When talking to clients about their financial affairs I’m often surprised how many haven’t made a Will, or have one that they admit is out of date. They ask me, why should I bother making a Will? My answer is simple, if you don’t you get a ‘government Will’ which is definitely not going to reflect your wishes.
Did you know that the courts will only accept an original signed and witnessed Will, a photocopy will not be accepted by the courts. If you die without a valid Will, or having never made a Will, then the laws of intestacy kick in. These laws are bizarre and it is highly unlikely that they will reflect your wishes. For example, if your total estate including your share of your home is worth more than £250,000 then your wife receives £250,000 outright and a life interest in half of the remainder. Your children get the rest.
There are many benefits to making a Will such as avoiding lengthy delays in administering your estate or expressing your funeral wishes or ensuring guardians are appointed to your dependent children.
However, the main reason for making a Will is to ensure your estate passes to those whom you intend it to pass to, and that probably isn’t the tax man. You can only make specific bequests to individuals or avoid the intestacy rules noted above by making a valid Will.
As we get older we face our mortality in a more immediate way and the desire to leave our affairs in order for our loved ones becomes more compelling. Most of us would hate to think of a family divided by squabbles over money after we’re gone.
“Never say you know a man until you have divided an inheritance with him.”
Johann Kaspar Lavater
It is better to take this matter in hand in our lifetime and leave a clear Will that leaves your wealth for your immediate kin and protects it from divorcing siblings, unforeseen events such as mental illness, local authority care fees and the biggest one - HMRC.
A mirror Will is probably the most common and simplest Will, each partner leaves their estate to the other on death and then to the children, typically in equal shares.
However, by writing a nil rate band trust into your Will you can protect more of your wealth for the benefit of your family. Such a trust ensures that assets equivalent to the value of the nil rate band for Inheritance Tax (currently £325,000) pass into trust on your death. Children can then borrow money from this trust at no interest rate or fixed repayment date.
Such planning potentially protects such gifts from passing to the child’s spouse on divorce. This is also a common step to ensure at least half of a couple’s house is not available to local authorities to pay care home fees.
A less common reason for use of such trusts is to ensure that the spouses nil rate band is safeguarded. Although we now have the transfer of unused nil rate band between spouses this must be claimed from HMRC and if proof of availability is not forthcoming from the Executor, the claim may be denied. Hence it is better to ensure the nil rate band is safeguarded in the Will rather than the executor having to prove that it was not used up in earlier gifts.
Making a Will is not expensive but many clients simply don’t get round to it. We invariably discuss Inheritance Tax and protection of assets in our meetings with clients. Hence, we now provide a Will instruction taking service which we can include in client review meetings. The added benefit is that we will ensure you are advised of options that may be more beneficial than just the simple mirror Will. In that way you can make your decision about the type of will to use in an informed way.
Chartered Accountant and Chartered Financial Planner