Key Man Insurance and Inheritance tax - Did You Know...?
  • What happens to everything you have worked hard for when you die, if you have not made a Will?
  • What happens to your business if a key employee or key employees, die or become unable to work?
  • What do you know about Taxation, and in particular Inheritance Tax (IHT)?
  • What is Key man insurance?
Here are a few answers that may give you cause for thought and perhaps invoke a little action on your part.
Intestate Succession. If you have not made a Will the Law in England and Wales provides very specific guidelines as to how your estate (estate being everything you own) is distributed at or after death. These rules do not generally fall along the lines of everything to my spouse and children. Indeed in most cases they are unlikely to represent what the average businessman requires at all.
Take a look at the Intestate Succession Table for a general guide.
Key Personnel. Who is responsible for generating, and servicing most of the business in your firm? It may be you it may be somebody else. Ask yourself how your firm could survive if any one or more of the staff had died or become incapable of working last week. Perhaps there are some you could do without at a pinch for a week or two until you found a replacement. But what about any that do not fall within that category. How do you replace the knowledge and expertise of a long serving and faithful member of staff (perhaps a partner or co-director for even a little while let alone permanently?) Could your business survive?!
Key Man Insurance is there to provide whatever is necessary to suit your own situation. It may be to buy in expensive expertise in the short term, or it may be as vital as providing you with a pension because the business could not run at all if you lose that key person.
Taxation. Yes everybody knows about income tax and national insurance, but what about IHT. It can strike at lifetime gifts, and it can strike on death. It is a complex subject and I do not intend to delve too deeply into the subject here, other than to draw your attention to the following.
At death, with the exception of some (but not all) business and agricultural property, the general rule is that everything in excess of the current nil rate band of £263,000 passing to anybody other than the deceased’s spouse will be taxed at a mighty 40%. If that does not bother you or your family then you do not have an IHT problem.
However, consider for more than a split second how that can affect you and yours, and you may decide that you need to know a lot more, and to plan some strategies to protect your assets for future generations.
For example if you leave everything to your spouse when you die it all passes tax-free. But your nil rate band has been wasted. When your spouse dies and leaves it to your children only the first £312,000 * is tax-free. What if you had given £312,000 to your children on first death, or more usefully, what if you could regain the initial nil rate band that was available when you died and use it again when your spouse dies so that in total £570,000 passes before IHT take a bite.
Planning ahead. It is possible to take avoiding action, but to do this you need to consider carefully your situation and requirements, with the help of an expert. It might be necessary to change the way you and your family own, or share the ownership of assets during your lifetime. It is almost certain that if you have not made or reviewed your testamentary arrangements (made a Will) in the last few years that you will have to make a new Will. You could be surprised at what can be achieved with some careful planning.
(Brian Williamson qualified as a Fellow of the Institute of Legal Executive in 1978- since then he has served 20 years in the financial services environment, and in January 2000 he founded his own consultancy for Will Writing and allied services. Brian is available for consultation and may be reached by calling 01487 831853 or e-mailing bjwills@btinternet.com.)
* The IHT nil rate band threshold on death have increased twice since this was written and is set to rise again to £325,000 next April

September 2008 Article Update

Recent announcement from the Ministry of Justice

"Spouses and civil partners to receive more when partner dies without leaving a Will"

Married couples and civil partners whose spouse or civil partner dies without leaving a Will are to benefit from an increase in the statutory legacy under proposals published by the Government today.

The Government has acted after concerns that the levels of the statutory legacy, currently set at £125,000 and £200,000, were too low.

Justice Minister Bridget Prentice said:

"This increase will give extra protection to married couples and civil partners whose spouse or civil partner dies without making a Will. But it also highlights how important it is for both men and women to make arrangements for their loved ones in the event of their deaths."

"Married couples and civil partners should not assume that when their spouse or civil partner dies, they will automatically be entitled to everything. It is up to individuals to make sure that their wishes are respected by making a Will."

"My message to people is, don't leave it to chance. Make sure your loved ones are properly provided for by leaving a Will."

From the 1 February 2009 the new levels of the statutory legacy will increase to £250,000 and £450,000."

So what does that actually mean? - On the one hand it means that if a person does not make a will his or her wife would be entitled to substantially more under the intestacy rules than would have been the case before. All well and good if that is what you want; but if it isn't!

What if you have children you wish to inherit from you, but you are divorced or widowed and have remarried. That remarriage automatically revoked any pre marriage Will leaving assets to your children, and in place designated your new spouse as your primary beneficiary for the first £250,000 of your estate, that is £100,000 more than it would have been previously, leaving £100,000 less than might have been for your children; always assuming there was even £150,000 in the estate in the first place.

The message remains as clear as ever it was. Make a Will and keep it up to date.

Brian Williamson
For Wills. Inheritance Tax, and Estate Planning Or To Reduce All Your Utility Bills in One Go.

BJWills
37 Beaumaris Road
Sawtry
Huntingdon, Cambs. PE28 5SF
brian@bjwills.co.uk
www.bjwills.co.uk: www.telecomplus.org.uk/savewithbj
tel: 01487 831853; 0800 90 20 429
mobile: 07929 942507

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