Many of us will die without a will because it is something that we fail to get around to, often because we don’t want to think about our own demise. Around half of UK adults don’t have a will, with a third of those over 55 in this position, according to research from Canada Life. Anyone dying without a will is leaving the State to dictate how their assets are split when they die, and it could even mean the State taking your money. This would mean the people you want to receive the things you leave behind may not receive them.
Your ‘last will and testament’ is essentially your final wish for what happens with your worldly goods when you die. Without a will, there is a specific set of rules by which the State will divide up your estate, In England and Wales, these are:
- Your married spouse or civil partner – even if you have separated and are yet to divorce – will inherit your whole estate and your personal possessions.
- If there are any children, grandchildren or great grandchildren, then your spouse or civil partner will inherit:
- The first £322,000 of the estate.
- All the personal possessions of the deceased,
- plus, half the remaining estate.
The rules vary in Scotland, and you can find more information here.
Writing a will is by far the best way to ensure your estate is divided in the way you want. You must keep it updated whenever you have any changes in your life, such as having a child, getting married, divorcing or a change in your net worth. If you are simply living together, your partner will have no legal access to any of your possessions without a will, and would potentially face a big IHT bill.
What do I need to think about when writing my will?
One of the reasons people might be reluctant to write a will is not knowing who they want to leave their possessions to. But the sooner you think about this and make those decisions, the sooner you will be sure that the State will have no look in when it comes to the division of your estate.
You can always update your will once it is created, so you don’t need to think of this as a one-time deal. Over time, you may find that you change your mind about who you want to receive what, and you also will have different assets over time too.
Choosing who gets what when you die isn’t easy. You may need to provide letters to explain your decisions if you think some of them may be contentious. Also, you may have a favourite charity you would like to leave a legacy to, and if this is the case, you should be aware that it will get its share before any of your loved ones, so think carefully about how you do this.
What is the most efficient way to separate my assets?
How you leave your assets and to whom is a very personal thing, and you can speak to your will writer or solicitor about this to make sure you are achieving what you want. There may be people, for example, that you want to ensure don’t receive anything when you die, and this may also need to be spelt out in your will.
You may find that leaving things in percentage terms, rather than monetary values, will also prevent you having to make changes on a more regular basis as your net wealth goes up and down throughout your life. In the case of a charity, this would mean it would only get the percentage you leave to it, and not the entire estate if your net worth had fallen significantly before you died.
For example, let’s say you are worth £650,000 including your property, you have children, and your spouse or civil partner has died previously without using any of their inheritance tax allowance. This would mean your entire estate could be passed without IHT as you can use your deceased spouse’s £325,000 allowance along with your own.
If you had previously been worth much more, say £2m, then you may have left £500,000 to a charity which would be 25% of your assets at that point. But if your estate had fallen to £650,000 when you die, then the charity would take the first £500,000, leaving just £150,000 for the remaining beneficiaries.
If instead you left 25% of your estate to the charity, then at £650,000 the amount it would be entitled to would be £162,500, leaving £487,500 to your other beneficiaries. This is an important consideration, and it might be worth using percentage values for all of your beneficiaries, so any significant change in your net worth will not mean one person or organisation getting much more than you had intended.
Is the Chancellor expected to change IHT in the upcoming Budget?
There have been rumours that the Chancellor will be making changes to IHT in the Budget, but this is something that has often been mooted before a Budget or an Autumn Statement. Yet there have been no significant changes to IHT in recent years. Even the threshold has been frozen at £325,000 bringing more people than ever into the IHT when they die thanks to rising property prices.
We won’t know for sure until Jeremy Hunt delivers the Budget on March 6, but if you don’t have a will, you should look to get one sorted as soon as you can anyway as no-one knows when the worst will happen. It can always be changed later and should be reviewed once a year at least to make sure it is still correct.
