As much as we might not want to think about it, we are all going to die one day. Most of us know that we should write a will, but most of us never get round to it. Do you fall into this category? If the answer is ‘yes’, as the New Year approaches make writing your will your top 2014 resolution.
Writing a will gives you peace of mind that your wishes will be respected after you die and, by making those wishes clear, you can save your loved ones any additional stress at what is likely to be a very difficult time. Not writing your will could have serious consequences for those you leave behind. If you die without getting your financial affairs in order, your money, personal belongings and even your home could go to the person you least want to have them, and your loved ones could lose out.
Get your financial affairs in order
- Specify exactly how you want to divide up your assets, including any property, savings, business interests, personal effects and even pets – known in legal terms as your ‘estate’
- Appoint a guardian to care for your children as well as making specific financial provisions to help them do so (otherwise, it will be up to the courts to decide who looks after any children under 18 who are left without a parent)
- Use your will to save tax and potentially reduce or eliminate the amount of inheritance tax that may need to be paid on your estate
- Protect your assets for future generations and give yourself peace of mind that your affairs are in order
How will your estate
be shared out?
In England or Wales (some areas of the law and legal procedures are different in Scotland), if you die without a valid will, laws known as the Rules of Intestacy will determine how your estate is shared out. Importantly, only spouses or registered civil partners and certain blood relatives can inherit under these rules – unmarried partners who are not in a civil partnership cannot benefit, nor can relations by marriage or close friends, even if there are no qualifying blood relatives (in which case your estate will pass to the Crown).
A difficult financial position
Not having a will can mean lengthy delays in distributing your assets, in some cases years, which could leave your nearest and dearest in a difficult financial position, depending on your situation.
Family lives are often now more complicated, with more couples divorcing and second marriages and second families on the rise. In such cases, it is even more important to have a suitable will in place.
It is also essential you remember to review your will, especially when life changes occur. Life events such as a second marriage will revoke any previous wills, and a divorce will cancel any benefit to a former spouse, unless the will specifically states that divorce should not affect the entitlement.
Reduce a potential tax burden
Currently, if you leave behind an estate worth more than £325,000 (2013/14 tax year), inheritance tax (IHT) is levied at 40 per cent on anything above this threshold. If this is likely to apply to you, writing a will could help you reduce the potential tax burden on your beneficiaries.
It makes sense for a married couple to write their wills in conjunction with each other as, usually, the IHT is only an issue on the second death. Careful planning on the first death can, however, sometimes reduce the total eventual tax liability
This is because bequests between spouses are exempt from IHT and so it is easily possible to avoid any tax liability at that stage. The issue is delayed rather than avoided altogether, so the will of the first to die should be written with that in mind.
Also exempt are gifts to charities. Any money you leave to charity is not taxed, and if you leave more than 10 per cent of your estate to charity, any IHT payable on the remainder will be charged at a reduced rate of 36 per cent.