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In the UK, over 60% of us do not have a Will. The implications of dying without one can have unforeseen and often unwelcome consequences. This is because where there is no valid Will, an individual’s estate is governed under the rules of intestacy and there is a prescribed pecking order as to who can benefit. For example, a spouse, civil partner, children, siblings are entitled to benefit, whereas an unmarried partner cannot.
Individuals who are family or dependents of the deceased may have a claim against the estate under the Inheritance (Provision for Family and Dependants) Act 1975, the ‘Inheritance Act’ (IA). A claim under the IA can be made irrespective of whether or not there is a valid Will and must be defended by the Personal Representatives of an Estate. Claims under the IA can be very litigious and therefore costly.
It is recommended that individuals should prepare and review their Will once every three years or following any key changes in personal/family circumstances and also consider estate and inheritance tax planning at that time.
The following are aspects that an individual should consider:
- Estate planning to ensure that their assets are structured effectively for succession planning, asset protection and Inheritance Tax (IHT) purposes. Consideration should be given as to whether to hold certain assets in trust, including assets that qualify for Business Property Relief (BPR) / Agricultural Property Relief (APR), both of which are not subject to IHT.
- Whether they have a valid and up to date Will.
- Executors, i.e. those who are legally responsible for administering the terms of the Will, should be informed of their appointment and if their proposed appointment is suitable for the purpose in terms of where they live, health, etc.
- A valid Will can still fail in full or in part. For example, if there are no living beneficiaries, the Will would fail and would then pass under the intestacy rules. It is therefore recommended that a ‘failsafe’ beneficiary is included, for example a charity.
- Their Will should adequately provide for family and dependents to the extent that should prevent a claim under the IA.
- The suitability of individuals acting as guardians for minor aged children and advising the guardians that they are named in the Will as such.
- Setting out the individual’s wishes in a letter (expression of wishes) to include the “maintenance, education and advancement” of any children and any trusts created by their Will. It may also be relevant to set out the financial provisions for a guardian, including loans or purchase of property that may be needed for the guardian to fulfil their duties.
- Consider life cover for funding any IHT liability and, additionally, providing an immediate cash fund to assist family and dependents following the period after death.
- Reviewing who is to benefit from any pension fund and life policy and ensure that the latter are written in trust to avoid the proceeds forming part of the estate on death and being liable to IHT.
- Consider the purpose of any business interests including non-trading companies and whether these should be wound up and funds distributed, or to potentially transfer the shares into trust.
- Register lasting powers of attorney (LPA), which authorise named individuals to look after financial aspects and an individual’s health/welfare should they become unable to make decisions.
The Will is the culmination of the estate planning process, and an individual should consider which assets are to be left to specific individuals. Where the assets are disposed of during the individual’s life time or there are changes to who is to benefit from an estate, the individual should make changes by preparing a new Will or a codicil to their existing Will. It is also prudent to consider changes in legislation, for example the introduction of the new IHT residence nil rate band in April 2017.
For the purposes of IHT (succession) planning on a first death, the Will can be used to ensure that any assets that qualify for BPR/APR are left to a non-spouse/civil partner e.g. children of the deceased. There is no IHT on gifts to a surviving spouse/civil partner. The underlying assets can be sold by the children to the surviving parent in exchange for assets that do not qualify for IHT relief. There will be no IHT payable on the estate of a second spouse on assets held on their death that qualify for BPR/APR, and there is no IHT on the assets acquired by the children where these were on an ‘arms-length’ basis.
For futher advice on creating or updating your Will, contact Colin Burns.