Unusual clauses and loopholes in Wills and Powers of Attorney
Wills and Powers of Attorney are powerful legal documents which ensure your wishes are followed. A Will kicks in after death, and a Power of Attorney sets out who you would like to make decisions for you if you are no longer able to make them for yourself during your lifetime.
It is best practice to review your Will every three to five years in order to take into account any changes in your life or circumstances. This check is also a great opportunity to make sure your documents are watertight and free of any quirky clauses or legal loopholes that could mean your wishes are not carried out in the way you would like.
- Make sure your EPA is signed
Enduring Powers of Attorney (EPA) were a forerunner to Lasting Powers of Attorney (LPA). EPAs were phased out after 1st October 2007 but if you made an EPA before that date, it will still be valid. EPAs that are either unsigned, signed after October 2007 or signed without being in the presence of a witness would make them invalid meaning a new LPA would need to be prepared. It is worth checking this now and arranging an LPA if it turns out the EPA is not valid.
- Survivorship clause
When someone’s assets pass to a spouse or civil partner who survives for only a short time, it can result in a bigger inheritance tax (IHT) bill, as well as doubling the admin load. A survivorship clause in a Will prevents this; however, the clause should be used with care. If a beneficiary outlives the given period (which generally can be anywhere between 28 days and 6 months) it can really complicate the IHT situation and even increase the amount to be paid. There are ways to reclaim this but it can be complex and costly. You need to take specialist advice on this point.
- Non-exempt beneficiaries
Beneficiaries exempt from paying IHT include spouses or civil partners, registered UK charities and qualifying political parties and national institutions. Non-exempt beneficiaries are anyone or anything that doesn’t fit into these categories. If your Will contains a mix of the two, it is important to decide whether your estate should be distributed before or after IHT is paid.
Dividing the estate before IHT is paid is the simplest option, and the one that results in less IHT to be paid; however, exempt beneficiaries end up getting a higher share of the estate. Dividing after, results in more overall IHT payable but the estate is distributed more evenly between exempt and non-exempt beneficiaries.
- Wording to allow freer financial investment
There is specific wording that is worth including in your LPA to allow your attorney (the person or people you give decision-making power to) to invest your money with fund managers who have discretion to make investments. We call these ‘Discretionary Management Powers’. By giving fund managers discretion, it often means you may receive better returns on your investment. There is no clear guidance as to whether this is strictly necessary but it might be wise to include to prevent any problems down the line.
- No replacement attorneys
An LPA set up without a replacement attorney could cause difficulties as the attorney would need to be replaced if the original appointed person died, refused to act, became unwell or bankrupt. Without a replacement attorney, a Court of Protection application may be the default option (if the donor has lost their capacity) which could be costly and time-consuming.
- Jointly or severally?
LPAs can be set up in multiple ways: jointly (where all attorneys must make all decisions together), jointly and severally (where the attorneys can act independently but must keep each other informed) or a combination of the two (where the agreement can require joint decisions on certain aspects or severally on others).
For convenience, most people elect for the jointly and severally option but it is worth thinking about the other options if the attorneys do not get along, they live a distance away from one another or are likely to disagree on big decisions.
If you have any worries about current Wills or Powers of Attorney, or you have yet to make a Will or Power of Attorney, it is always best to contact a solicitor who will be able to provide advice which is tailored to your individual circumstances.
Ann-Marie Matthews is a solicitor in the private client team at Barker Gotelee, Ipswich Solicitors.
Suffolk Private Client Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]
