Reasons for Making a Will and How to Pick the Right Adviser

Reasons to make a will

According to research from Canada Life, 59% of people don’t have a will. That’s potentially 31 million people who may die ‘intestate’, i.e. without a will, and whose assets, financial, property and other, may be inherited by someone not of their choice.

It’s a fair conclusion that most people believe that even if they don’t have a will in place, all their assets and possessions will pass to their spouse or civil partner if they die. Actually, that’s not strictly true. The only time all your assets pass to your spouse/civil partner is if you have no children and there are no other living relatives. In most cases, that isn’t the situation.

Another misconception is that because you’ve been living together for years and are common law partners, the same rules apply as if you were married. Again, that’s not true. In England and Wales, the state or common law partner is not recognised in the legal sense and therefore your partner will not receive any of your estate if you die without a will. These are just two reasons to make a will. So, why should you make a will?

What is a will?

First, let’s just clarify; a will is a legally binding document that sets out how you want your estate distributed upon your death. Also known as a last will and testament, it will include your beneficiaries and the possessions/assets you bequeath to them, who will bring up your children and who will look after your pets, if applicable, the details of any trusts and can also include your funeral arrangements. If you have an uncomplicated estate, you can write your own will, although that is not recommended, but if you have a complex estate, always seek the help of a qualified solicitor or professional will-writer.

Reasons to make a will

● Decide who looks after your children – if you are a single parent and were to die before your children had reached the age of 18, who would look after your children if you died? Instead of the court choosing who has the role, you can specify in your will who is going to be their guardian (do ask them before you add this clause to your will and make sure they are happy to take on the role). This not only ensures who you want to raise your children, it also stops someone you don’t approve of taking control.

● Sets out who benefits from your estate – as your will is a legally-binding document, how you decide who benefits from your estate is down to you. Whether your estate is minimal, i.e. doesn’t include any property, there will still be family heirlooms you wish certain people to have when you die. Of course, if your estate is large and complex, it becomes an even more important reason to make a will. Your will also makes sure that should you and your partner not be married, you are able to protect them and the family home by leaving them a share of the property or set out a right to reside in the property for them.

● The option to disinherit – your will defines who gets what and allows you to leave someone out of your will, if that’s your wish. Without a will, someone may inherit part of your estate which may be against your wishes. For example, if you have remarried, you may not wish your ex-spouse/civil partner to inherit any of your estate.

● Make a gift or a donation to a charity – you may decide that you wish to make a gift/donation to your favourite charity upon your death. Not only does this benefit the charity, there is the potential that your family will pay less inheritance tax, particularly if the donation is over 10% of the value of your estate.

● Ensure your family/children are provided for in the future – as well as making sure the right person raises your children (if applicable), you may also want to ensure their financial security, such as paying school fees, setting up a trust from which they receive a regular income or a deposit on their first home. A trust is a beneficial way of providing for your children once you’ve gone. You can either set it up before your death or leave instructions for a trust to be established after you die. Either way, a will makes sure your wishes are honoured. One essential point to note here is that if you do not have a will, only blood relatives will automatically inherit from your estate. If you have remarried and have stepchildren, foster children or adopted children, or any other dependents, there is every likelihood they will not benefit from your estate should you die unless you have a will in place.

● Avoids paying too much inheritance tax – whatever you do, your family will have to pay inheritance tax on your passing. However, you can reduce the tax burden by making a will. What you leave to your spouse/civil partner is automatically exempt and any property you leave your children/grandchildren may well be subject to less tax. Trusts are another area where less tax may have to be paid.

● Avoids disputes – without a will, deciding who gets what from your estate could get messy. Avoiding any family disputes, arguments or disagreements is a good reason to make a will. You can make your wishes clear and smooth the probate process, too.

Finding the right adviser

Whilst there are facilities available for writing your own will, you run the risk that its validity could be challenged. You may also miss out on certain aspects of your estate, which could cause probate problems. Therefore, it is always recommended you get professional advice from a solicitor or will-writer to help you write your will and ensure it is legal.

You may choose a solicitor who specialises in writing wills and probate; whilst this may be the more expensive option, they are highly experienced and will be able to make sure you have included every aspect of your estate, even things that you hadn’t thought of, such as any cash you may have in the bank.

There are also professional will writers but not all are legally qualified solicitors, lawyers or chartered legal executives, and therefore not necessarily regulated. Always check their credentials and qualifications carefully and make sure they are a member of the Institute of Professional Willwriters (IPW) which is the professional body that regulates the will writing profession.

Banks and charities also offer will writing services, which often come under the title of estate planning but as with professional will writers, do your due diligence. Recently, there has been a rise in online will writers, driven predominantly by the coronavirus pandemic. Their fees are likely to be lower than solicitors or even professional will writers and they are not allowed to be executors of your will.

At Probates Online, we are able to offer a professional probate service online that is efficient and affordable. If you are an Executor of a will and need to apply for a Grant of Probate or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

Inheritance Tax: How Does It Affect You?

Inheritance Tax

When you pass away and leave assets to family or any other beneficiaries, they are liable for paying tax on those assets, known as Inheritance Tax (IHT).  However, it is possible to significantly reduce the amount of IHT payable or, indeed, pay nothing at all depending on the value of any assets, known as your estate.

How much is inheritance tax?

How much IHT your beneficiaries pay largely depends on the value of your estate, or your assets which include any investments, life insurance policy payouts, property and even cash in the bank. 

If the total value of your assets is less than £325,000, your beneficiaries will not be paying any inheritance tax.  But if your assets value is above this threshold, they will pay 40% on the value of the assets above the threshold.  For example, if your estate is valued at £500,000 and your threshold is £325,000, you will only pay IHT on the estate value above the threshold, i.e. £175,000.

However, there are exceptions to this basic rule.

  • If you leave your entire estate that’s above the £325,000 threshold to your spouse or civil partner, charity or a community amateur sports club, your beneficiaries will not pay IHT.
  • If you bequeath your home to your children, and this includes children that are fostered, adopted or stepchildren, the threshold may increase to £500,000.
  • The IHT rate will drop to 36% on some of your assets if you choose to bequeath at least 10% of your estate’s net value to charity.

Inheritance tax for married couples

If you are in a civil partnership or are married the thresholds are different. If you die before your spouse:

  • Assets left to your spouse/civil partner are exempt from IHT, if they are living in the UK.
  • Any assets above the threshold are passed on to your spouse and added to their threshold, as well as their main residence allowance.  So, potentially, your spouse’s/civil partner’s tax-free threshold level could be as much as £1 million.

Inheritance tax relief

There are various exemptions and tax reliefs that may apply to your estate, such as the nil rate band (NRB), taper relief and business property relief. 

  • Residence nil rate band (RNRB) – any part of the estate that is over the nil rate band (NRB) – every person’s threshold of £325,000 – that is passed on to the spouse/civil partner, as well as any gifts, can be passed to the surviving spouse/civil partner and is exempt from IHT.  In April 2017, the residence nil rate band was introduced and is an additional amount to the NRB, which can be transferred.
  • Taper relief – it is applicable when inheritance tax is due to be paid on a ‘gift’ that was granted 7 years prior to your death.  Essentially, any gifts passed on before your death are subject to IHT but the longer it is since you made the gift prior to your death, the amount of tax your beneficiary has to pay is based on a sliding scale, i.e. it is tapered.  For example, a gift made 3 years before your death is liable to 40% tax.  Gifts made 7 years before you died are tax-free unless they are part of a trust.  Known as the 7-year rule, you must keep a record of what you gave, how much it is, when you gave it and who you gave it to, and your executors must know these details as well.  However, a ‘gift with a reservation’, i.e. the gift is still in use by you, is considered part of your estate.
  • Business property reliefbusiness property tax relief can reduce the amount of IHT paid on any business assets, such as shares, buildings or any business machinery.  If you own a business, or are a partner in a business, it forms part of your estate on your death and your beneficiaries will be liable for tax on that asset.  However, it is possible to reduce the amount of tax paid by claiming business relief by 50%, or even 100%.  For example, if you are a sole trader and bequeath your business to family that’s valued at £400,000, the £325,000 threshold applies and is eligible for business property relief on the remaining £75,000; therefore, zero tax is paid. However, if you only owned 50% shares in the business, i.e. voting rights, or 50% shares in an unlimited company, i.e. 50% of the land, buildings and/or equipment/machinery, only 50% business relief is claimable. 

How do gifts work in terms of inheritance tax?

There are some ‘gifts’ you can make prior to your death which will reduce the level of inheritance tax payable and, in some cases, mean no tax is paid.  A gift includes:

  • Personal items, such as jewellery or antiques.
  • Household items, such as furniture.
  • Property, including a house, buildings or land.
  • Stocks and shares, as listed on the London Stock Exchange.
  • Unlisted shares, i.e. shares in an unlimited company, if you have held them for less than 2 years prior to your death.
  • Money; this also includes money that remains should you sell a gift for less than it is worth.  For example, if you sell your property to a spouse or child for less than the market value, the monetary difference is considered a gift.

Gifts do not include any assets you leave to beneficiaries in your will.  Those assets, such as cash in the bank, possessions and any other property, are considered part of your estate and are valued accordingly for inheritance tax purposes.

Any gifts to your spouse/civil partner during your lifetime are exempt from inheritance tax as long as you are legally married or in a civil partnership, and they permanently live in the UK.  In addition, any gifts to political parties or charities, if they are before your death, are exempt from IHT.

Every person is allowed to give away up to £3,000 worth of gifts in any tax year and they won’t be added to their estate, and therefore be liable for IHT.  Known as an ‘annual exemption’, you can gift £3,000 to one person or distribute the amount between different people.  You are also allowed to carry it forward to the next tax year, but only for a single year.

This inheritance tax exempt rule also applies to annual birthday or Christmas gifts, up to the value of £250, as well as gifts towards a wedding or civil partnership ceremony.

At Probates Online, we are able to offer a professional probate service online that is efficient and affordable.  If you are an executor of a will and need to apply for a Grant of Probate or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.