What is a Will?
In simple terms, a Will is a written expression of your wishes and requirements but more specifically, it is a legally binding statement of the way you wish your assets to be dealt upon your death.
If you die without having made a Will, you are said to have died 'intestate'.
Why should I make a Will?
If you die intestate, your estate will be distributed according to the laws of 'intestacy' and this is highly unlikely to provide you with what you would have wanted.
Taking only one example to illustrate the point, an unmarried partner has no right to their deceased partner's assets under the intestacy laws. Furthermore, the laws are also unlikely to be very tax efficient.
Where there is a Will, your estate can be distributed exactly as you wish and it can be done with a view to minimising Inheritance Tax.
In addition, you can leave instructions for the care and custody of your children - an area which the laws of intestacy do not cover with any great clarity.
What would the laws of intestacy mean for my estate?
If you die intestate and leave behind:
- A spouse, but no children, parents, brothers, sisters, or children thereof: your spouse takes everything absolutely.
- A spouse and children: your spouse takes your personal chattels, plus £250,000 absolutely, plus a life interest (income only) in one half of the residue of your estate.
Your children will take one half of the residue of your estate upon reaching age 18, or marrying below that age, plus the other half of the residue on the death of your spouse.
- A Spouse, no children, but parents, brothers, sisters, or issue thereof: your spouse takes your personal chattels, plus £450,000 absolutely, plus one half of the residue of your estate absolutely.
Your parents, or if no parents, brothers and sisters, will take the other half of the residue.
- No spouse: everything is taken by your children, but if you have none, then relatives including grandchildren, parents, brothers and sisters.
- No relatives: the Crown takes all.
How do I make a Will?
It is possible to draft a Will yourself but this is not to be recommended, because given that they can be of such importance, it really is vital that a Will is drafted correctly. Like cheap shoes, a do-it-yourself Will is a false economy.
Therefore, your main options are to employ the services of either a professional Will Writer or Solicitor.
Who are the 'executors' and what is their role?
Executors are the people that you name in your Will as being responsible for administering your estate upon your death, including dealing with any outstanding tax liabilities, perhaps most notably, Inheritance Tax.
Many people choose to nominate a solicitor as one of the executors, as this enables the duties to be shared with a professional who can offer valuable guidance in a situation with which most people would be unfamiliar.
Are young children able to inherit?
Children cannot inherit until they reach the age of 18; below this age, any funds of which they are the intended beneficiaries must be held on Trust.
However, you may feel that 18 is still too young for your children to inherit a large sum of money. If this is the case then you may state in your Will that they should not receive their bequest until a specified later age and a suitable Trust arrangement to this effect can be established, with the help of your solicitor.
What happens if I marry or divorce?
Getting married automatically revokes any previous Will in England, Wales and Northern Ireland. However, getting divorced does not in itself cancel a Will, although a gift to a divorced spouse lapses unless a statement to the contrary appears in the Will.
It is sensible for married couples to each have a Will, even if the terms and conditions are largely identical, because you can name your spouse as the person who will benefit from your property if you die, or you can decide where your property should go if your spouse dies before you, or you can word your Will in such a way as to attain maximum tax efficiency.
My partner and I are not married - how does the law affect us?
As outlined above, the laws of intestacy do not currently recognise partners outside of marriage. It is very important, therefore, that unmarried partners make Wills.
Tax Planning
There are two ways of changing the terms of a will after death that are effective for Inheritance Tax purposes; namely by using a Disclaimer or a Deed of Variation.
If the deceased person's Will distributed the estate in a tax-inefficient way and if all the heirs who stand to lose out in any rearrangement are over 18 and sane, they can agree to redistribute the estate in a more tax-efficient manner, for example by using the nil-rate Inheritance Tax band or any other exemptions that might otherwise be lost.
Disclaimers
Where a person inherits property under a Will, intestacy or trust, the property can be disclaimed, provided it has not already been accepted. To be effective for Inheritance Tax purposes:
- it must be disclaimed by an instrument in writing, within two years of death and there must be no consideration for money or 'money's worth'.
- the instrument must contain a statement that the disclaimer is to have effect for Inheritance Tax as if the disclaimed benefit had never been conferred.
- the disclaimer itself is not treated as a 'transfer of value'.
- the property is regarded as not passing to the person disclaiming it and instead passes to whomever else is entitled under the will, intestacy or trust.
Deeds of Variation
This applies where property passes on the death of an individual under a will, intestacy or trust and the heirs wish to revise the situation for family or tax reasons.
The heirs can execute a deed of variation to achieve this, provided they are all over 18 and sane.
To be effective for Inheritance Tax purposes, the deed must satisfy the following conditions:
- it must refer to the will, intestacy or trust being varied and be signed by all those who would, or might have benefited from the original provisions
- it must be executed within two years of death.
- it must contain a statement that the variation is to have effect for Inheritance Tax as if the deceased had made it. The statement must be signed by all the persons making the variation and where the variation increases the IHT payable, by the personal representatives.
- there must be no consideration for money or 'money's worth'.
If these conditions are fulfilled, the recipients giving up their entitlements are not treated as having made a transfer of value and the revised dispositions are treated as having taken place on the deceased's death. It thus effectively rewrites the will or intestacy.
Note, however, that a person who disclaims an interest in favour of another is regarded as the 'settlor' for income tax purposes.
Therefore, if a person receives a bequest which they revoke under a deed of variation in favour of, say, their infant child, it will for income tax purposes be treated as the parents' settlement on the child and as a result, any income from the amount invested (if over £100), will be taxed at the parents' rate of income tax.
If you would like to discuss your Will or Estate Planning requirements, please feel free to contact us.