paying and IHT under the relevant property regime as the entry tax charge is nil due to the fact that it was set up post-death. We went on to discuss the disadvantages of using Trusts and the responsibilities of the Trustees throughout the life of the Trust. Also, the issues relating to holding a residential property in the Trust, the need to get this rented out in order to be seen to be obtaining a return for the beneficiaries, and the costs involved in running a rental property. I also highlighted the need to engage the services of a suitably qualified and experienced accountant to look after the tax payable by the trust.

I went on to recommend they use the same solicitor to draft the trust deed and the Deed of Variation to Alan's Will.
I saw the solicitor with Vera, William and Bella and presented our findings. The solicitor agreed that the proposal would suit everyone's goals. Further to my private discussion with the solicitor beforehand, specific checks were made to ensure there was no undue pressure being put on Vera and that she was competent bearing in mind her current alcoholism. William and Bella signed up to be Trustees and the property and cash from Alan's estate was settled successfully.
While there we also arranged for the solicitor to draft up new Wills for everyone. We have also begun to speak of other ways of reducing Vera's IHT bill but still generate the income she requires; and we have outlined a debt reduction and investment strategy for both William and Bella. From a Financial Planning perspective, it is very rewarding when you can engage with a family and doubly rewarding when you can successfully engage with other professionals who value your input.