Making a will ensures that you make an informed and reasoned decision as to how to provide for your family and friends following your death. In the absence of a will, detailed rules on succession known as intestacy rules apply. These rules may be wholly inappropriate in your case.
Many people assume that if they die without a will their spouse or partner will inherit everything but this is not so. Spouses and civil partners may not receive all your property and unmarried partners are not automatically entitled to anything. It is therefore important that you make a will and that it is comprehensive.
This bulletin highlights the issues you need to consider in order to make a will. It also covers some related areas to which you may want to give further thought.
The Will
Whom do you wish to appoint as executors?
Your executors will be responsible for administering your estate. It is usually best to appoint two executors, with a possible third person named as a substitute. Many testators choose to have one professional executor, such as a solicitor, and one lay executor with a personal knowledge of the family.
Do you wish to name guardians for your children aged under 18?
This is a point which should be discussed between parents and with the proposed guardians along with your children if you feel that they are old enough to understand.
Do you wish to leave your body for medical research or do you have any special wishes as to burial, cremation or other funeral arrangements?
It is sensible to state these wishes in your will as well as telling family and/or friends.
Who is to take the main part of your estate under your will?
You will probably want to leave your estate to your family. Gifts under your will can be outright or, if your estate is substantial, in trust.
Any property passing to your children will be held in trust until they reach eighteen. However, your will can provide for your children’s entitlement to be made dependent upon them attaining a later age (say 21 or 25 years old) if you wish, subject to a maximum inheritance tax charge of 4.2% of the value of the trust fund if your child takes at 25. In substantial estates, more sophisticated and flexible trusts can be established.
Do you wish to make gifts of money: for example, to charities, godchildren or others?
Many people are surprised at the total value of their assets and decide to make legacies to people who have been important to them.
Do you wish to make gifts of specific items to particular individuals?
There are a variety of ways of doing this:
you can give details of specific items for particular individuals in your will;
you can leave all your ‘personal chattels’ (broadly, personal possessions such as the contents of your house) to your partner or to your executors to deal with in accordance with an informal, non-binding memorandum. The memorandum can be altered by you from time to time without the need to make a new will and is a flexible way of dealing with your chattels;
you can combine the two arrangements described above.
What should happen in the event that your partner and children do not survive you?
You should include a ‘disaster clause’ to cover the possibility of you and your family all dying together to avoid a situation where the intestacy rules operate because no one benefits under your will. This can be an outright gift or subject to some form of trust.
What additional clauses need to be included to ensure that your executors can administer your estate efficiently?
There are a number of administrative provisions of a fairly standard nature to be included in a will. Their complexity will depend upon the size of your estate and the other provisions of your will.
Are you married or in a civil partnership?
A will is automatically revoked on marriage or civil partnership unless it is made in anticipation of that marriage or civil partnership. This means that if you made a will before you were married or entered into a civil partnership it is no longer valid.
If you are married and then divorce, your will is not revoked by the divorce but provisions in your will relating to your former spouse are automatically modified. The same rules apply to civil partnerships.
Do you have any dependants?
In certain circumstances, a dependant or family member may have a right to claim part of your estate, even if you leave him or her nothing in your will. However, the risk of a claim may be reduced by including a statement either in your will or in a letter accompanying it explaining your reasons for not benefiting a dependant. Including the person being excluded from benefit in pre-death discussions reduces the risk further.
What assets do you own and what is their value?
Many people are surprised at the total value of their assets particularly with the significant increase in the value of property in recent years. Before making a will, it is helpful to compile details of your assets and their approximate values, for instance:
We have a will questionnaire to assist you in compiling a list of your assets.
How is your home owned?
If your house or flat is owned jointly by you and your partner as “beneficial joint tenants”, on your death your share will pass automatically to your partner. This is called the right of survivorship and cannot be altered by your will.
On the other hand, if you own the property as ‘tenants in common’, you can specify who is to inherit your share of the property.
Your solicitor will be able to tell you whether you own your house as beneficial joint tenants or tenants in common. They can also advise on whether you should alter this.
Review
We suggest that you review your will every 3-5 years or earlier if your circumstances change.
Other considerations
Death in Service Benefit: are you a member of an employer’s pension scheme?
If so, you are probably entitled to a lump sum death in service benefit and you should indicate to the scheme trustee whom you wish to benefit in the event of your death. Your employer should be able to provide you with an appropriate form to complete.
As death in service benefits are generally outside the scope of inheritance tax, they can be significant when considering inheritance tax planning.
Do you have any personal pension plans?
Any personal pension plan you have will probably also include provision for a lump sum death benefit to be payable in certain circumstances. You should make sure that this benefit is nominated or written in trust for the person you wish to receive it.
Life Assurance Policies: Have you assured your life?
It has been possible to mitigate inheritance tax by placing life policies in trust. The scope for this has been affected by the Finance Act 2006 but there still may be opportunities available. It is suggested you take advice on whether writing such a policy in trust is the best course of action for you.
Inheritance Tax
Will any inheritance tax be payable on your estate on your death?
Anything passing to your spouse or civil partner is free from inheritance tax provided you both share the same domicile status. This exemption does not apply to so-called ‘common law spouses’.
Anything you leave to charity is also free from inheritance tax. There are a number of other inheritance tax exemptions, for example, for business or agricultural assets.
The value of your estate for inheritance tax purposes includes not only what you own in your own right, whether by yourself or jointly, but also any gifts made during the seven years before your death and possibly any interest you may have in a trust. Any debts you have are deducted from the value of your estate.
At current rates, inheritance tax is charged at 40% on the value of your estate having discounted the threshold known as the ‘nil rate band’ on which no tax is payable. The value of the nil rate band tends to increase on an annual basis. For 2007/2008 it is £300,000 increasing to £312,000 in 2008/2009 and £325,000 in 2009/2010.
If the inheritance tax payable on your death is likely to be significant, you should consider whether this can be mitigated. With careful planning, tailored to individual circumstances, substantial tax savings can be achieved. We can help here: our team has substantial experience in this area of law which means that we should be able to save tax for the benefit of your heirs.