JOINT WILLS

A joint will is a single document, properly completed as their wills, by two or more people who have the requisite testamentary capacity. A joint will is treated as the separate wills of those who make it and can be revoked by each party without the consent of the other or others.

I see no merit in being a party to a joint will. Do not make one. It has nothing to recommend it and is confusing and inconvenient. On first death the original will will be retained when submitted for probate.

THE NUMBER OF EXECUTORS

Your executor is the person who is charged with the responsibility of seeing that your will is carried out. This includes arranging the funeral, taking charge of the assets, proving the will in the probate registry, paying any debts including the funeral expenses, agreeing and discharging any inheritance or other tax liability, distributing the estate to the correct beneficiaries and generally winding up your financial matters.

It is sensible to appoint at least two executors in case one should die before you or refuse the appointment, or at least to appoint someone to be substituted as the executor to cover such an eventuality. If two executors are appointed, one can keep an eye on the other! In the case of land or buildings it is sometimes necessary to have two executors to enable them to act. Do not appoint more executors than necessary because probate will only be granted to the first four named executors and the greater the number of executors who prove the will, the more cumbersome the signing of withdrawal forms, receipts, deeds, etc. becomes. Personally I find two executors to be a convenient number. Co-executors have equal powers and none is senior to any other.

Separate executors can be appointed for separate parts of the estate and this can sometimes be useful if specialised knowledge is required.

WHOM SHOULD YOU CHOOSE TO BE YOUR EXECUTORS?

Beneficiaries can be executors, but executors need not be beneficiaries and your executors do not have to be chosen from the beneficiaries, although it might be a good idea to consider appointing a principal beneficiary as an executor. If you give legacies to your executors, the legacies can be made conditional upon the executors proving your will.

Your executors should be capable of and willing to undertake the considerable responsibilities involved and should be people who are likely to be around and have the time to do the work involved. Do not choose executors who are much older than yourself or who are likely to live a great distance away from you when you die.

It goes without saying that you should choose as your executors people you feel you can trust and believe to be scrupulously honest because they will have complete control of your assets when you are no longer alive. If possible, choose executors who are likely to receive the blessing of the beneficiaries; a good relationship between executors and beneficiaries does wonders for the smooth, speedy, efficient and financially economical management of an estate. The future happiness of your loved ones might very much depend upon your executors and the manner in which they administer your estate. Choose executors who are known to be in good health, stable, competent and reliable. Your executors should be strong characters who are not likely to be unduly influenced by any particular beneficiary in the exercise of any discretion entrusted to them.

The mentally ill can be appointed as executors, but they cannot act until they have recovered.

Minors can be appointed as executors, but they cannot act until they are of age.

Professionals (solicitors, banks or trust companies) are slow and will expect to be allowed to charge for their services (sometimes heftily). The Trustee Act 2000 provides that in the absence of an express clause in the will, a trust corporation is entitled to charge ‘reasonable remuneration’ for services it provides and a trustee who acts in a professional capacity, but is not a trust corporation and not a sole trustee, is entitled to charge ‘reasonable remuneration’ for services he provides, if every other trustee agrees in writing that he may be remunerated for his services. Trustee includes executor. These provisions do not apply to trustees of charitable trusts and are not totally satisfactory. It is better to insert an express clause in the will to deal with professional executors’ fees and not rely upon the provisions of the Trustee Act.

Much of the work which professional executors do and charge for can be done equally well by a layperson, e.g. liaising with beneficiaries and estate agents, but if disputes are likely or in cases where complicated assets or trusts are involved it might be advisable to appoint professionals who are knowledgeable and will not be easily influenced. Sometimes it is a good idea to appoint a member of your family, who will know the family background, to act jointly with a solicitor who will be able to supply the technical expertise. However, an appointment of the partners, or of the partners for the time being, in a named firm of solicitors or their successors in business will only be effective to appoint profit sharing partners in the firm and not salaried partners or other members of a limited liability partnership unless the appointment clause specifically makes it clear that it is intended to include them also.

To allow executors who are not trust corporations or professional trustees to charge for their services, the will must contain an express clause to that effect, otherwise they will be allowed to receive nothing more than their out-of-pocket expenses.

Above all, ask your proposed executors and make sure that they are truly willing to be executors of your will because they are not compelled to accept the position and could refuse after you are dead and be unable to appoint others.

If all else fails you can appoint the Public Trustee to act as your executor, but he is not allowed to manage a charitable trust or a business or to administer an insolvent estate. As with any other executor he has the right to refuse the appointment and should be consulted in advance. His fees for acting will have to be paid out of the assets of your estate.

APPOINTING GUARDIANS FOR YOUR CHILDREN BY WILL

Guardians are people who have certain rights and responsibilities in respect of those under the age of 18. A guardian has a right to physical possession of the child (known as the ward) of whom he or she is guardian. This is useful if any attempt is made to abduct the child. The guardian also has a duty of care for the child and a duty to ensure that it is educated, but no obligation to contribute financially to the child’s welfare or right to inherit from the child under the intestacy laws. A guardian is entitled to consent or refuse to the ward’s adoption, marriage and medical treatment and decide upon its religion or decide that it shall have no religion.

If you have or may have a child who is under the age of 18, it is important that you should consider the appointment of a guardian for the child in your will. It is particularly important in case both parents die as a result of a common accident and in the case of single parents.

Guardianship of children is dealt with by the Children’s Act 1989 as amended by the Law Reform (Succession) Act of 1995, the Adoption and Children’s Act 2002 and the Civil Partnership Act 2004. To have the power to appoint a guardian by will you must have ‘parental responsibility’ for the child. Parental responsibility means all the rights, duties, powers, responsibilities and authority which a parent of a child has in relation to the child and the child’s property by law.

The following people have parental responsibility and consequently can appoint a guardian by will:

• the mother and father of a child who were married to each other at the time of the child’s birth;
• the child’s mother whether or not she was married to the father at the time of the child’s birth;
• the father of a child who was not married to the mother at the time of the child’s birth but who has subsequently married the mother or been given parental responsibility by a valid parental responsibility agreement entered into with the child’s mother or who has been registered as the father in England/ Scotland/Northern Ireland or Wales;
• a registered civil partner who had been granted parental responsibility in respect of the partner’s partner’s child;
• in relation to a child placed for adoption, the prospective adopters while the child is in their care. (The relevant Adoption Agency has parental responsibility for the child when the child is in its care.)
• a person granted parental responsibility in relation to a child by a court;
• a guardian appointed in accordance with the Act;
• a person appointed as a ‘Special Guardian’ by an order made under the 2002 Act. A Special Guardian is entitled to exercise parental responsibility to the exclusion of any other person except any other Special Guardian and may appoint another to be the child’s guardian in the event of death of the Special Guardian. Special guardianship orders are intended to give permanence to children not considered suitable for adoption.

Unless registered in the United Kingdom as the father, the father of a child who was not married to the child’s mother at the time of the child’s birth does not have parental responsibilities in relation to the child merely by being the father, but a mother and father who were not married to each other at the birth of a child may enter into a written agreement in a form prescribed by the Lord Chancellor to give the father parental responsibility. The form must be registered with the Principal Registry of the Family Division of the High Court and the signatures to the form must be witnessed by a Justice of the Peace or by an official of the Registry, or County Court or Family Proceedings (Magistrates) Court. The Principal Registry of the Family Division is at the Principal Probate Registry, 42–49 High Holborn, London WC1V 6NP

Parental responsibility ceases:

• if the child dies or
• reaches the age of 18 or
• is adopted or
• if a court removes parental responsibility.

A person who has parental responsibility or a guardian can appoint another to be the child’s guardian in the event of the parent or guardian’s death. The appointment must be in writing, dated and signed by the person making the appointment or (a) in the case of an appointment by will which is not signed by the testator it must be signed in the presence of and at the direction of the testator in accordance with the requirements for a valid will or (b) in any other case signed at the direction of the person making the appointment in his presence and in the presence of two witnesses who each attest the signature.

If on the death of the person making the appointment there is no person with parental responsibility for the child and no residence order in force, the appointment takes effect on the death of the person making the appointment. If on the death of the person making the appointment there is a person with parental responsibility for the child and no residence order in force, the appointment takes effect when the child no longer has anyone with parental responsibility for him.

If you appoint a guardian by your will the appointment does not displace a person with parental responsibilities or a person in favour of whom a residence order has been made and takes effect when such a person’s rights have finished.

If you appoint a guardian by your will or codicil the appointment will revoke any earlier such appointment unless you make it clear that the later appointment is intended to take effect as an appointment of an additional guardian.

An appointment of a guardian by will or by codicil can be terminated:

• by a court;
• by revocation of the will or codicil;
• by a dated document made by the person who made the appointment, which document is signed by the maker or signed at his direction, in his presence and in the presence of two witnesses who each attest the signature.

A written appointment of a guardian made otherwise than by a will or codicil can be terminated:

• by a court;
• by a dated document which is signed by the maker or signed at his direction, in his presence and in the presence of two witnesses who each attest the signature;
• if to take effect on death by the person who made the appointment destroying the document by which it was made with the intention of revoking it or having some other person destroy it in his presence.

A written appointment of a spouse or civil partner to be a guardian, whether or not by will or codicil, is also revoked by a divorce or annulment or dissolution as the case may be which is recognised by the laws of England and Wales unless the document which makes the appointment shows a contrary intention.

A person appointed as guardian is not obliged to accept the appointment and is entitled to disclaim the appointment in a signed written document within a reasonable time of learning that the appointment has taken effect; you should therefore obtain the agreement of the person concerned before appointing him to be the guardian of your child.

In your will you will need to consider providing for your children’s maintenance. Guardians have no right to be reimbursed for anything they spend in bringing up your children unless you give them such a right by your will. You should also consider carefully whether or not the guardians should also be executors of the will and whether or not they should be the sole executors. In the absence of a clause in your will which expressly permits it, the law permits executors to use only up to one half of the capital bequeathed to a minor for the minor’s benefit and if your estate is small your will should contain a clause which increases the proportion. In the case of a bequest to any under-age beneficiary, whether or not the beneficiary is your child, if the guardians are not the only executors, your will should contain a clause which authorises your executors, in their discretion, to pay money to the guardians for the minor’s benefit and for the guardians to give the executors a valid receipt and discharge for any money which is paid to the guardians. Under-age beneficiaries have no power in law to give valid receipts or discharges for capital and only minors who are married can give a receipt for income.

YOUR FUNERAL AND THE DISPOSAL OF YOUR BODY AFTER YOUR DEATH

If you leave a will your executors are entitled to claim your body and have the right and duty to dispose of it and arrange the funeral. If there is a dispute that cannot be solved within a reasonable time as to the validity of the will or between the executors as to the disposal of the body, a court can be asked to give directions on the matter. The court is likely to order that the person in lawful possession of the body shall make the decision or if one executor has made proper arrangements his wishes shall prevail. If you do not leave a will the person primarily entitled to obtain a grant of letters of administration of the estate on your intestacy is the person entitled to these rights. What happens if there are several people equally entitled on intestacy who wish to deal with the disposal of your body or your funeral differently? An Australian case suggests that because of the need to deal with these matters quickly, if one person has already made proper arrangements, for practical reasons, that person’s wishes would be preferred.

Although in law the right to decide upon matters relating to your funeral and the disposal of your body is that of your personal representatives it is usual to insert a clause in your will to set out your wishes in relation to these matters. Such a clause will guide your executors who will usually comply with them as far as they are able. The clause should be kept as brief as possible.

The chances of your executors complying with your wishes can perhaps be strengthened by leaving a legacy to your executors which is made conditional upon your wishes being carried out, as long as your wishes are not unlawful!

If your body is not claimed the local authority will dispose of it, as far as possible at the expense of the estate. If the local authority disposes of your body it is not permitted to cause your body to be cremated if it has reason to believe that to do so would be contrary to your wishes.

The following notes might be of assistance when considering how you would like your body to be disposed of after your death.

If you intended to have your funeral out of England and Wales (for example in Scotland), the coroner’s permission will have to be obtained at the appropriate time to take your body out of England or Wales, whether or not it has been necessary to report the death to the coroner, and you might wish to bear this in mind when leaving directions in your will for your funeral.

If you wish your body to be cremated, cremation can only take place at an authorised crematorium, but your ashes can be buried or scattered on your land or the land of another with the owner’s permission or scattered at sea.

Another possibility is to have them buried in the Garden of Remembrance of the crematorium where cremation takes place or of another crematorium. Many crematoria no longer permit the scattering of ashes in the Remembrance Garden or the burial of containers; the ashes are buried directly into the soil.

Some churchyards and cemeteries have areas for the burial of cremated remains and may permit them to be buried in a container even if they are full for burial of non-cremated remains. Burial of the ashes in a family grave which is considered to be full for the purpose of non-cremated remains is sometimes permitted.

If you wish to be buried in a churchyard or cemetery and are keen to have a particular type of headstone or memorial, check that the proposed burial ground is not likely to object to the type of headstone or other memorial that you have in mind, because churches and municipal cemetery proprietors are becoming increasingly fussy as to what they will allow. ‘Green’ funerals in woodland burial grounds are becoming increasingly popular and the Natural Death Centre, 12A Blackstock Mews, London N4 2BT, tel: 0871 288 2098, fax: 020 7354 3831, can supply useful information about these funerals.

Although burial does not have to take place in a churchyard or cemetery, it must not constitute a danger to public health or pose a pollution threat to the water supply and if you wish to be buried anywhere but in a churchyard or a cemetery, it is as well to check first that the local and water authorities have no objection. The Ministry of Justice is able to advise. If you proposed to be buried in your garden careful thought should be given to the resale value of the property and the problem of tending the grave if the property is sold at a future date. You should also check your title deeds to ensure that they do not contain restrictions on the use of the property that prevent its use for burial purposes. Your executors will need to keep a record of the site of the burial with the title deeds because it is illegal to disturb a grave without permission from the Ministry of Justice. The date and place of the burial will also have to be notified to the Registrar of Deaths within 96 hours of the burial. Your burial must not disturb a recognised archaeological site and any grave marker, high fencing or wall or multiple burials might require planning permission.

Burial at sea can be arranged with the assistance of a professional funeral director. It is authorised by the Food and Environment Protection Act 1985 and a licence from the Department of the Environment, Farming and Rural Affairs and a special coffin will be required. It can only take place in certain parts of the sea and the coroner’s permission will be required to take your body out of the country. Such burials are expensive.

If you wish your body to be used for organ transplants it is as well to let your family know, register on the NHS Organ Donor Register and carry a donor card because organs have to be removed within a few hours of death if they are to be of use. Donor cards are available from doctors and pharmacies. The NHS Organ Donor Register’s address is UK Transplant, Fox Den Road, Stoke Gifford, Bristol BS34 8RR. Telephone 0117 975 7575, fax 0117 975 7577.

Website: UKtransplant.org.uk

MAKING PROVISION FOR YOUR PETS

If you have a pet or pets you will need to consider expressing your wishes for them if they are still alive when you die in your will.

You can leave them by will to a trusted friend or relative and you should note that a bequest of ‘my personal chattels’ would include your domestic animals. However, before bequeathing pets make sure that the friend or relative who is to receive them is happy to do so and able to accept the responsibility of caring for them. If you bequeath a pet to a friend or relative it is only fair that provision should also be made for its upkeep.

If you have no friend who is likely to survive you and be happy and able to care for them, the RSPCA operates a service which will re-home pets and will check the suitability of the proposed new pet owners both before and after the pets are re-homed. The RSPCA appreciates being notified of the intention to include a relevant clause in your will and a copy of the will which it states will be kept confidential. A registration form is available to register for the service and confirmation of registration will be given. Part one of the registration form gives your name and address and the optional part two enables you to give details of the pet such as the type of animal, its likes and dislikes, dietary requirements and much more.

Details of the scheme and a registration form can be obtained from: RSPCA Freepost SEA1050 03, Horsham RH13 9BR.

The Blue Cross operates a similar scheme limited to up to four dogs, cats and small furry animals. Fish and exotic species are not accepted and details of their scheme can be obtained from their website www.bluecross.org.uk or by telephoning 01993 829954.

While both organisations appreciate legacies for their general work, neither insists upon one being given.

FACTORS TO CONSIDER WHICH MIGHT INFLUENCE YOUR CHOICE OF BENEFICIARIES

Avoiding challenges to your will

I have already mentioned the Inheritance (Provision for Family and Dependants) Act 1975 in Chapter 3 and you might consider making reasonable provision for anyone who is in a position to have a reasonable chance of making a successful claim.

Elderly beneficiaries

If your principal beneficiaries are elderly, ask yourself how much they need in addition to what they already have in their own name. There will be a limit to how much they can spend to improve the quality of their lives if they only have a short time left to them and if they leave a large estate your bequest might aggravate their inheritance tax problem. Might it be better to skip a generation and save inheritance tax? At the other end of the scale consider the effect of your bequests upon beneficiaries’ social security benefits.

The family home

I advise that you endeavour to keep a roof over your partner’s or spouse’s head irrespective of the effect it will have on inheritance tax on her death. Too often have I seen a child whose business has got into financial difficulties decide that it would be better for Mum to pass the family home to him to avoid inheritance tax on her death and incidentally allow him to use it as collateral security for the failing business. It is not worth taking the risk that your spouse could be made homeless merely to save inheritance tax and any spouse who is reasonably able to care for herself should be given independence and security by being left the home rather than having to rely upon the goodwill of the family.

If you wish to make gifts while you are still alive in an effort to reduce the amount of inheritance tax payable on your death and you have insufficient liquid assets because your wealth is tied up in your home, you must bear in mind the rules relating to gifts with a reservation of an interest and the income tax charge on the use of pre-owned assets. Both of these concepts are dealt with on pages 74–78 in the next chapter. Possible solutions which you might wish to consider are to ‘downsize’, or to raise money upon the security of the home by means of an equity release scheme such as a roll up mortgage or a home reversionary scheme.

Downsizing is to sell your property and to move into a cheaper property. A roll up mortgage is a mortgage in respect of which you are not required to make repayments until you sell the property or die. In a home reversionary scheme you sell part or the entirety of the family home or borrow against it and in either case on the understanding that you are allowed to remain in it until you sell it or you either go into long-term care or die. If you are married or have a partner, the property should be jointly owned and the roll up mortgage or equity release scheme should be entered into jointly so that the survivor of you will have the benefits.

If you propose to enter into any of these schemes you should check:

• that you will be able to sell and move into another suitable property without terminating the scheme if, as a result of a change in your circumstances, your existing property becomes unsuitable;
• whether you will incur any and if so what penalty charge if you wish to terminate the scheme early for any reason;
• that there is a guarantee that you (or your estate when you die) will not be required to make up any deficiency if the value of the property becomes lower than the outstanding debt; and
• what effect any income you receive from the scheme or from investing any capital you obtain will have on your income tax position or means tested benefits.

You should also remember that entering into an equity release scheme would possibly prevent a third party, such as a daughter or other carer, living with you. If it did not do so it would almost certainly necessitate them leaving and perhaps becoming homeless when the scheme terminated upon your death or when it became necessary to enter into care. Throughout the entire period of the scheme or of a roll up mortgage, you would remain responsible for paying council tax and maintaining and insuring the property.

If you give away cash you received under an equity release scheme it could possibly affect the chances of having care home fees paid for you in the future.

It is essential to obtain independent legal and financial advice before entering into any such arrangements and to note that legal and surveyor’s fees will be charged, although some, but not all, companies will reimburse the fees if the scheme is completed.

Gifts to the young and age-contingent gifts

Are your younger beneficiaries able to handle large sums of money sensibly or should bequests to them be held on trust for them until they reach a specified age? If so, what age, and who should hold it for them, your executors or their parents? Are the parents under the influence of the children and will they give way to the children’s wishes under pressure? Should the trustees be empowered in their discretion to use the income and/or the capital for the children before they reach the specified age and if so how much of the capital or income? Should use for the children be limited to use for specified purposes for them, for example for their education? The answers to these questions depend to a large extent upon the individuals concerned, but in reaching a decision there are some legal and some tax points to be borne in mind.

There is a statutory power, which can be expressly excluded or enlarged by your will, for trustees (which includes executors) to pay or apply for the benefit of minors or beneficiaries who are contingently entitled under a trust (including a will) up to one half of the capital of the funds to which they are contingently entitled. There is also a statutory power for trustees to use the income of a bequest in this way, but it is much more complicated and does not apply to all kinds of bequests. In the case of income it is better to include an express power to use the income in this way if that is what you wish.

If a bequest produces income which is not given to or used for the benefit of the beneficiary in a particular tax year (for example because the will gives it to the beneficiary only if the beneficiary fulfils a particular condition which has not yet been fulfilled and the executors do not exercise any discretion they may have to so use it), the income is added to the capital of the bequest and incurs income tax at the rate applicable to trusts (40 per cent in general or 32.5 per cent for dividend income).

Trusts for bereaved minors and trusts for the disabled operate under a different scheme and are taxed at the rate applicable to the beneficiary (not at the trust rate) and are able to use the beneficiary’s personal tax allowances.

Remember that each trust and each person has capital gains tax allowances and every individual, irrespective of their age, has income tax allowances which allow them to have limited capital gains and income free of tax. If the executors invest the accumulated income and they later sell the investments at a profit, the net profit will be counted as the trust’s gain for capital gains tax purposes and set against the trust’s capital gains tax exemption. Moreover, income cannot be legally allowed to accumulate indefinitely and it is safer to require accumulations to terminate within 21 years of your death.

The income from a bequest is small compared with the capital of the bequest and I consider that the best solution to overcome these problems is to leave bequests to young beneficiaries in such a way that they only inherit the capital of the bequest when they reach an age when they can be expected to be as sensible as they ever will be, and to provide that they shall be entitled to the income irrespective of their age at the time of your death, for example to say ‘I leave the sum of £x to my trustees to pay or apply the income thereof for the benefit of Y absolutely irrespective of his age and as to the capital thereof for Y if he shall attain the age of 21 years’. Even if the bequest is left in this way, any capital gains which arise from the sale of investments in which the trustees invest the capital representing the legacy pending Y reaching the age of 21 will be added to any capital gains made on the disposal of any other investments made by the trustees, for example gains made on the realisation by the trustees of any investments in which the trustees have invested the funds of other bequests which are still contingent, and the gains will count towards the trust’s capital gains exemption limit.

What age should you choose for a contingent gift to become an absolute one? Again this depends in part upon the people concerned and their individual circumstances, but there is a rule of law that forbids bequests under which it is not possible to ascertain for an excessively long time who is to inherit the gift. The rule is known as the rule against perpetuities and its application is complex. It is safer to make sure that any gifts in your will are confined to people who will be born and ascertained within 21 years of your death, and not to make gifts to anyone who will not, within 21 years from your death, inevitably fulfil any condition necessary to qualify.

When deciding upon the allocation of your various assets between the various beneficiaries, consider giving the assets with the greatest growth potential to younger rather than older individuals because in the normal course of things they will have longer to live before inheritance tax is payable on the recipient’s death.

Whenever you make bequests to minors in your will you will need to include a specific clause in your will to authorise someone to give a receipt and a good discharge to your executors for anything they pay or transfer to or for the benefit of the minor, because the law does not permit an under-age person to give a valid receipt or discharge. It is usual to provide that a parent or guardian may give the receipt and discharge and a specimen clause is provided in the appendix to this book.

Bequests to spendthrifts and bankrupts

When a person becomes bankrupt, most of his assets are taken by his trustee in bankruptcy to be used to settle his debts. If one of your chosen beneficiaries is bankrupt when you die, as much of your bequest as is necessary will be used for the benefit of the creditors and not for the beneficiary. Consequently, if one of your chosen beneficiaries is a spendthrift and likely to become bankrupt, you might decide it is better to leave your bequest to his close family rather than to him.

Although any attempt to impose a condition on a gift that the gift shall be forfeited if the beneficiary becomes bankrupt will be ineffective and the bequest will take effect free from the condition and pass to the beneficiary’s trustee in bankruptcy for the benefit of the creditors, it is possible to give something to a beneficiary until he becomes bankrupt and then to someone else. The difference is between making an absolute gift and then taking it back if bankruptcy occurs and making a gift for a limited period until bankruptcy occurs.

A variation is to leave the gift to your executors or separate trustees on what are known as discretionary trusts, such as to pay the income to such members of a group of named people, including the spendthrift, as the trustees shall in their discretion decide until the spendthrift beneficiary becomes bankrupt or dies, whichever shall happen first and then to pass the capital to another named beneficiary or beneficiaries. Such an arrangement would not guarantee that the spendthrift would get anything, but neither would his trustee in bankruptcy.

Yet a further possible solution is to leave the bequest on what is known as a protective trust. This means that you would leave the bequest to your executors or to separate trustees, upon trust to pay the income of the bequest to your chosen beneficiary until he becomes bankrupt or dies, whichever shall happen first and then to such members of a group of named beneficiaries (which could include the spendthrift), in such proportions as the trustees shall in their discretion decide.

There is a statutory form of protective trust, the terms of which are set out in section 33 of the Trustee Act 1925 and which can be incorporated in your will by stating that the gift is to be held upon protective trusts as provided for in that section for your named beneficiary during his life or for such lesser period as you choose and state. In essence the statutory trust would ensure that if the beneficiary did anything which would deprive him of the income from the gift, e.g. if he became bankrupt, the income would be held by the trustees during his life or the lesser period for such of the named beneficiary and his spouse, children and issue (or if he had none, for such of the named beneficiary and the persons who would be entitled to the income or trust property if he were dead), as the trustees should decide.

If you use a protective trust in your will, you do of course need to state who shall have the capital of the gift after the chosen period ends.

The disadvantage of these trusts is that they are only suitable for larger bequests because it is expensive to set them up and to run them, in that running them involves investments, accounts and tax returns, and they are complicated to draft and should be drawn up by an experienced professional.

Bequests to those incapable of managing their affairs or suffering from other disabilities

If a proposed beneficiary is incapable of managing his affairs, then, unless before he became incapable he gave an enduring power of attorney before 1 October 2007 or a lasting power of attorney after that date and in either case appointing an attorney to deal with them for him, it will be necessary for a receiver or a deputy to manage them (including your bequest) for him under the supervision of the Court of Protection and Public Guardianship Office. This may not be what you wish.

An alternative solution is to leave the bequest upon a discretionary trust similar to the protective trust mentioned above in connection with spendthrift beneficiaries. Such a trust may also be useful for intended beneficiaries with other handicaps or disabilities. Your chosen trustees would be given the bequest upon trust to pay the income of the bequest during the handicapped person’s lifetime to a group of named beneficiaries including the handicapped person, or to accumulate it and add it to the capital and in such proportions as the trustees in their discretion decide. The discretion given to the trustees enables them to adjust payments within limits according to the beneficiary’s needs and the financial limits for any social security benefits the beneficiary might be receiving. Your will would also need to say what is to happen to any capital which is left on the handicapped beneficiary’s death.

The Finance Act 2004 provides that trusts for ‘the vulnerable’ (minors who have at least one deceased parent and the disabled) can elect on a specified Inland Revenue form to be taxed at the rates applicable to the individual beneficiaries rather than at the (usually higher) rate for trusts. To qualify for such treatment the income must be paid to or for the use of the beneficiary by 31 December following the end of the tax year in which the income arose to the trustees. Such trusts can also use the beneficiaries’ personal tax allowances and the scheme applies to both capital gains tax and income tax. To qualify as disabled for the purposes of the scheme a beneficiary must be either:

• unable to administer his or her property or manage his or her affairs because of mental disorder; or
• in receipt of either attendance allowance or disability living allowance, by virtue of entitlement to the care component at the highest or middle rate.

This scheme for taxation of the vulnerable does not apply to those trusts in which the document which creates the trust contains an express power for the trustees to advance capital from the trust to a beneficiary who will or might be entitled to it at a later date, as opposed to trusts which need to rely upon the statutory power contained in section 32 of the Trustee Act 1925.

Further guidance on the details of the scheme is contained in Guidance Notes issued by the Revenue and the Trusts, Settlements and Estates Manual and the Capital Gains Manual, which are available on the HM Revenue and Customs’ website.