According to Will Aid, 54% of parents with children under 18 do not have a will. This is understandable, given the pressures of modern life, combined with it being a subject (like critical illness cover and life insurance) which people would rather not spend their spare time thinking about.
This is a complicated subject, covering both tax law and intestacy law, which cannot be fully covered in one simple piece but what we hope to highlight is the human and financial benefits of making a will and how relatively simple it is.
Securing a Future
If you die without a will (or “intestate”) you give up control over what happens to all your assets and, if both parents should unfortunately pass, who will be responsible for your children? Having this organised and discussed in advance will help your loved ones, rather than burden them with extra decisions and administration in what would be a distressing time.
Once you have worked out your desired outcome, you can then update and optimise your decisions based on the Inheritance Tax (“IHT”) regime at the time. Along with updated family circumstances, this is another reason why it is important to update your will as and when required. Inheritance Tax has traditionally been considered as the concern of the rich elite. However, the surge in house ownership and house prices has seen the values of many household estates breaching the current £325,000 Inheritance Tax Personal Allowance. As a reminder, Inheritance Tax is currently charged at 40% for everyone on assets bequeathed over the £325,000 personal allowance.
Currently, if a married person dies intestate, the first £250,000 of assets go to the surviving partner. The rest of the estate is then split: 50% going to surviving partner and the other 50% divided equally between any surviving children. Aside from the question of whether that is what the deceased wants, the assets bequeathed to children become their legal property at 18 years old. Is giving your 18 year old son-or-daughter, who have lost one-or-both parents, control of a lump sum aged 18 a good idea? A properly written will, along with the effective use of trusts can release funds gradually to your children for life events such as university fees and accommodation, property purchases and first cars.
No Common-Law Rights
There is no provision for “common-law” partners. An unmarried surviving partner has no automatic right to inherit and the estate is divided equally between any children. If they have no children, the assets could go to surviving parents, brothers and sisters before the “common-law” partner. Therefore long term partners, with no intention to legally marry or enter a civil partnership, should be making will arrangements. In extreme cases, with no surviving relatives, the estate goes to the Crown. Modern family arrangements, with couples looking after children from previous marriages will also require a specifically drafted will.
These are all good reasons to prioritise getting a will in place. As with a lot of “life-admin”, once the inertia is broken and the process started, it is a relatively quick process. Here are some things to do to make the process easier.
List your Assets
Make an exhaustive list of your assets and liabilities, including your pension pots and life insurance. If you haven’t done it already, this information should be safely stored and can be used for meetings with financial advisers.
Get informed of Tax thresholds
Use the above with your adviser to work out if your estate will breach the current inheritance tax thresholds. This is a complex area but the main things which usually come up for discussion are lifetime allowances, main residence nil rate band, annual gift allowances, charitable donations and potentially-exempt-transfers.
Trust in trusts
Do you want your children to have control of lump sums aged 18? If not, consider the use of trusts. Setting up a Trust for you children will allow a trustee to take control of their finances until they are a certain age, as defined by you.
Appoint executors (the people responsible for carrying out the instructions of your will). It depends on the complexity of your estate but it’s possible for family members to do it. Some lawyers will offer the service but at an additional cost. If you are using a family member, it makes the process much more personal as you can discuss your wishes with them directly.
Remember to include any specific requests or bequests, such as funeral arrangements, leaving a classic car to a niece. The law won’t distinguish the difference between that classic Triumph your relative worked on for years and the run-around he used every day, except in terms of financial value. If you really want to leave a specific piece of property to someone specific, outline it.
Use a good lawyer and make sure you follow through with all the administration. The will needs to be signed and witnessed (the witness does not need to see the contents of the will). It also needs to be stored properly - many people do everything right but then tuck it in a filing cabinet. There is no centralised will database. Your executors and loved ones will need to know where to find it when they need it.
There were no changes in the Autumn Budget but inheritance tax is apparently under review. It is important to stay up to date with government policy details but more important is taking the vital first step to setting up the will, which many of us are struggling to make.