There are many arguments in support of making a will, but perhaps one of the most important reasons is to ensure that our loved ones will be provided for. This is particularly important for unmarried couples, people with children from a previous relation and those keen on mitigating inheritance tax (IHT).
1. What happens if I die without a will?
Where an individual dies intestate (without a valid will) the people who inherit from the estate are determined by statute known as the 'intestacy rules'. It is a common misconception that if you die intestate your spouse or partner will inherit everything in your estate. Exactly who inherits will depend upon a number of factors such as the value of your estate and how your assets are held, if you are married or in a civil partnership and if you have any children or not
2. How are unmarried couples affected?
Unmarried couples can be particularly disadvantaged since they are not a recognised beneficiary under the intestacy rules. The effect of this is that where an unmarried individual dies intestate, their partner will have no automatic right to any share of their estate, which instead could pass to a distant relative or indeed the government. This is the case even if the couple were cohabiting or in a long term relationship. This can result a great deal of unnecessary stress and financial insecurity for the surviving partner and in some cases cause a family dispute.
3. How can I ensure that my children will be provided for by my estate?
The simple answer is to have a will prepared because children can also be disadvantaged under the intestacy rules. This is particularly the case where for example an individual has married, remarried or entered a civil partnership and they have children from a previous relationship. The parent may wish to ensure that those children are provided for by their estate but if they die intestate and their estate is less than £250,000, their children will have no automatic right to any share of their estate. Even if their estate exceeds £250,000, the share of the estate passing to their children may be less than what the parent would have intended.
Beneficiaries who inherit under intestacy will be entitled to receive their inheritance aged 18. This may be younger than what you would have intended either because of the amount of inheritance due or because you wish to protect a beneficiary who is immature or financial irresponsible or indeed if you wish to protect a vulnerable beneficiary.
4. I have discussed my wishes with my new partner and I know they will always take care of my children in the event of my death.
Lawyers hear this all the time! However, the reality is that without leaving a valid will there is no certainty that your children will be provided for. Your spouse/civil partner is free to dispose of any assets he or she inherits from your estate as they wish and there is no legal obligation for them to support your children financially or pass any of your wealth onto them. Indeed if your partner got into financial difficulties, those inherited assets could be lost to creditors, or if they remarried and later separated, such assets could be lost in a divorce settlement.
5. How can a will help with inheritance-tax planning?
Making a will can also be a useful tool in planning for (and sometimes mitigating) any inheritance tax (IHT) due on the estate.
Each individual currently has an allowance of up to £325,000 in which they are permitted to pass assets before incurring inheritance tax ('The Nil Rate Band Allowance'). Where an estate exceeds £325,000, excess assets are taxed at 40 per cent.
One of the exemptions to inheritance tax is the 'spouse exemption' (also applicable to civil partners). The spouse exemption allows married couples and civil partners to leave assets to one another of any amount, without incurring any IHT and without utilising their Nil Rate Band Allowance. Any unused Nil Rate Band Allowance can now be transferred to the surviving spouse's estate, so that the surviving spouse's estate has twice the Nil Rate Band Allowance (currently a maximum of £650,000).
However, if an individual dies intestate with assets in excess of £250,000 leaving both spouse and children, in accordance with the intestacy rules for England & Wales, the children will be entitled to a share in the deceased's estate. If the share passing to the children exceeds the Nil Rate Band Allowance, IHT will be charged at 40 per cent. This can result in hugely detrimental consequences, such as the family home having to be sold to pay any IHT due on the estate.
Thanks to Niamh Murphy from law firm Hart Brown
- Find out how you can prepare for the unexpected with a Will and Lasting Powers of Attorney (LPA). Request your FREE Guide to Wills & LPAs today, produced in partnership with Key Retirement. Call FREE on 0800 915 4714 or visit www.yours.co.uk/estateplanning