Divided on death?

In 2016 we were inundated with reminders of financial complications that can arise on death and they serve as a reminder that inheritance tax planning should be a new year’s resolution for many.

In January, we read how the press reported that celebrities have left behind their large estates through both wills and trusts. For example, George Michael left most of his £105m fortune to his sister in his will.

Meanwhile, reports suggest Carrie Fisher has left her $25m estate to her daughter through a trust.

The distribution of wealth upon death has become more complicated in recent years.

However, not all who died in 2016 and since had planned ahead for these occurrences. When Prince passed away earlier in 2016, for example, he had no plans in place, and so his fortune of about $300m will be divided according to Minnesota Law.

The musician only has one full sibling, who is expected to get the money and estate, but there are also rumours that his five half siblings could get some of his fortune.  

When considering inheritance planning it’s important to consider the differences between the will and trusts.

For example, the heavily disputed case of Heather Ilott has advanced to the Supreme Court and the result will set the scope of the court’s powers for Inheritance (Provision for Family and Dependants) Act 1975 disputes in cases to come.

We've already seen co-habitee Denise Brewster’s successful claim to her partner’s pension, which means the Northern Ireland local government pension scheme and others covering people working in education, the NHS and the civil service will now have to look again at their rules.

But it goes without saying that people should consider using trusts, which have both tax benefits and offer the opportunity to gain greater control over the distribution of wealth on death.

A scenario such as the Ilott case is also unlikely to occur as the Inheritance Act does not apply to trusts. Plus, distribution of trust assets against the terms of a trust would be a breach and could be legally challenged. A bonus is trusts are confidential, so unlike wills they do not become public knowledge.

The distribution of wealth upon death has become more complicated in recent years. It is important to carefully plan for how you wish your money to be divided upon your death and seeking financial advice is the best place to start.

Rachael Griffin is a financial planning specialist for Old Mutual Wealth.