Making Your Will – Guidance
It is easy to keep putting off making a will. However, having a valid will is the only way to guarantee that your estate goes to who you want it to when you die.
If a person dies having made a will, the distribution of their estate is normally straightforward. If someone dies without making a will, they are said to have died intestate. In this case, the laws of intestacy will apply.
This guide deals with the law in England and Wales. Intestacy law is different in Scotland.
Before making a will, it is important to consider exactly what you wish it to cover and who you want to benefit from it. It is sensible to specify your major financial assets, such as your home, investments and other possessions, and to leave clear instructions regarding who will receive each. If there is a special item that you want to leave to a particular person, even if it is of little value, this too can be included. If you have children under 18 years old, your will can also make provisions for them and state who you wish to care for them in the event of your death.
When someone dies without having made a will, if they have a spouse (this does not include a ‘common law spouse’ – see below) or civil partner and children, the intestacy laws provide that their spouse or partner will inherit the entire estate if it is valued at £250,000 or less.
The statutory limits that apply to estates exceeding £250,000 are as follows:
1. If there is a husband, wife or civil partner, and children:
• the spouse/partner gets the personal chattels, the first £250,000 and a life interest in half of what is left; and
• the children of the deceased, including illegitimate and adopted children but not step-children, share between them half of the excess over £250,000, straight away if they are 18 or older, and the other half when the surviving spouse dies. The share of a child under 18 is held in trust until they reach the age of majority.
2. If there is a husband, wife or civil partner, and relatives but no children:
• the spouse or civil partner receives the personal chattels, the first £450,000 and half of what is left; and
• the parents of the deceased, or if they themselves have died, the deceased’s brothers and sisters or their descendants, share the other half of the excess over £450,000.
3. If there is a surviving husband, wife or civil partner, but no other relatives, the surviving spouse/partner gets everything.
4. If there are children, but no living husband, wife or civil partner, the children share everything equally.
5. If there is no husband, wife, civil partner or children, everything goes to the next available group of relatives in a strict order of legal precedence.
6. If there are no available relatives, the entire estate goes to the Crown.
Inheritance Tax (IHT) must be paid on all taxable estates valued at £325,000 (2017/18 rates) or more. The 2015 Summer Budget introduced a further exemption which will rise over the next few years to £175,00 relating to the home of the deceased. However, bequests to spouses, civil partners and donations made to charities are normally exempt from IHT. There are numerous reliefs and exemptions from IHT available, and planning in advance is essential to maximise these.
Gifts made during a person’s lifetime are also potentially subject to IHT. Any gifts made seven years or more prior to the death of the person making the gift are normally free of IHT, although in particular circumstances older gifts may become taxable. Where the estate of the deceased includes a business, farm, woodland or National Heritage property, specific reliefs from IHT are available. If IHT is applicable, it is payable at 40 per cent on the amount of the taxable estate after all reliefs.
It is important to note that a will that was made before a person entered into a marriage or a civil partnership normally becomes invalid after the event. It is therefore wise to make a new will as soon as possible after getting married or becoming a civil partner.
If you and your partner simply decide to live together, the situation can become more complex, especially if no will is made. Cohabitation does not give a surviving partner any automatic right to inherit their partner’s estate.
Assets that are held jointly, such as joint bank accounts, will normally pass to the surviving partner. However, once these types of assets have been dealt with, any residual assets that are legally the property of the deceased will pass strictly in accordance with the laws of intestacy, which do not make any provision for the surviving partner of unmarried couples.
If a person is financially dependent on the deceased but is not provided for under his or her will, an application to the courts can be made under the Inheritance (Provision for Family and Dependants) Act 1975. Where the claimant is a cohabitee, they must have been living with the deceased as if they were married or in a civil partnership for two years prior to the death, or have been completely or partially provided for by the deceased in the period just before they died.
The courts have considerable powers to determine what money or assets should be passed to a surviving partner and will choose what, if any, provision should be made for the applicant.
It is often thought that a person’s final wishes as stated in the terms of their will must be followed exactly, but this is not necessarily the case. If everyone who is to benefit from the will agrees to a change or changes, a variation of its terms can normally be made using a Deed of Variation (also known as a Deed of Family Arrangement). In order to do this, however, an application must be made within two years of the person’s death.
Originally, Deeds of Variation were introduced in order to protect dependants who would otherwise be left unfairly deprived under the terms of a will. Nowadays, these arrangements are mostly used to reduce the amount of IHT payable.
When a variation to the terms of a will is proposed, anyone who is a beneficiary of the deceased’s estate and whose entitlement is reduced as a result of the proposed variation must agree to it in writing. If any of the beneficiaries are under 18 years of age, the approval of the court may be needed before a Deed of Variation can be made.
IHT and estate planning can be complicated. When seeking to manage future tax liabilities, it is always best to take professional advice on any aspect about which you are unsure in order to avoid unforeseen consequences. What is certain is that making a will is highly desirable, inexpensive and not something that should be put off.
If you have any concerns on this topic, we can help.
Source: Trust, Wills and Probate