Don’t let ’em get their hands on your assets! Why you should write a will

The rules around dying without a will have changed, but if you want the right person to inherit your estate you should think about who gets what and make a will (especially if you’re cohabiting). By Tony Griffiths

 

Earlier this month the UK’s intestacy rules – the laws governing the division of your wealth and belongings if you die without a will (called intestate) – were given a makeover. Not before time. The changes became law on 1 October, updating an Act that debuted back in 1925.

Good news, then? The short answer is yes. It will benefit spouses and civil partners, and give greater protection to adopted children. 

The chances of a serendipitous windfall from that great aunt you never met have disappeared. But this, experts agree, was an overdue victory for commonsense. With roughly one-third of UK deaths occurring intestate, it’s no insignificant development either.    

However, the changes are not a panacea. What they haven’t done, say legal experts, is lessen your need to make a will – a point muffled during the initial excitement.  

Do cohabiting couples need a will?

“When someone benefits from the intestacy rules it’s typically more by luck than judgement,” says Elliot Lewis, partner at Thackray Williams. “Unless you are absolutely certain you understand how the rules apply to your individual circumstances my advice is to seek advice.”

Naomi Neville, associate at Access Legal, agrees, calling it “vital” for everyone to make a will and especially important for cohabiting couples.

“The changes have not gone further to increase the rights of cohabiting couples, who remain entitled to nothing on the death of a partner,” she says. “Arguably, it is the lack of change in this area which causes the biggest impact on family life.” 

Neville also notes the continuing absence of a provision for stepchildren.

You should also make a will if you have children under the age of 18. It might be something you put off, but as the Childhood Bereavement Network says, a parent of dependent children dies every 22 minutes in the UK. Last week it launched Plan If, to raise awareness of this fact and encourage parents to make provisions for their children, including appointing guardians.

Will inheritance tax be payable on my estate?

Inheritance tax (IHT) is, of course, regularly cited as the chief bugbear during estate planning. If you leave everything to your spouse it’s free of IHT, regardless of its value. Leaving assets to anyone else eats into your IHT allowance.  

“Only about three per cent of estates are liable so you may not even have a problem to solve,” says James Antoniou, head of wills at Co-operative Legal Services. “However, if your estate is valuable enough, the IHT rate is 40 per cent, so find out how much tax is potentially at stake.”

In the UK, everyone has had a £325K IHT-free allowance since April 2009. This will be frozen until the 2018-2019 tax year,, when it rises to £329,000.

Back in 2007, the then chancellor Alistair Darling brought in the concept of the ‘transferable allowance’, permitting a surviving spouse’s executors to claim double their IHT allowance if the initial one was completely unused on the first death. At the current rate, that means a potential allowance of £650,000. 

“A lot of clients we work with have the transferable allowance fully available,” says Lewis. “Although we also find that many clients have been making substantial gifts to children, which can have huge big implications for IHT.”     

IHT and your gift allowance

If your estate is likely to have a tax liability then you can consider using your annual gift allowance. Gifts of up to a total of £3,000 per tax year are permissible IHT-free per individual, as are smaller gifts to as many individuals as you wish up to a value of £250 each.

But, as the HMRC website says, “If you die within seven years of making a gift and the gift is valued at more than the IHT threshold, IHT will need to be paid,” potentially by the recipient.

 You can, though, carry forward the previous year’s allowance if it hasn’t be used. Antoniou says: “If, for example, a couple wanted to gift some money to their children to reduce their inheritance tax exposure, in theory, they could in total make an initial gift of £12,000 (£6,000 each) which will immediately reduce their estates for tax purposes.”

There are additional quirks. Charitable donations are fully exempt and there have been beneficial recent changes in this area. Now, if you leave ten per cent or more of your estate to charity you could get a reduction in the rate of IHT from 40 per cent to 36 per cent for certain beneficiaries.           

Assets exempt from IHT

Certain types of asset are also exempt, including: shares in an active trading company held for at least two years; investments in the Alternative Investment Market (AIM) held for at least two years; and gifts out of surplus income.

“If your incomings are more than your outgoings you can gift away some or all of that excess, and it remains exempt from IHT even if you die within seven years of making the gift,” says Lewis.

“This is particularly useful for those with substantial incomes or for many clients who enter their 70s and 80s and may be spending less on things like holidays, travel and entertainment but have the same amount coming in.” 

How much does it cost to make a will?

Unsurprisingly, the cost of drawing up a will can vary significantly.

The price of a basic single will written by a solicitor typically is between £125 and £250 but can surpass the £1,000 mark for very complex circumstances such as where substantial business interests are concerned. Wills for couples tend to be half as much again. 

There are, however, plenty of ways to bring that cost down, not least via a DIY’online will-writing service. Simple mistakes can cause big and potentially expensive problems later on, but if you feel on top of your circumstances and confident in your attention to detail such templates cost as little as £10.       

If you’d prefer to involve a solicitor, several charities run free schemes in the hope of securing donations. Will Aid, a UK-wide service, runs during November; Will Relief Scotland is a September scheme; in March and October, it’s ‘free wills month’ in England and Wales.

Emma Myers, head of Wills, Probate and Lifetime Planning for Saga Legal Services recommends reviewing a will every couple of years, or sooner if personal circumstances change significantly such as acquiring property or items of value or getting divorced.   

Can my will be amended after my death?

And what about amendments once someone has died: is a will set in stone? No. The most common means of posthumous change is a Deed of Variation, a document drawn up in the two years directly after death allowing certain parties to vary some details or impact the intestacy rules.

“It is possible for the beneficiaries in your will to either refuse the gift you have left them or re-direct the gift to another person,” says the Co-op’s Antoniou. “The latter sometimes occurs for tax mitigation purposes and must be done with the beneficiary’s consent.”

A Deed of Variation is a useful tool, says Lewis. “At the moment we are seeing quite a lot of clients seek advice on these for a whole range of reasons – they have always been popular.”  

Life has one certainty and if you’re uncertain of the fallout then a Will is the best way to protect you and your loved ones. As Antoniou says, “The changes to the intestacy rules have simplified matters. However, the need to have a Will in place remains as important as ever.”

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