It is sadly no great revelation that we are all going to die.... However, recent studies show that 2 out of 3 adults in England & Wales don’t have a Will. Mostly this is due to apathy. But dying without a Will can leave loved ones with some very nasty surprises, and do so at their most vulnerable time. So what is involved in raising a Will? And how do you go about it?
What is a Will?
A Will is simply a documented record of our wishes, a statement declaring who we want to receive our ‘estate’ (property and assets) after we die, and who we wish to appoint (as ‘executors’ and ‘trustees’) to ensure our wishes are carried out. But a Will can also serve as a powerful financial planning tool, and properly constructed to fit a family’s circumstances can help save thousands of pounds in Inheritance Tax (IHT), and preserve assets in other ways across generations. Even for those couples that are married or in a civil partnership, a pair of Wills gifting the estate of one spouse to the other is essential to preserve Inheritance Tax allowances across their joint estate. Full tax allowances have to be claimed with evidence from HMRC, they are not simply granted automatically.
Doesn’t Inheritance Law protect Spouses and Children anyway?
To a large degree, but probably not in the way you might think, and not in a tax efficient manner. A person dying without leaving a Will is said to have died ‘intestate’. The ‘Rules of Intestacy’ which legislate for this situation were written back in 1925, and are a poor fit for today’s complex family structures. Married couples have a degree of protection. For example, take a married couple with children (of any age) where the deceased’s estate exceeds £250,000: The surviving spouse will take the first £250,000 plus personal possessions. Half of the rest is divided equally between their children. For the other half, the income or interest upon it benefits the surviving spouse until they die, following which the capital then passes to the children. But take note that these intestacy rules make no allowance for the fact that the deceased may have been in their second or third marriage, or give their children from a first marriage any special privilege as to entitlement.
Unmarried couples didn’t figure in the 1925 rules. They weren’t given an automatic right to receive anything, and this remains the case today. A surviving unmarried partner will have to make a claim against the estate of their late partner to receive consideration. An unmarried partner in the intestacy rules equates to a single person. As such, their estate will pass to be shared by their surviving children, or if they leave no children, to their parents instead. Unmarried partners must therefore ensure they have up-to-date Wills to give their wishes legal recognition.
What are the Professional Options? Can I Write my own Will?
Although having a Will prepared professionally was once the sole preserve of Solicitors, today’s legal services market offers the consumer an increasingly greater choice. Banks, Unions and some Financial Advisers offer Will-Writing Services, as of course do Professional Will Writing Companies. Even Supermarkets are looking to engage their shoppers with a Will Service. It’s entirely possible for someone to write their own Will, either through a ‘DIY pack’ or with an online service, but great caution is required.
Someone owning (or jointly owning) a property and other assets would be ill-advised to draft their own Will without seeking professional advice. A person or couple looking to write their own Will(s) would need a good knowledge of estate planning, taxation and property law before completing the task with any confidence. Even so, who wants to live with the uncertainty that their efforts may be botched? A failed legacy with wretched consequences for loved ones is no gift at all. Even a small error could undermine a DIY Will, however obvious the person’s intentions, whether by way of inadequate construction or incorrect execution. Even if a Will is completed correctly, could the resultant tax on the estate have been avoided? And were the various methods of distribution available fully understood?
All Estates need a Plan - Giving your Instructions
There’s no ‘one size fits all’ Will. All estates, like snowflakes, are slightly different. The question is not so much “How do I write my Will?” as “What am I looking to achieve through my Will?” Only a face to face meeting with a qualified professional will enable all the relevant issues to be fully explored. A person’s aspirations can be discussed, and the best way of meeting them examined. These are viewed against potential threats to the value of the estate by way of a possible liability to IHT, exposure to Long Term Care fees, or perhaps by the subsequent remarriage of a partner.
Before the meeting with a solicitor or professional adviser they’ll tell you what preparations you need to make. You’ll be asked to provide full details of the property and other assets/accounts that you own, and asked whether you’re sole owner or joint owner. The legal title of any house or flat will need close scrutiny, but the adviser can easily verify this with the Land Registry. The adviser will need the full names and addresses of family and friends who you wish to include in your Will, with clarity as to their relationship to you. You’ll also be asked to provide evidence of your identity. The adviser needs to be sure they’re taking instructions from the right person. There’s a lot at stake, so they need to check someone else isn’t writing your Will! Yes, it does happen..!
Doing the Maths
The adviser will calculate a person’s assets against current liabilities, such as a mortgage or loan, to give a net estate value. They’ll also examine whether the liabilities are set to be paid-off by life cover. This is crucial. A house can’t be left to someone if it has to be sold to settle the outstanding mortgage!
It’s generally true that we’re worth more dead than alive. Many people acquire life assurance policies for added family protection, but significant payouts can also arise from a ‘death-in-service’ payment through an employer’s pension scheme. These may be up to four times annual earnings. Such life policy or pension proceeds need careful planning to ensure they don’t ‘fall into’ your taxable estate (to be needlessly taxed!) and are also managed efficiently for the next generation, so not taxed either in the estate of a surviving spouse or partner. The adviser can explain the simple trust devices that can preserve post-death proceeds.
Types of Distribution
Making an outright gift to a loved one is clear and simple, but does it achieve the right outcome for a surviving partner and the children across a joint estate? And what about other issues? Is it tax efficient? What if the surviving partner subsequently marries or remarries? Or goes into care? How can assets be best managed and protected for minor children or vulnerable adults?
There are five main types of Will with their own characteristic outcomes:-
- A Standard Will: Names Executors/Trustees, nominates Guardians for children under 18 and leaves outright gifts to beneficiaries. Funeral wishes also stated;
- A Property Trust Will: Protects a property or property share for a future generation. A spouse/partner is granted a right of occupation for life, with the property share ultimately ‘held’ by Trustees for children. This offers some protection against possible long-term care fee assessment of a surviving spouse/partner, and also against their remarriage;
- A Flexible Life Interest Trust Will: Similar to a Property Trust Will, but includes other assets too. Trustees have wide powers to vary the terms of the life interest. These include having rights to transfer trust property to the principal beneficiary, and to change the terms of the trust including creating new trusts. It provides useful options to mitigate Inheritance Tax across a joint estate;
- A Discretionary Trust Will: Makes Trustees the ‘legal owners’ of the property held on trust, and they determine how the assets are managed and deployed, usually following the intentions of the testator (the deceased) by way of a supporting ‘Letter of Wishes’. The ‘discretionary beneficiaries’ are the ones entitled to receive or benefit from the assets on trust. Useful to preserve assets for minor children and for those with a learning disability;
- A Nil-Rate Band Discretionary Trust Will: Allows assets up to the prevailing IHT Nil-Rate Band allowance (currently £325,000) to be held on a Discretionary Trust for selected beneficiaries, usually a partner and children. These are essential for unmarried partners seeking protection from IHT across their joint estate.
How is a Will completed?
There are strict rules regarding the execution (or ‘attestation’) of a Will, once the content has been established, but some Wills are ultimately rendered void due to these rules not having been followed. The golden rule is that the person to whom the Will relates (the ‘testator’) must sign their name in the presence of two independent witnesses, who themselves sign the document after the testator has signed, as evidence that they saw the testator sign it, and that the testator did so freely and was of sound mind. The testator should never allow a beneficiary to sign as a witness, as they are unwittingly disinheriting themselves as a result!
Work Hard, Plan Hard
Modern families hold more wealth than ever before, and current living patterns are far more complex than our Inheritance Laws were ever designed to cater for. Only by making a Will can an individual or couple ensure that the wishes they have for their property actually materialise. Property and assets are for most acquired through years of tireless work and sweat. Yours, probably? What price a couple of hours of your time to make sure that your loved ones get the maximum benefit from it? Only George Osborne would prefer that you didn’t...
■ This article was written by Michael Lancaster, Principal Estate Planner at ‘Lancaster Wills & Trusts’, and member of the Personal Finance Society and the ‘Society of Will Writers & Estate Planning Practitioners’.
■ ‘Lancaster Wills & Trusts’ specialise in Estate Planning and related legal services, including the provision of Lasting Power of Attorney forms and Probate. They operate a fixed fee price structure which includes two home meetings. At the first meeting they take a client’s instructions, without time constraint, and also re-attend to ensure the client’s Will is signed-off correctly. They serve clients across North London and Hertfordshire. Telephone 020 8886 2344 or visit www.lancasterwillsandtrusts.co.uk to receive further information or book a meeting.
Be sure to check the credentials of any firm you seek to engage, as the Will Writing sector is not currently regulated. However, members of the following trade bodies have strict consumer codes of conduct, professional development requirements and mandatory Professional Indemnity Insurance: ‘The Law Society’, ‘The Institute of Professional Will Writers’ and ‘The Society of Will Writers & Estate Planning Practitioners’. A firm should be able to offer credible Testimonials from past clients. Given the implicit financial issues involved when planning an estate, ideally the professional taking the instructions and imparting advice should also have relevant financial qualifications too.