In 2007 the government introduced the concept of the inheritance tax 'transferable nil rate band' whereby the 'nil rate band' of someone who has died (i.e. the inheritance tax free allowance, currently worth £325,000) is increased by the value of the unused 'nil rate band' of their spouse who pre-deceased them. The result of this change, at the time widely applauded, is that the second spouse can leave up to £650,000 under their will entirely tax free.
The case of Loring v The Woodland Trust illustrates how even the best intentioned legislation can go awry. The deceased's will left the value of her unused 'nil rate band' to her family and the balance of her estate to charity. Her husband had predeceased her so under the new rules she had two nil rate bands to set against her taxable estate. The question to be considered was whether the gift to her family amounted to one nil rate band (£325,000) or two (£650,000). The charity said only one; the family unsurprisingly argued for two. The twist in the tale was that the question would not have arisen at all if the deceased's executors had not expressly claimed the husband's nil rate band on their estate tax return. They did not have to do so. The charity argued, with some justification, that the deceased could not have intended the amount passing to her family to depend upon an arbitrary decision of the executors. The judge held for the family, but acknowledged it was a difficult decision and that there were strong arguments on both sides.
The case highlights (amongst other things) the importance of careful and informed will drafting and regular reviews to ensure that your will does not fall foul of changes in the law or a change in personal circumstances, as well as the need to ensure that the executors appointed under your will are both aware of your intentions and competent to carry them out.
It's always worth considering appointing a professional executor. The Partners at Clapham & Collinge are happy to act as your professional executors as required, either as the only executors, or alongside family members or friends.
If you'd like further information on any of the above, please contact Ben Lowe, Partner in the Private Client Department on 01603 693500 or email firstname.lastname@example.org