Wills and Probate
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Administration of Estates (Probate) and help for Personal Representatives
When someone in your family dies, you will need help in administering their estate. It can be a daunting task to be appointed as the Executor of somebody's Will, or to have to apply for Letters of Administration, and the appointment itself carries with it onerous personal duties. At Band Hatton we have the experience and knowledge to deal with the administration quickly and efficiently, with care and understanding and the minimum of formality. We can deal with either the whole administration of the estate on your behalf, or can provide help and guidance on aspects of your appointment and duties.
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Beneficiary Advice
When a person passes away whether leaving a Will or without, their estate must usually be administered by the Personal Representatives. The process of estate administration can be lengthy and a residuary beneficiary will not receive their full entitlement until the process has been completed.
It is however possible for interim payments to be made to beneficiaries in part settlement of their full entitlement. The law permits the executors a period of one year from the date of death, known as the executor’s year, during which they are not obliged to pay out to anyone other than H M Revenue and Customs. Some estates will be completed more quickly than this however larger more complicated estates will exceed this.
There are also certain issues that beneficiaries should consider with regard to Income Tax and Capital Gains Tax. Please refer to the Income and Capital Gains Tax Advice and Compliance Section of our website for further information.
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Court of Protection - Deputyship
If a person has already lost mental capacity and is unable, therefore, to handle their own affairs, it is possible for a relative, friend or professional advisor to apply to the Court of Protection for the appointment of a Deputy. A Deputy is then appointed by the Court to handle that person’s affairs with their supervision.
The application process is quite rigid and can therefore be quite daunting. We have friendly and experienced staff who are able to deal with all aspects of the application process including completing the relevant paperwork, obtaining the necessary medical evidence, lodging the application and arranging the necessary security bond.
Once appointed a Deputy should keep records of day-to-day expenditure and will be required by the Court to complete annual accounts. We are also able to offer support, assistance or a full administrative service.
What is Deputyship?
When someone becomes mentally incapable of handling their own financial affairs, and they do not have a valid Enduring Power of Attorney or Lasting Power of Attorney (Property and Affairs) the Court of Protection can appoint someone else, a Deputy to manage those affairs.
The Deputy looks after the day-to-day finances and have several duties including:-
- Looking after the person’s property
- Opening a deputyship account
- Collecting benefits, pension and interest
- Paying bills
- Buying clothing
- Providing for all other comforts
- Preparing annual accounts as required by the Court
- Dealing with income tax and other tax matters
The Deputy must also have regard for the Mental Capacity Act 2005 and the Code of Practice.
A Deputy could be a relative, friend or professional, such as a solicitor. The person making the application can ask to be appointed themselves, or for someone else to be appointed.
Applying for Deputyship
An application for deputyship involves completing a number of forms setting out the full financial details of the person needing assistance, a medical assessment and details of the proposed deputy by way of the Deputy’s Declaration.
The medical evidence will need to be clear and up to date. The doctor may ask for a fee for providing evidence which will usually be refunded from the client’s money.
When the application is issued, the Court will write to us letting us know when the Court will consider the application. Under the Court of Protection Rules 2007 certain people (relatives or anyone who may have a close connection with the client) will need to be notified when the application is issued. Providing notification in this way allows the person notified to tell the Court if they disagree with the application or if they wish to be involved in the proceedings.
The client will also need to be notified of any application to appoint a Deputy. This must be personally delivered to the client and a certificate to say it has been done must be completed and returned to the Court. The proposed Deputy must take steps to explain to the client what the application is about. The client may object either to the appointment of a Deputy in general, or to the appointment of a particular person.
The Court will consider the application as soon as practicable which will be 21 days from the date on which you last served notice on the required persons. Rule 44 Court of Protection Rules provides that once the order appointing the Deputy is made, you must serve another notice on the client. This must be given within 21 days of the date of the order. The Deputy order from the Court of Protection will set out the extent of the Deputy’s powers and can relate to decisions the person could have made themselves if they had the capacity to do so.
Most Deputies are required by the Court to take out a type of insurance called a security bond. This is to cover any loss to a client in case a Deputy fails in their duties. This is purely a business precaution that the Court believes to be a sensible way to protect the client. The sum insured, known as the level of security, is fixed by the court when the application is considered.
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Income and Capital Gains Tax Advice and Compliance
Capital Gains Tax is a tax payable on capital gains. If when you sell or give away an asset it has increased in value tax may be payable on the gain.
However, when a person dies, leaving assets to a beneficiary there is no capital gains tax payable at that time. If the asset is later disposed of by the beneficiary Capital Gains Tax may then be payable. The asset in question will have been valued at the date of death of the deceased and any gain between this base value and the value as at the date of disposal may be subject to Capital Gains Tax.
The Personal Representatives of the deceased may dispose of assets during the course of the administration which may result in Capital Gains Tax being payable. However the Personal Representatives do have the usual single person’s annual allowance currently £10,100 for the tax year 2009-2010 and if the gain does not exceed this figure no tax will be payable.
Income Tax also needs to be considered when administering the deceased’s estate. A tax return for the period 6th April to the date of death must be filed. Even if the deceased person was not a taxpayer during their lifetime, income received during the administration of the estate is liable to tax.
Any income received during the administration must also be declared. Beneficiaries are liable for income tax on such income but generally this will be paid before, the funds are distributed to the beneficiaries.
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Inheritance (Provisions for Family & Dependents) Act 1975
The Act enables certain people who fall within the categories set out in the Act to bring a claim for financial provision from the Estate. The categories are -
- the wife or husband or registered civil partner of the deceased
- the former wife or husband or registered civil partner
- a cohabitant of the deceased (two year period minimum)
- a child of the deceased
- any person who was in the case of any marriage to which the deceased was at any time a party treated by the deceased as a child of the family in relation to that marriage
- any person who immediately before the death of the deceased was being maintained either wholly or partly by the deceased
In order to make a claim under the 1974 Act you will need to be able to demonstrate that you can bring yourself within one of those categories. Note also that the concept of reasonable financial provision is limited to provision for maintenance except in the case of applications by a surviving spouse or civil partner.
There may of course be justifiable reasons for omitting someone from a Will and it is not necessary the case that any claim would be successful.
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Inheritance Tax Exemptions and Reliefs
There are a number of exemptions and reliefs to Inheritance Tax which an individual can take advantage of during his or her lifetime.
The Annual Exemption
A person may make gifts of up to £3,000 each year completely free of Inheritance Tax. Unlike the potentially exempt transfer (explained below), this exemption applies regardless of the nature of the recipient of the gift and there is no requirement for survival by the donor for a period of time. If this exemption is wholly or partly unused in any year, it or the balance may be carried forward to the next year, but not to any following years.
Potentially Exempt Transfers
Potentially Exempt Transfers enable an individual to make a specified gift of unlimited value, which will escape Inheritance Tax completely if he or she survives for a period of seven years following the gift. The gift must be made to one of the following recipients:
- another individual
- the trustees of a trust in which an individual has an interest in possession
- the trustees of an accumulation and maintenance trust
- the trustees of a disabled persons trust
If the donor does not survive the gift for seven years but survives for more than three years, then the Inheritance Tax rates are tapered to reduce the tax payable, although to receive the full exemption one must survive seven years.
Discretionary Trusts
No tax is payable on any gift unless the cumulative total of all gifts made within any seven year period exceeds £263,000. Although unlimited tax-free gifts can be made by way of potentially exempt transfers as above, in some cases, it may be preferable to make gifts within the nil-rate band to a discretionary trust. This would apply for example to individuals who perfer to have flexibility of placing assets into a discretionary trust under which they are excluded as beneficiaries or to individuals who as yet have no children. This will allow further gifts to be made to the trust or to another trust seven years after the initial gift. The merits and further information of the types of trust can be obtained on request.
Normal Expenditure out of income
This exemption applies to a gift if or to the extent that it is shown that-
- the gift is made as part of the normal expenditure of the donor
- taking one year with another, the gift is out of the donor's income
- after allowing for all the other gifts or dispositions forming part of his or her normal expenditure, the donor is left with sufficient income to maintain his or her usual standard of living
Whether a gift qualifies for this exemption is a question of fact in each case and according to the Inland Revenue, normally is considered to be typical or habitual. There are complicated further conditions attaching to this exemption and therefore individual legal advice must be taken to ensure a claim for this exemption is appropriate.
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Gifts
Making a Gift of a House
There are a number of ways in which you may make a gift of your home to your children but you should think very carefully about the consequences of doing so. Generally we would not recommend that you give away your home unless there is a really compelling reason to do so.
Disadvantages - Your estate may be over the Inheritance Tax threshold. If you give your home away but continue to live in it then the value of it will still remain in your Estate when you die. This is so regardless of how long you live after making the gift. Should you later move out for any reason then the seven year period would begin to run from that date so that after seven years the house's value would not form part of your Estate for Inheritance Tax.
Gifting the home means that you will lose the normal Capital Gains Tax uplift on death. If you bought your house many years ago then it is probably showing a considerable increase in value. Normally on your death it would be revalued and any accrued gain would be wiped out and not be subject to Capital Gains Tax. If you give the house to your children then they will be liable for the increase in value between the date of the gift and the date that they eventually sell it. In some circumstances this can lead to a double tax charge. For example if you give your house away but continue to live in it there may well be Inheritance Tax payable on its value when you die. At the same time your children will be liable for Capital Gains Tax on any increase in value between the date of gift and the date of your death.
Under the Trusts of Land and Appointment of Trustees Act 1996 all co-owners have a right to reside in the property. You may find that your children or their spouses wish to occupy the property or that they wish to sell it. If you have given only part of your home away a sale would need the Court’s approval under the 1996 Act. The Court may or may not grant such an Order depending on the circumstances. If you have gifted away the whole of your property the Court’s consent would not be required. You should bear in mind that you may fall out with your children after gifting the home and that you would have no security of tenure.
If any of your children are in receipt of means tested benefits they may lose them by virtue of the fact that they have acquired a capital asset. Similarly should they need to claim means tested benefits in the future their claim may well be declined because of the ownership of the property. In a bankruptcy situation a Trustee in Bankruptcy may take into account their ownership of your house and you would have no security against the Trustee in Bankruptcy. Likewise in a divorce situation the child’s ownership of the house may be taken into account in any financial settlement.
Another factor to bear in mind is that one of your children may predecease you. This means that their Estate would be entitled to the property. You may in some cases find yourself at the mercy of either their spouse or children or other people to whom they have left legacies in their Will. Bear in mind also that their surviving spouse may remarry and you may not get along with the person concerned.
There are rules against deprivation of assets for the purpose of claiming means tested benefits and for claiming Local Authority assistance with care home fees. In certain circumstances the Local Authority can treat you as still owning the capital of which you have deprived yourself regardless of whether you can claim it back or not. This could leave you in severe difficulties in paying for care should you need it.
In the case of husband and wife a better solution would be to set up trusts in your Will. This would involve arranging your affairs so that your house is held on a tenancy in common basis. Each spouse then executes a Will giving the survivor the right to reside in the property for his or her life and then leaving his or her respective half share to children or other parties. This has the effect of preserving at least one half of the house’s value for the children.
Gifts - Exemptions
Small GiftsGifts of up to £250 can be made to any one person in any one year free of Inheritance Tax. This exemption cannot be used in conjunction with any other exemption. It will be lost if the total annual gifts to any one person exceed £250. The gift must be outright and therefore cannot be made to Trustees.
Gifts in consideration of Marriage
Parents may each give an outright gift in consideration of marriage of up to £5,000 to the parties of the marriage completely free of Inheritance Tax. Grandparents and Great-Grandparents may make similar outright gifts of up to £2,500 and other persons may make such gifts of up to £1,000. The exemption applies not only to outright gifts but also to gifts into a settlement. The beneficiaries of such a settlement must be limited to certain persons. Gifts in consideration of marriage must be made either before or at the date of the marriage.
Gifts for Maintenance of Family
This is a little used exemption and in the majority of cases relates to spouses and children under the age of eighteen years, although it can be used for maintenance of a dependent relative who is incapacitated by old age or infirmity from maintaining himself.
Gifts to Charities
The making of gifts to charities must be immediate and unconditional and will then be completely free of Inheritance Tax.
Please note - A Word of Warning
When a gift is made to a person or settlement for Inheritance Tax purposes, the property which is the subject of a gift must pass entirely to the donee of the gift, and any benefit must not be reserved by the donor. Possession and enjoyment of the property must be assumed by the donee at least seven years before death and the property must be enjoyed to the entire exclusion of the donor and of any benefit to him by contract or otherwise. If there is any reservation of benefit of gifted property, then the gift will fail for Inheritance Tax purposes and the value of the gift will form part of the donor's estate on death.
We trust the above is a useful reference point for reducing the impact of Inheritance Tax on death but no reliance should be placed on the above information alone - individual tailored legal advice must be sought in each case.
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Powers of Attorney
Why would I need a power of attorney?
There are a number of reasons why you may require someone to act as your Attorney. For example you may be going abroad for an extended period and wish to give someone authority to deal with your affairs in your absence or you may be facing an extended spell in hospital. However the main reason people make Powers of Attorney is to provide for a future situation where they may become physically and/or mentally incapable of dealing with their own affairs. The different types of Powers of Attorney are briefly explained below.
- General power of attorney - is made in accordance with the Powers of Attorney Act 1971. Such Powers are suitable only for short term use such as if you are going to work abroad and wish someone to look after your affairs in your absence.
- Lasting powers of attorney - replaced Enduring Powers of Attorney from the beginning of October 2007. It is now possible to make a Power of Attorney in relation to financial and property matters and another Power of Attorney in relation to health and wealth decisions.
- Property and affairs - gives your chosen Attorney authority to deal with your property and finances as you specify. You may attach conditions and directions for your Attorney.
- Personal welfare LPA - This type of LPA allows your chosen Attorney to make welfare and health care decisions on your behalf but only when you lack mental capacity to do so yourself. If you wish this can extend to giving or refusing consent to life sustaining treatment.
Handling your affairs
If you draw up a Power of Attorney it does not mean that you lose your existing right to control your affairs. If you wish the Power of Attorney can be drawn up and then placed in our strong room until some future date when you decide you wish your Attorney to commence his or her duties. Alternatively you may give your Attorney instructions to deal with certain aspects of your affairs while you continue to handle other matters. Appointing an Attorney simply means that there is someone to take over if and when you cannot cope. Although most people think of Powers of Attorney in connection with older people they can be useful for younger people as well because no one knows when incapacity as a result of illness or accident may occur.
Choice of attorneys
An Attorney must be over 18. You should think very carefully about your choice of Attorney as you will be giving them control over your affairs. You may have someone such as your spouse and children, a close friend or you may choose a professional person such as a Solicitor or Accountant. If you are executing a Property and Affairs LPA then the Attorney should not be bankrupt. We would also recommend that you do not appoint anyone who is unhappy when faced with paperwork or figures. Attorneys may be appointed to act together or together and independently (joint and several). The choice is yours. If the Attorneys are to act together then you should ensure that this will be practicable. For example Attorneys who live at different ends of the country would probably encounter difficulty in acting together.
Formalities
The LPA must be signed by you and by your Attorneys. It must also be signed by a suitable person (the certificate provider) as defined by the Mental Capacity Act 2005 to say that you have not been unduly pressured into making the Power. Once signed it needs to be registered with the Office of the Public Guardian before it can be used. We recommend that it is registered immediately you have signed it so as to ensure that it is ready to use should you be taken suddenly ill for instance as often there are delays in the registration process. You will need to nominate up to five people who are to be notified of the registration. If you do not name anyone to be notified then it is necessary to have a second certificate provider sign the document.
Limitations on LPA’s
An Attorney cannot make a Will for you. Should you become mentally incapacitated and you have not made a Will it will be necessary to make application to the Court for a statutory Will to be drawn up on your behalf. Further an Attorney may not make gifts other than as prescribed by the Act and may not carry out tax planning schemes on your behalf without the consent of the Court of Protection.
Existing enduring powers of attorney
You may have executed an Enduring Power of Attorney (EPA) prior to October 2007. If you did then it remains valid. An Enduring Power of Attorney has to be registered only when the Attorney believes you are becoming mentally incapable of handling your affairs. If you have already made an EPA then we recommend that you keep it in place but you may wish to execute a Personal Welfare LPA.
Register of LPA’s
If you draw up an LPA or have created an EPA which becomes registered with the Office of the Public Guardian then the details are available to anyone carrying out a search of the register. There is a fee of £25. The details given would be the donor’s name and date of birth, the name of the Attorney and nature of the appointment (whether joint or joint and several), whether it is a Property and Affairs or Personal Welfare LPA and any restrictions attached to it.
Court of protection proceedings
Where there is no Power of Attorney in existence and capacity to make a financial decision is lost due to age or infirmity an application to the Court of Protection for appointment of a deputy to act on your behalf is the only alternative. This is a costly procedure and can be very time consuming and stressful for family members. Making a Power of Attorney now will ensure that your affairs can be dealt with swiftly should you be unfortunate enough to lose the ability to handle your own affairs.
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Residential Care
Did you know... only about 5% of people aged under 85 years go into residential care? At the age of 85 the risk increases dramatically to 25% and upwards depending on age. public funding in some form is available for all older people who go into care homes whatever their financial situation?
For example:
- Some form of NHS funding, which is based on your medical care needs but not means tested, may be available so as to reduce your liability for care fees. In some circumstances your medical care needs may be so great that the total cost of care and accommodation is covered.
- Local Authority means tested financial support will be available for those whose capital falls below £23,000. You may receive some public funding even if your capital exceeds £23,000 as all or part of it may be disregarded.
- If your capital is less then £14,000 you will not be expected to contribute to the cost of your care.
- Attendance Allowance, which is not means tested, is available should you be required to self fund your care. Current rates are £70.35 for the higher rate and £47.10 for the lower rate. The rate depends on the level of assistance you require with your day to day tasks.
Whatever your age, you can take action now to ensure the future security of your financial affairs. With the stress and strain of everyday life, it is worth having one less thing to worry about.
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Trusts and Settlements
A trust is created when someone is entrusted to hold property on behalf of another, either in that person's lifetime or on their death. We are experienced trust lawyers and deal with all aspects of trust creation and administration.
Creation of a trust
There are several reasons why making a Trust during your lifetime may be advisable, In some circumstances it may be a useful tool to save tax.
A Trust may also be used to receive funds from a personal injury claim if you have suffered an accident and are receiving benefits, this may be an advantage rather than receiving the compensation directly into your own account.
Family circumstances may make a Trust a safer way of looking after and protecting the families finances, particularly if a family member is vulnerable or unable to look after their own finances.
It is also possible to set up a charitable trust for either fund raising services, or with a sum of money which can then be used to make donations for charitable purposes.
Administration of a trust
The administration of Lifetime and Will Trusts can be time consuming and onerous if not dealt with by a professional trained in these areas.
We are experienced and efficient at dealing with the administration of Trusts, which includes preparing the end of year Trust Accounts, Tax Returns and Beneficiaries Income Tax Certificates. Our full service also includes liaising with Investment Advisers and the Trustees in order to ensure a full review of the Trust's investments are carried out regularly. Our team includes members of the Society of Trust and Estate Practitioners which ensures that they are up to date in this area of the law.
Our Trust Administration service can be tailored to suit the needs of the Trustees and can range from simple production of the annual Trust accounts to the full service mentioned above. In today's climate of strict Trustees' duties and obligations, and even in some circumstances criminal sanctions for non compliance with these duties, then it makes sense to employ professionals.
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Wills
We have experience and knowledge to provide objective advice and assistance to enable you to have a Will drawn up that fulfils all your wishes. Using our specialist knowledge of property, trusts and tax law, we cater for any possibility. You may well have prepared a Will many years ago, however as a result of changes in your own family or financial circumstances it may no longer reflect your current needs. Also, changes in the law or tax regulations may also mean you need to review your Will.
Living Wills
Wills are something we are all familiar with - a formal legal document which tells those closest to us everything from how we want our funeral to be organised to who inherits the family home and heirlooms. But not many of us have thought about what happens before we die, when we may be in need of medical care.
Although we all hope to pass away in our sleep, the reality is often different and many of us will spend time in hospital. Living wills or ‘advance directives’ as they are professionally known, indicate your desire to refuse some or all forms of medical treatment and under which circumstances this would apply. An advance directive is prepared whilst you are mentally capable and is only used once you are no longer capable in taking part in the decision making process.
Without a Living Will, in certain circumstances decisions might be made about your medical care without referring to what you would prefer and choose for yourself. Of course clinical decisions remain with the medical team but there are many other issues you can and should provide guidance on.
We all like to think that because we are in good health now we will never find ourselves in the situation where we are unable to communicate our wishes to those around us about medical treatment. But the truth is we don’t know what lies ahead. By making these preparations now, people can prevent a lot of heartache in the future for themselves and their loved ones. A witnessed document, such as a living will, makes sure that your voice is heard and your wishes considered.
Discretionary Trust Wills
We have had numerous enquiries from clients who wonder whether they still need to make wills incorporating trusts to utilises their nil rate bands for inheritance tax. Others, who already have such trusts in their wills, have asked whether they should amend them. Our view is that such trusts are still worthwhile for a number of reasons and that no action needs to be taken to amend wills which have already been drawn up on that basis.
- How has the law changed?
As a result of the chancellor’s announcement on 9th October 2007 we now have a system whereby the executors of the surviving spouse can claim the unused proportion of the nil rate band from the estate of the first spouse. This was widely reported in the press as meaning that the nil rate band for couples had doubled but it isn’t quite the big concession it was made out to be. It should also be remembered that the new system applies only to married couples and registered civil partners.
- How does the transferable allowance work?
A man died in 2007 leaving an estate worth £300,000. He left a legacy of £200,000 to his daughter and the residue of his estate to his wife. This meant he had left £100,000 of his nil rate band unused. His wife dies in May 2008 by which time the nil rate band is £312,000. Her executors make a claim for the unused portion of her husband’s allowance. As he left one third of his allowance unused (£300,000 less £200,000) they can claim a one third increase in the nil rate band allowed to her estate. The result is they will have a nil rate band of £414,960 available - (£312,000 increased by 33%).
- What’s the drawback?
At first glance the transferable allowance may look attractive but there are a number of things to consider.
- The transferable allowance is not given automatically. It has to be claimed by the executors of the last to die. This means they have to make enquiries as to the assets left by the first of a couple to die in order to calculate the percentage of the nil rate band remaining unused. Such information may not be readily available.
- The survivor may marry again and change his or her will to exclude beneficiaries. Setting up a trust in the will of the first spouse to die ensures that assets are protected for children or other beneficiaries
- The surviving spouse may spend unwisely or run into financial difficulties which lead to dissipation of the assets.
- If the surviving spouse needs residential care the assets in the first estate are safeguarded if held in a will trust.
- It is possible that the nil rate band will not keep pace with increases in the value of assets left to the surviving spouse. It has certainly been the case in recent years that the price of houses rose faster than the nil rate band for inheritance tax, pushing many people into the taxable band. For example, if a man died in 2007 leaving everything to his wife her executors might think that claiming his unused nil rate band as well as hers would enable them to avoid inheritance tax. Not so. If, for example, the nil rate band grew at a compounding rate of 3% but the assets grew at a higher rate there would soon be a problem.
- Tax law changes regularly and it is always possible that the transferable nil rate band will be scrapped at a future date. If the spouse is one of the beneficiaries it is always open to the trustees of the trust to release funds to him or her. Should the circumstances require it the whole of the fund can be released and, provided this is done no less than 3 months after the death and no more than 24 months after the death s.44 of the Inheritance Tax Act 1984 allows the payment to be written back to the death. In other words, the spouse exemption would apply and the original nil rate band would be resurrected. The trust is therefore very flexible.
In summary, our view is that the creation of wills incorporating discretionary trusts of the nil rate band is still worthwhile, even for married couples and registered civil partners, who can claim the transferable exemption. A tax efficient will should be the starting point for any tax planning undertaken. The setting up of trusts offers flexibility as will as tax planning advantages.
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Further Information The first consultation (up to 30 minutes duration) is free, so why not get in touch and see how we can help you.
If you would like further advice on these areas, please contact our helpful and friendly Wills, Probate and Trusts Team.
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