You Need To Have An Up-to-Date Will. Here's Why...

You Need To Have An Up-to-Date Will. Here's Why...

It’s a sad fact in the UK that the majority of people do not have a valid up-to-date Will in place. It seems to be something we put off until it’s too late. Research undertaken by Canada Life a couple of years ago showed that 60% of UK adults had not written a Will - that’s over 31 million people!

Apart from the Inheritance Tax planning issues around not having a Will (more on that later), without one, your assets are divided up according to the ancient laws of intestacy which may be very different to what you think will happen to the assets.

A Will is key as it allows you to nominate the right Guardians for any children under the age of 18; ensures assets go where you want them to go; allows any charity donations to be laid out and is an essential part of any estate planning.

So let’s first look at the rules of intestacy which apply if you are a UK-domiciled individual and die without a valid Will in place. The order of inheriting is as follows:

1. If you leave a spouse (this includes civil partners) and children (or remoter issue (grandchildren))
   • The first £270,000 and all personal possessions go to your spouse; 50% of the balance is divided equally between your children; the remaining 50% is held on trust with your spouse having a life interest in the trust.
2. If you leave a spouse but no children (or remoter issue)
   • If you have no surviving parents, siblings, nephews or nieces, your entire estate goes to your surviving spouse, otherwise...
   • Your surviving spouse gets £450,000 and all personal possessions and 50% of the remaining balance.
   • The other 50% goes to your parents, if not your siblings, if not your nephews and nieces.
3. If you leave children but no spouse
   • Your estate is divided equally among your children.
4. If you leave no spouse or children
   • Your estate goes to the nearest living relatives in the following pecking order:
     1. Your parents
     2. Your siblings
     3. Your nieces and nephews
     4. Your grandparents
     5. Your aunts and uncles
5. If you leave no relatives
   • Your entire estate goes to the Crown.

Unfortunately, most people (especially married couples or civil partners) believe everything goes to the surviving spouse – as you can see from the above, that is not always the case, especially where a larger estate is involved. This can then trigger unwelcome IHT charges on the first death which can devastate the family finances.

So, the message is clear – if you don’t have a Will in place, please take action to get it sorted. Here at Raffingers, we have a joint venture with a professional Will writing firm, so click here to get in touch if you want more details.

The unwelcome IHT liability

As set out above, it’s not always the case that for a married couple, all the assets pass to the surviving spouse. This is of particular importance when we are considering family estate planning. There is a very valuable IHT relief that exempts from IHT any transfers on death to the surviving spouse, regardless of the value transferred. To take full advantage of this exemption, a Will needs to be in place to set out that the residuary estate passes to the surviving spouse. Otherwise, the effect can be painful.

Let’s consider a simple example:

Jamie and Amanda are married with 4 children all over the age of 18; they don’t have Wills in place. Their joint estate is worth £3m; Sadly, Jamie unexpectedly passes away. The rules of intestacy apply, so the IHT position could be as follows:

A potential unwanted IHT bill of £116,000 occurs but if Jamie and Amanda had put wills in place passing their assets to the surviving spouse, there would be no IHT liability on Jamie’s death.

Some issues to consider when drafting your Will

You should obviously talk to a Will writer, tax adviser, wealth planner or solicitor when looking to put your Will in place to ensure all angles are covered and that any advice is tailored to your particular circumstances. In most cases we come across, clients believe that just a simple Will is needed but when you start to look at the overall estate planning position at the same time, there are a number of issues to consider in the drafting.

Here are just a few such issues that you might want to consider:

1. Executors – It’s important to choose the right executors as they will be responsible for dealing with the estate, completing any tax forms and distributing the estate in accordance with your wishes laid out in the Will. If your estate is complex in any way, it might be worth considering a professional as one of the executors (your accountant or solicitor for example).
2. Guardians – if you have children under the age of 18, who would you want to be looking after them should the unthinkable happen to you?
3. How do you want to be leaving assets to your surviving spouse?
   • Outright or via a Life interest trust?
   • The Life interest trust route gives some protection to your bloodline should your surviving spouse remarry, for example.
4. Should you make use of a Nil Rate Band discretionary trust to leave assets directly to your children?
5. Have you considered the impact of the Additional Main Residence Nil Rate band to ensure this relief is preserved?
6. If you have business assets – shares in your own company for example – can you make use of a Business Asset Trust to move the shares out of your estate tax-free?   
7. If you have other qualifying business assets (AIM shares for example) – should these be left directly to your children rather than a surviving spouse, as they are IHT exempt in any case so we don’t need to rely on the spouse exemption?
8. If you are leaving assets to your children:
   • At what age do you want them to inherit? The default age of 18 for many is far too young to be given any sort of significant wealth.
   • Should you wrap a Trust structure around any assets going to the children to protect those assets in the future from bankruptcy or divorce?

As you can see there is a plethora of issues to consider and therefore, professional advice that can be tailored to your individual family circumstances is paramount.

If you would like any further information, please email me at paul.dell@raffingers.co.uk or click here.