The Inheritance and Trustees’ Power Act 2014

Last year we saw significant changes to intestacy rules and trustee’s powers introduced by The Inheritance and Trustees’ Power Act 2014.  Whilst the changes have been welcomed in the main, a client’s intentions may not come to fruition without a thorough and regular will review and, in many cases, this should be done in coincidence with independent financial advice.

Now, more so than ever, it’s vital for clients to have a will in place to ensure that their assets are dealt with according to their wishes when they pass away.  Whilst spouses stand to benefit from the new rules, co-habiting partners and step-children, in particular, will receive nothing if a will is not in place.

What has changed?

Intestacy rules govern how a deceased’s estate will be divided if a valid will is not in place.  In summary, the changes mean that:

  • If the deceased has no children, then their spouse or civil partner will receive 100% of their estate outright. Prior to the changes, parents or siblings may have been able to claim a share of the estate.
  • If the deceased has children, then their spouse will receive;
    i) all ‘personal chattels’
    ii) £250,000 outright (or the entire estate if the value is less than this amount)
    iii) 50% of the remaining balanceThe remaining 50% will be inherited by the deceased’s biological or adopted children.  If under the age of 18, their share will be held in trust until they reach the age of 18.
  • The £250,000 level will be reviewed at regular intervals to keep pace with inflation.
  • The definition of ‘personal chattels’ has been simplified to include any tangible moveable property, such as jewellery or furniture. This definition has three key exceptions:
    i) money and securities
    ii) assets used solely or mainly for business
    iii) assets held solely or mainly for investment purposes

Whilst these changes benefit spouses, they may not always reflect the wishes of the deceased.  For example, they may prefer their children to inherit only when both parents have passed or they may wish for step-children to receive a share of their assets.  These kind of specific requests must be dealt with by a will as they are not accommodated under current intestacy rules.

Pension Death Benefits

Alongside a will review, your client’s pension death benefit instructions should also be reassessed, particularly in light of the Government’s recent abolishment of the 55% tax charge upon death.  These changes have made it possible for savers to pass on their pension as inheritance, making it a more attractive investment proposition.

Case Study: Working with Solicitors who are acting as Deputy

We were introduced to a firm of Solicitors who were seeking professional advice prior to investing their client’s financial assets on her behalf.  The Solicitors had been appointed as Deputy and approached BLM Partnership for an assessment of the client’s savings and investments.

It was important that we gained a thorough understanding of the client’s circumstances before making a recommendation:

  • The client, Mrs G, had dementia and had been deemed unable to make decisions for herself.
  • Mrs G had children and family but they did not wish to be involved with the care of her affairs.
  • The Solicitors were, therefore, appointed to act as Deputy.
  • Mrs G had savings which was mainly being held in deposit accounts. This money was being used to fund her long term care.

The Solicitors wished to ensure that Mrs G’s money was dealt with in the best possible way and that they fulfilled their duty as Deputy, as they may be held accountable.  It was, therefore, essential that they seek professional advice about where to deposit and how to invest Mrs G’s money in order to make it last as long as possible.

How we helped

We familiarised ourselves with Mrs G’s situation and requirements including the cost of her care and her state of health.

We then looked at a range of options from maximising deposit account returns to the purchase of an immediate care annuity.  An annual review was arranged so that the situation could be reviewed periodically, taking into account any changes to Mrs G’s situation.

The Solicitors main concern was that they could be held accountable by the family if they were deemed to have somehow squandered Mrs G’s money. By taking advice and acting on it, they would be able to demonstrate that they had taken all reasonable care to ensure the longevity of Mrs G’s savings.

As Mrs G’s savings reduce and go through the upper limit of £23,250 to the lower limit of £14,250, further advice will be needed as this is the sum that likely passes to her beneficiaries.

Our case studies are designed to give you an insight into how we have advised a variety of clients on their specific financial needs.  It is intended for information and illustration only and should not be taken as individual advice.

If you have any questions relating to your own circumstances, please contact us.

* In order to protect the confidentiality of our client’s, we have changed the names in our case studies.  They are, however, all based on the real life experiences of our clients.

Is your money stuck in a Zombie Fund?

There has been much talk about so called ‘zombie funds’ of late, with the Financial Conduct Authority launching an enquiry into them as part of a wider enquiry into the possible mistreatment of longstanding customers.

The pension and investment policies under scrutiny date back to the 1980s and, although the FCAs enquiry is focused on the high penalty charges that some of these policies incur if the investor wishes to move their money, this is not the only reason why ‘zombie fund’ customers should be concerned, particularly as many will now be approaching retirement.

What is a Zombie Fund?

The terminology may mean different things to different people but the general ethos is that many funds have lost direction and focus with some charging high fees to stay in and high fees to get out. Commonly these funds will be closed to new business and with no new money going into them, one could be forgiven for thinking that the fund managers have little incentive to produce a good return for their investors.

Pension Review Service

If you have a pension, and have had it for some time:

  • Do you know what it is invested in?
  • Do you know how it is performing?
  • Is the fund still suitable and does it reflect your attitude to risk?
  • Are you paying high charges?
  • In the event of your death, will the right people inherit the pension fund?

Our pension review service will answer these questions for you.

An example where our Pension Review Service has helped answer these questions:

Our client was 51 years old and intended to retire at the age of 65. He had arranged his pension in the early 1990’s at a time when he was self-employed. He had latterly become employed and joined his employer’s pension scheme at which point he stopped paying into his own personal pension. Since he started paying into his pension he had divorced.

As part of our Pension Review Service we talked to our client about his attitude to risk, expected retirement age and personal situation as well as his expectations from his pensions.

We made contact with his pension provider in order to establish the facts surrounding the plan and identified a number of concerns such as:

  • The pension fund had grown to ~£200,000 but was wholly invested in one fund.
  • We had assessed our client to have a medium risk approach but in isolation the investment fund was suitable for higher risk investors.
  • The nominated beneficiary, who would receive the pension fund should he die before retirement, was his ex-wife.
  • The selected retirement age, i.e. the age the provider was expecting him to take his benefits, was 55 as opposed to his expected retirement age of 65.

We considered a range of options including re-aligning the funds to reflect the client’s attitude to risk and diversification through selection of multiple funds. We established that the provider only had a few dozen funds available and many were unsuitable or unattractive.

One of the options was to transfer to a new Pension Provider and invest in a wide range of funds through an Asset Allocation Model suited to their risk profile. The overall charges were marginally higher than was being paid but the client felt that these were worthwhile given that he would receive a range of additional benefits including:

  • Funds that are monitored on a regular basis and switched if necessary;
  • Diversification by investing in a range of funds;
  • A regular review strategy that would facilitate changes to his situation and requirements;
  • Alignment of the pension to reflect his intended retirement age and overall retirement strategy.

As part of the process of arranging the new pension the client was able to set new beneficiaries. These people would receive the pension fund should he die before retirement.

If you’re concerned about the performance of your pension fund or you just want to check that your investment is performing as best it can, then get in touch with us today.

The value of your investments can go down as well as up, so you could get back less that you invested