Risk management

Inheritance - easy or taxing?Colin ran his own successful retail business.

His solicitor Michael had advised him for years on company/commercial matters.

When Colin said he wanted to make a will, Michael readily agreed to act ...

after all, he thought, wills are not difficult.Colin sent detailed instructions to Michael:'My wife Laura has been involved in the business from day one.

She knows it inside out, and will continue to run the business in the event of my death.

It is worth a considerable amount of money (Jack my accountant will give you details of value) and will provide more than enough income to keep Laura in the manner to which she is accustomed.

I understand that part of my estate will be tax free, and I would like to give that to the children.

As you know Laura fell out with the kids, and will not be too happy about this, but as I said the business is worth a lot, and I want the children to have something'.No problem there, thought Michael.

He drafted a provision under which the tax-free element of Colin's estate passed to the children and the residue to Laura.

The intention was that a sum equivalent to the Inheritance Tax threshold would pass to the children, and the business to Laura.

Colin signed the will.Not long after the attestation, Colin died.Michael did not want to deal with the administration of the estate and passed the matter to Janet, his trusts and probate partner.

She read the file and gave Michael a call.'Mike, I just want to check that the wording you used in the will is what you really meant.

Saying "I give such sum of my estate as will not give rise to tax to my children" means the children get the equivalent of the inheritance tax nil rate band and the business because it qualifies for 100% relief.

Laura gets the residue, which is about 5,000.''No, that's not what was intended', said Mike, who was starting to feel distinctly queasy.'Do the wife and children get on? We may be able to rectify'.'No, they don't'.'We've got a problem then...

why didn't you refer the will instructions to me?'This was a good question and one that Mike could not answer.How could this problem have been avoided?l Resist the temptation to dabble in areas outside your expertise, even at the request of a long-established client.l Tax issues often arise in probate matters - take special care not to overlook them.l Gifts of assets by will which are likely to attract reliefs are often best made the subject of specific gifts, to avoid them being unintentionally included in the nil rate band.l Let your clients know if you will be dealing with tax matters.

If not, tell them so in your letter of retainer and inform them that they will need to take advice elsewhere.This column was prepared by the St.

Paul risk management team