Many people find it difficult to talk about death, and as a result, they fail to make proper financial arrangements. Research by Canada Life has shown that more than half of adults in the UK do not have a Will, and 13% state they have no plans to write one.
The most common reasons for not writing a Will can be people believing that they have plenty of time or that they do not have enough assets. Making a Will can help your loved ones avoid more heartache, and ensure that they are looked after should you die unexpectedly. Writing a Will inevitably means a long-term gain for your loved ones.
With inheritance tax receipts rising to almost £7 billion from April 2023 to February 2024, it is important to make any inheritance or gifting as efficient as possible, so that your beneficiaries are not hit with an unexpected large bill.
What happens if I die without a will?
If you die without a will, your property and assets will be shared according to certain rules which limit who can inherit after you have passed. If you die without making a Will, under intestacy rules, a married partner inherits the personal property and belongings of the person who has died, up to the first £322,000 of the estate, and half of the remaining estate. If there are surviving children, they share the remainder. If there are no surviving children, the spouse inherits the whole of the estate. Other relatives, such as parents, siblings, grandchildren, nieces and nephews, grandparents and aunts and uncles can also inherit if there are no relevant persons who would come before them. The surviving partner of a cohabiting couple cannot inherit under intestacy, but they can make claims for “financial maintenance” if they had been living with the deceased for 2 years or more. Although intestacy rules have been updated over the years, they are still very much biased towards married spouses and children. It is probably a good idea to check what intestacy would mean for your loved ones after you die.
What should I consider when putting my will together?
You need to start firstly by working out exactly what you have, such as your assets and debts, then decide about who you want these to go to. Ideally you should be reviewing your Will whenever you hit a key life change. In addition, you can also think about non-financial assets, from heirlooms, personal and digital items. It may be about things your family would really love to have when you’re gone, like sentimental items.
You can avoid paying inheritance tax if the value of your estate is under £325,000, or double this, £650,000 for a married couple. Anything left for the benefit of a surviving spouse is also exempt. If you leave your home to your children or grandchildren your threshold can increase to £500,000 each.
If you own a business or an interest in a business, all or part of the assets will be exempt if you owned it for at least two years before your death and it does not mainly deal in investments, land and buildings.
If you leave at least 10 per cent of your taxable estate to charity, the burden on the net estate will be reduce from 40 per cent to 36 per cent. That can be quite a powerful thing, as it can mean there is more money for your beneficiaries. If you put your assets in a trust, and die at least seven years after setting it up, it may not be counted for inheritance tax purposes.
In discretionary trusts, there is a 20 per cent charge if the value exceeds the £325,000 threshold. A trust can also allow you to have some control over what you leave behind, for instance allocating assets only when the beneficiary is a certain age or to protect them from an abusive partner or addiction. Trusts can put an element of protection around funds that you want to ultimately benefit children or other dependants.
Before you die, you can make gifts, some of which are exempt from inheritance tax if you die after seven years of making them. You have a £3,000 gift allowance per year, which can be carried forward to the following tax year. You can also give as many gifts up to £250 as you would like, although not to anyone who has received a gift in the £3,000 allowance. Regular gifts from your excess income immediately fall out of your estate for inheritance tax purposes. These can be used, for instance, to pay for grandchildren’s school fees. However, you must show that it is a recurring gift which does not affect your standard of living.
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