Updated 23 January 2017
More than 11% of people believe their estates will automatically go to the right people should they pass. Lowes Financial Management addresses the importance of Wills.
It is always difficult to contemplate the plan for when the inevitable happens. Following the death of a partner or spouse, there will be the strain of emotional and practical pressures, but also financial issues will need to be addressed.
When there is a plan in place, many of the financial issues can be pre-empted and a solution implemented. Yet nearly six out of 10 UK adults don’t have a will, including one in three over-55s, according to research carried out last year by Unbiased.co.uk.
Only if you have a valid will, can you be sure that your family and the state have a valid instruction as to who you want your estate and possessions to go to when you die. It is often assumed that the entirety of someone’s estate will automatically go to their spouse or civil partner when they die. This is not the case. If you die intestate, or without a valid will, then the State determines who inherits your property according to a strict formula. This may bear no resemblance to your wishes and the worst case scenario is it may go to the Treasury! So it is crucial to have a valid will so your estate is distributed according to your wishes and as tax efficiently as possible.
A recent change serves as a reminder of the need to plan for after death. As same sex couples can now marry, they can also convert their existing civil partnerships into a marriage. If this happens, they should at least, create a codicil to their wills to make reference to the marriage. As the conversion of a civil partnership to a marriage is a dissolution of the civil partnership and so may void the will. So it is practical to make a codicil just in case.
The practicalities of making a will are important, whilst not essential, it pays for the will to be put together by an appropriately qualified professional. Intestacy, ambiguities, punctuation and incorrect witnessing can, at best be expensive to resolve or, at worst invalidate the will. All documents should be stored securely with your executors being informed of the location and that of all your financial paperwork. Long delays can be costly, particularly when trying to plan for inheritance tax on second death when every day of delays could have an impact. New wills can now be registered and stored with a centralised data centre, which makes it easier to keep track of them and ensure they are accessible to beneficiaries.
Another aspect to bear in mind is that if you have property abroad, often a will needs to be made in the country the estate is situated. The existence of an overseas property will also needs to be mentioned in your UK will, as legally this is usually your ‘last will and testament’.
Talking to your financial adviser about potential tax issues, especially inheritance and capital gains tax, can help ensure more of your wealth is passed to your loved ones rather than the government. Inheritance tax, or other potential ‘death duties’, is an issue that is closely on advisers’ agendas following changes to pensions announced in the Budget.
There is no doubt that the 2014 Budget will give rise to many planning opportunities. At present if death occurs before retirement then pension funds can generally be passed on without any IHT liability, however for some retirees there can be tax charges for passing on a lump sum from income drawdown funds. The new rules will allow pension savers more opportunity to manage their retirement income and people will have to carefully consider how income tax, inheritance tax, and any pension tax charges affect how they can pass on their pension wealth, and how their will and trusts can help their situation.
On death of an individual, once the will is recognised as valid, the executors get to work, total the value of the deceased’s assets and pay any inheritance tax out of the assets. In order to get authority to do this, they usually need to obtain a legal document called a ‘Grant of Probate’. A Grant of Probate on a simple estate can be obtained at little cost in a relatively short period of time. Probate offices usually are very helpful and sympathetic and will often assist with the forms in order to get the Grant issued.
As you can see, there are a lot of considerations to take into account to plan for when you are gone, but planning early and carefully can reduce the burden. More importantly, it can help ensure the financial security of our loved ones is protected when we are not around, which is the upmost concern for all of us.
About the Author
Lowes Financial Management is one of the largest privately owned Independent Financial Advisory firms in the UK and has been serving clients for more than 43 years. The keystone upon which Lowes and its clients have prospered is “Client Service”. The firm offers advice on a range of financial planning issues and provides a bespoke portfolio service. Lowes can provide comment for the Media on investments, savings, tax and estate planning, pensions and any other form of general financial advice