Write a will
Only around a quarter of adults in the UK have written a will, according to research conducted by The Co-operative Legal Services. But without a will, your estate will be divided according to rules laid down by the taxman, which might not be quite what you intended.
These rules, known as the ‘rules of intestacy’, take into account your circumstances when sharing out your estate. For example, in England and Wales, if you’re married with children, your widow or widower will receive all your personal possessions, the first £250,000 of your estate and a life interest in half of the remaining estate, with the other half going to the children when they reach 18.
If you’re living with someone but not married, the situation is much more troublesome. Your partner will not be recognised and instead the estate will go to the children of the deceased, or, if there aren’t any kids, to other relatives.
Instead of leaving behind this potential mess, it’s far easier to write a will and let people know how you’d like your estate divvied up.
There are a number of ways to write a will. At the cheapest end are the DIY will kits, costing around £10. These are fine if your situation is totally straightforward but can still cause problems – especially if they aren’t witnessed properly. For greater peace of mind, it’s worth seeing a professional will writer or solicitor.
As well as giving you advice on how to draw up your will – for instance, carving up your estate by percentage rather than in monetary amounts – they’ll be able to alert you to any potential problems. These could include inheritance tax planning issues; items that can’t be given away, such as jointly owned property; and legacies that could result in legal challenges.
They may also suggest you write a ‘letter of wishes’ to accompany your will, especially if you’re not sharing your estate equally. If this is the case, it’s also prudent to talk to your family about your plans as this can prevent disputes and upset when you’re not around to explain your decisions.
A letter of wishes isn’t a legal document in the sense that it requires witness signatures but it will act as a guideline to the executors of your will on how you’d like things managed. This could include specific funeral arrangements and the gifting of sentimental items, as well as listing all your assets.
How much you pay to get your will written will depend on the complexity of your circumstances and who writes it for you, but you can generally expect to pay anything from £50 to £1,000 or more.
It’s also important to review your will regularly. At a minimum, you should check it every five years but also revise it if your circumstances change – for example, you get divorced, have a child or inherit a large amount of money. Also, if you marry, your will is revoked, so you’ll need to write a new one.
Inheritance tax planning
One unintended beneficiary of your estate could be the taxman. Inheritance tax (IHT) is payable at the rate of 40% on the value of everything over the nil-rate band (£325,000 for 2010/11). But if your estate is over this limit, there are ways to avoid leaving a potential IHT bill.
For a start, you can take advantage of the IHT exemptions. These include gifts worth up to £3,000 a year, regular gifts or payments that are part of your normal expenditure, wedding gifts and gifts to your spouse or civil partner. There’s nothing to stop you making other gifts too, although it will take seven years before these are outside your estate for IHT purposes.
If this only dents your IHT bill, it’s worth seeking advice. More radical steps can be taken, including setting up a trust, investing in assets that qualify for business property relief, or taking out a whole of life plan to cover the potential liability, but their suitability will be determined by your circumstances.
Where can i find a will writer?
Fellowship of Professional Will Writers and Probate Practitioners web: fpwpp.co.uk, tel: 0845 643 6546
The Society of Will Writers and Estate Planning Practitioners web: willwriters.com, tel: 01522 687 888
The Society of Trust and Estate Practitioners web: step.org, tel: 0207 340 0500
Will Aid web: willaid.org.uk, tel: 01460 271 182
The process of applying for the right to deal with a deceased person’s estate. If a person has left a will, they will usually have appointed a will executor. The executor then has to apply for a ‘grant of probate’ from the probate registry, which is a legal document that confirms the executor has the authority to deal with the affairs of the deceased. If a person dies without making a will, intestacy law applies (see intestate).
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.