We often start each new year with the best of intentions ... to take more exercise, resist the temptations of the biscuit tin, spend more time with family, improve our education/self/career/finances etc. Such lifestyle changes are usually seen as advantageous.
So, the start of 2013 seems like a good enough reason to review your legal and financial affairs to ensure everything is in good order. But it seems most New Year's resolutions end up being broken. To avoid this, we should perhaps focus on just four key areas:
Wills and Powers of Attorney
Every individual should have a Will to ensure that their personal property is passed on to their intended recipient. Death is an emotional time for the family left behind, and the added hassle of dealing with an intestate estate (one where there is no Will) should be avoided.
If there is a possibility that assets will pass to young beneficiaries then consideration should be given to a trust structure. Otherwise the beneficiaries in Scotland may claim their entitlement at age 16.
Wills should be reviewed regularly to ensure they continue to meet changing circumstances.
Powers of Attorney should also be considered to provide another person with authority to deal with all aspects of your finances, and to make decisions relating to your health and welfare should you become incapable of doing so for yourself (either by reason of choice, mental or physical incapacity, being abroad etc.).
From an inheritance tax ("IHT") mitigation point of view, are there sufficient assets to make lifetime gifts? The general principle behind lifetime giving is that if there are assets which are surplus to requirement, then the sooner the gifts are made, the better. There are a number of immediately exempt and potentially exempt (from IHT) transfers which can be explored.
The option of charitable giving might also be explored.
Are there any life policies, the proceeds of which are not required for a specific purpose, such as paying off a mortgage? If so, the policy should be written in trust for, or gifted outright, to those the proceeds are intended to benefit. Otherwise you may end up scoring an owngoal when the proceeds suffer IHT at 40% when they fall into your personal estate on death. If properly drafted, life policy proceeds may be used to fund an IHT liability on death, thereby augmenting the assets passing to the beneficiaries.
Similarly, the beneficiaries of any death in service benefit from an occupational pension scheme should be reviewed. Pension trusts are usually worded so that the death in service benefit (often a multiple of your salary) is payable at the pension trustees' discretion to a wide class of beneficiaries including the spouse, children etc. It is possible to provide greater flexibility by establishing what is often rather unglamourously referred to as a 'spousal bypass trust'. Such a trust would retain the pension benefits outwith the surviving spouse's personal estate (for IHT), although the surviving spouse could still benefit, and the trustees (appointed by you) would retain control and apply the funds as appointed by you.
If you are reading this and have ticked all four areas off your list – then well done! If not, there is no better time to"get your house in order", if not for yourself, then certainly for those whom you leave behind.
With best wishes for 2013!