Government plans threaten to unpick wills of parents and carers

Thousands of parents may need to rewrite their wills to protect their children’s interests, thanks to an unintended consequence of the Government’s Finance Bill.
The Government’s proposal will affect trusts set up to provide for their children, in the event of them being orphaned. Proposed new rules would mean that trustees – those responsible for managing the trust assets for the child or other beneficiary – might not be able to, for example, acquire a home for the beneficiary or meet education or maintenance costs, without the involvement of the court. This could cost trusts, and their beneficiaries, thousands of pounds in court and legal costs.
The Law Society has written to the Government advising them of the consequences of their proposed changes to the Finance Bill 2013. Lucy Scott Moncrieff, President of the Law Society said:
“I’m sure the Government doesn’t intend to penalise orphaned children, or to require a significant number of parents to redraft their wills to protect their children’s futures. We all know that unintended consequences can arise from legislation and it is very fortunate that the watchfulness and diligence of our expert solicitor members gives the Government the opportunity to put this right before it creates injustice, confusion and unforeseen expense.”
Section 32 of the Trustee Act 1925 is the provision which gives the trustee the power to distribute trust assets for the benefit of a beneficiary. This Section enables trustees to distribute trust assets or manage capital in the interests of the beneficiary, without expensive and time consuming involvement of the courts. Under the proposed changes, for property transferred into settlement on or after 8 April 2013, the Section 32 power will have to be excluded or restricted or else the trust will not qualify as a bereaved minors’ trust (BMT) or 18-25 trust.
The Government’s proposed amendments are intended to have effect in relation to property transferred on or after 8 April 2013 however any Will which provided for a BMT and 18-25 trust which have not taken effect (as the testator has not yet died) will be affected, as property will be transferred into the trust only on death which could be after 8 April 2013.
The effect of the changes is certain testators who wish their funds to enter the tax advantaged BMT and 18-25 regimes will have to rewrite their wills. The proposed change will have a wide ranging and adverse effect on many wills, past and future, and will have costly implications for many members of the public.
The Law Society has reported its concerns to HMRC as part of the Government’s consultation on the proposed changes to the Finance Bill 2013, which is due to be finalised at the end of next month.
Given the widespread effect, The Law Society is urging HMRC to reconsider the proposed amendments to delete the Section 32 disregard.
11 February 2013

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