I am drafting a Will whereby I have been asked to insert a legacy of £25,000 to be index linked.
The precedents I have found as as follows:
" In clause 2 below, ‘the Sum’ means the sum of money produced by dividing the sum of £[insert amount of legacy ] by the index figure in the Index of Retail Prices for the month in which this Will is executed and (having made allowance for any re-basing of the Index which may have happened in the meantime) multiplying it by the index figure in that Index for the month in which my death occurs provided that if, when the time comes, the second of these figures is not available (because that index has ceased publication or for any other reason), my Trustees (making use if they wish of any other index which may seem to them relevant and obtaining any advice which they may think desirable) shall reach a decision (which shall bind [insert name of beneficiary ] and everyone interested in my estate) as to what in their view that index figure would have been if it had been available and shall use the figure on which they decide for the purposes of the calculation."
However if we use the example of £25,000 and an RPI index currently of 5.5%, and on the date of death, an RPI of 4%, the outcome seems to be £25,000 / 0.055 * 0.04 = £18,181.82 which naturally means the legacy is reduced and is entirely against what we are after. Surely I must be missing something here as both Lexis and Practical Law use the same calculation? Neither have an explanation or and Q&A on this subject either.
Thank you in advance to those who reply.
Those RPI figures are the annual change figures. You need the continuous list figures where the RPI is expressed cumulatively.
Lee Young
Solicitor, Trust & Estate Practitioner, Chartered Tax Adviser
Frettens LLP
The precedents just refer to the first and last RPI. Surely they’re not correct in that case as if you do the calculation following the exact wording it only takes account of the difference in the RPI of the RPI at the date of the will vs the RPI at the DOD. There’s no reference to the RPI for the years in between?
Does anyone know where I can find a precendent for the legacy to be index linked and follow the RPI from the date of the will to the DOD, increasing annually with inflation? Or am I missing something?
Hello,
If the index is less then the legacy is reduced.
If the index is the same you receive the same.
I.e assume 5% 2022 death 2025 5%
£25,000 / 0.05 × 0.05 = £25,000
Increase 5% 2022 death 2025 6%
£25,000 / 0.05 × 0.06 = £30,000
The precedent needs to include.
‐---------
Minmum Sum Payable
“Should the index on death be less than the index on inception the orginal sum is payable”
Id also include a cap.
Richard C. Bishop
PFEP
The precedent ought to include a simple average of the index from inception to DofD.
Much better approach.
Richard C. Bishop
PFEP
Hi Christine
This is what you need. This is the index. You are looking at the annual rate. The RPI is not expressed as a %age. It is an index figure. So January 1987 is 100, and the index goes up from there. So if the index for a month is 105 then it means prices have increased 5% since January 1987.
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/chaw/mm23
Sara
Sara Spencer | Trust Manager
Sara Spencer Ltd, 8 Kingsway, Harrogate, HG1 5NQ
07952 651881 | 01423 524114
Sara.spencer@trustandestate.co.uk
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Now this makes much more sense. In that case the calculation would be correct using the precedent.
Thank you very much, everybody for your help, particularly you Sara.
Kind regards
Christina
The ‘index of retail prices’ is just that, as Sara has said. The precedent is not wrong, you are misunderstanding the phrase.
Given the uncertainty around the reform of UK RPI calculation post 2030, it may be preferable to reference CPI, which will continue to be published in it’s current form for the foreseeable future.