How many of us simply don’t stop to consider how much we will actually be worth upon death, or to properly consider the effects of taxation on our Estate and therefore on our beneficiaries?
Having a Will in place is vital and presents an opportunity to express your wishes regarding how your assets will be distributed after death and if applicable, to nominate guardians for children. However, it may also be possible to potentially reduce the amount of tax that will be payable and in that regard, advice should nearly always be taken. (See the Inheritance Tax section at the end of this article.)
If you die without a Will?
If there is no Will (or if a Will is declared invalid for whatever reason) then the deceased person is deemed to have died ‘intestate’. In such circumstances the Court will appoint Administrators, who take responsibility for assembling that person’s assets and ensuring all the debts and liabilities are paid, before distribution of the Estate.
A surviving ‘spouse’ may not necessarily inherit everything and if a couple were not actually married, then they do not have an automatic right to inherit. Furthermore, if there are children who are under 18 it becomes the responsibility of Social Services to determine whom they live with.
The Estate is then shared out within the family, according to strict division rules, taking no account of what the wishes of the deceased may (or may not) have been.
Other implications of having no Will
Obtaining Letters of Administration and appointing an Administrator for the Estate can take months… sometimes even years. Meanwhile your surviving spouse (or partner) is still incurring all their normal expenses. It is also possible they may not have ongoing access to money because your assets have been frozen, which is how they can remain until all necessary formalities have been dealt with.
Can issues of mental capacity arise?
As people are now living a lot longer, debilitating conditions such as Alzheimer’s are on the increase. This alone is an incentive to ensuring your Will is in place sooner rather than later, but if there is any likelihood of your mental capacity being called into question (at the time of making a Will) a GP can generally supply a medical certificate of capacity.
One other matter to consider at this time is a lasting power of attorney, which gives a trusted friend or relative the power to look after your financial affairs, or make decisions about your general welfare, if your own capacity to do so becomes diminished.
Inheritance Tax (IHT) – a few basic facts
In line with our understanding of current legislation, here are a few important considerations to be aware of. They are by no means exhaustive and furthermore, if you own a business, there are other potential allowances which may reduce the liability of your Estate to IHT :
- If your Estate is worth over £325,000 (or £650,00 for a married couple or civil partnership) then anything above this figure is normally subject to taxation @ 40%
- If you leave your main residence to your children (including adopted, foster or stepchildren) or to your grandchildren, then your tax-free threshold will increase
- Pension funds can often be passed on without attracting IHT
- It is possible to gift up to £3,000 each year, free of IHT
- You are also allowed to gift your children £5,000 (grandchildren £2,500) when they get married, free of IHT
- If 10% or more of your Estate is gifted to charity then the IHT is reduced to 36% on the entire Estate
We hope this article has given you food for thought. However, everyone’s circumstances are particular to them and you should always take professional advice when making a Will. Please feel free to contact us for further ‘general’ advice on this important topic.