It’s the New Year and whilst everyone is busy making (and not keeping) their New Year’s resolutions, why not deal with the nagging issue at the back of your mind and finally get around to making or reviewing your will?
Questions we are often asked are – “why do I need to make a will?” Or, “I made a will years ago – that’s okay isn’t it?”
Reasons to make a will
What would happen if you don’t have a will?
If you don’t have a will in place when you die how your estate (i.e. what you own when you die) is distributed would be governed by strict legal rules known as “intestacy rules”. The diagram at the end of this leaflet will explain how those rules apply to you.
It is unusual for the intestacy rules to provide for your loved ones in the way that you are likely to want which is why making a will is the only way to control who inherits what – and when - after your death.
Normally the intestacy rules distribute your estate to your closest living relatives (closest in terms of family line – not necessarily relationship), but this can have unforeseen consequences. For example, a couple who have lived together for 30 years but never married (often mistakenly referred to as “common law husband and wife”) would not be entitled to anything from each other’s estate because they are not legally married and therefore neither qualify as next of kin.
Case study: Jenny and Sarah
Jenny and Sarah are married with two children aged 12 (Max and Felix). Jenny runs a successful investment business worth £3m. The house is worth £700,000 and is owned by Sarah and Jenny as joint tenants. On her way home one day, Jenny dies in a car crash. She has never made a will because she assumed (incorrectly) that Sarah would inherit everything.
Any assets passing to Sarah are spouse exempt and there is therefore no inheritance tax due on them. Jenny’s estate would be distributed as follows:
Sarah would receive:
- Jenny’s personal “chattels” – her jewellery, cars, pets, furniture etc.
- The first £250,000 of Jenny’s net estate
- A half share of the balance of the estate in excess of £250,000.
Max and Felix would be entitled to the other half share of the balance of Jenny’s estate at 18. In this example they would be entitled to £687,500 each on their 18th birthday (a lot of money at a young age). The estate passing to Max and Felix is subject to inheritance tax at 40% to the extent that it exceeds any available nil rate bands.
The house would pass to Sarah automatically on Jenny’s death.
If you don’t have any living family members your estate would eventually go to the crown. In reality this rarely happens but most individuals are keen to avoid this.
If you have children who are under 18, you should create a will to make sure that you have appointed guardians to act in the event of your death before your children are 18. Even if you are survived by your child’s other parent it is still worth having guardians appointed in case a) you die together or b) the surviving parent later dies.
Some situations need a bit more consideration
There are many people whose family circumstances are not catered for via the intestacy rules. We can draft a will for you that makes appropriate provision for them.
For example, if you are living with someone in a house that you own, you can ensure that your partner can continue to live in the house after your death if you include a trust in your will. This can be drafted so that the house reverts to your family (or other chosen beneficiaries) when your partner dies (or if another event occurs such as marriage to someone else).
If any of your beneficiaries are disabled, or in receipt of means-tested benefits, we can draft your will to make sure that any provision you make for them does not have a detrimental impact such as stopping “passport benefits”. For example, if one of your beneficiaries lived in sheltered accommodation, it is possible that, without drafting a suitable will, any inheritance could mean that they no longer qualify for that accommodation. Some conditions make any change of circumstances extremely upsetting for the individual. Drafting a will to put the most appropriate structure in place for that individual is the best way to safeguard their care and support.
Many people in a “blended family” are put off making a will because they think it will be difficult to make adequate provision for their loved ones. We can help you navigate family dynamics as there are many options available to give you piece of mind that your family will be looked after in event of your death.
Case study: Peter and Rosemary
Peter and Rosemary met three years ago and recently got engaged. They have both been married (and divorced) before. Peter has 1 son and Rosemary has 2 sons and 1 daughter.
The family live together in a house that is owned jointly by Peter and Rosemary as tenants-in-common, the rest of their finances are kept separate. Peter and Rosemary want to be able to provide for each other in the event of one dying before the other but are concerned about the possibility of the survivor inheriting everything, remarrying, and then passing their wealth on to a new family.
Peter and Rosemary could consider drafting “life interest” trust wills to allow the survivor of them to live in their home for the rest of their life and spend the income (i.e. any interest or dividends from any other assets). On the death of the surviving spouse the assets of the first to die would revert to their children.
The wills could also be drafted more flexibly to allow them to keep up with changing family dynamics over the years.
When considering a will many people are concerned about the amount of tax that will become due on their death. We can calculate how much inheritance tax might be due (if any) and suggest alternative structures to maximise the available reliefs and exemptions.
If you already have a will you should review it regularly (every 3-5 years is recommended) and in particular at these life stages:
- Marriage- unless specifically stated, a will is revoked on marriage. You also might want to make sure that your will makes appropriate provision for your new spouse;
- Death of someone mentioned in your will or a family member. We can advise what the effect of this will be and help you decide whether that is appropriate or not;
- Divorce. While you consider the direction of the next chapter in your life we can advise you how divorce will affect your will. We can also advise parents regarding the provision for any children who are divorcing;
- Health concerns. We can help put your mind at rest that your loved ones will be looked after following your death;
- Financial windfall. This is a good opportunity to review your will and to check if it is as tax efficient as you would like it to be. You might also want to consider whether to increase any cash gifts and/ or the structure of your will generally;
- Becoming a parent. Having a will enables you to appoint guardians for your children if you die while they are still under the age of 18. Regular reviews give you the opportunity to check if those people are still the right ones to look after your children:
- are the guardians appointed likely to be able to meet your child’s needs?
- have their situations changed since you originally appointed them?
- will your children have to move to live with the guardian?
- Change of the structure of your estate. If, for example, your main asset has been your business then you might need to review your will structure when you come to sell it; and
- When your wishes change. For example:
- you no longer want to leave a gift to your niece but instead want to leave one to your son-in-law;
- you decide that one gift is for too great a sum and want to reduce its value;
- you fall out with a family member and decide to remove them from your will; or
- you are delighted to discover that you are going to become a grandparent and want to leave a legacy to pay your grandchild’s university fees.