Do you love paying taxes to the Government? Are you not thrilled at the idea of your ex-wife getting all your cash if you die? Then get a will written…and get it quickly! Around two thirds of us don’t have a will which means cost and heartache to family and friends. So just get it done now while the sun is shining and you’re in a good mood! Here’s how.
- When should I get a will written?
- Where will my money go to if I don’t make a will?
- Who sets the standard for will writing?
- What is inheritance tax (IHT) and how does it work?
- How can I avoid inheritance tax?
- I have no property or savings – do I really need a will?
- What is my estate?
- What is a beneficiary?
- What is an executor?
- What is a lasting power of attorney (LPA)?
- What is probate?
- Where should I go to write my will?
- I already have a will which just needs updating, what do I do?
- Where should I store my will?
- What’s the difference between a mirrored will and a mutual will?
- Is it safe to make a DIY will?
No, really, whatever age you are, if you have any possessions, and certainly if you have any dependents, you should write a will.
If you have young children or other people who depend on you, it’s all about making sure they’re properly taken care of.
And even if you don’t, it’s about beating the tax man and having the last laugh!
If you would like to give to charity while making a will you could wait until November which is Will Aid month. This is when solicitors and other will writers give their fees to charity.
If you don’t make a will, then your money will be distributed according to the law of intestacy.
If there are no descendants, property will generally go to the parents of the deceased instead, then the siblings, the siblings’ descendants and so on to less immediate family members.
And if a person dies intestate with no identifiable heirs, the person’s estate tends to end up with the government. Do you want that? I doubt it!
There isn’t a government regulator for will writers. Technically anybody can write a will – without any qualifications – and providing it’s written accurately and within the guidelines of the law, it will be validated at probate.
However, because there’s no regulation, you need to be wary. As always, it’s best to use someone who subscribes to an accredited body. Members of The Society of Will Writers (SWW) and the Institute of Professional Willwriters (IPW) are bound by their ethics and standards, so should you decide to write a will, it’s a good idea to make sure the company you want to use has been certified by one of them. All SWW and IPW members are fully indemnified and trained and supported in the laws of succession and estate planning – in many cases to a far higher degree than many solicitors.
IHT is a tax on death. The government calls this tax a ‘voluntary tax’ which basically means that most of the time, with the right planning, you can avoid it.
IHT can reduce a beneficiary’s inheritance by a huge amount. At present, the IHT rate is 40% on any inheritance over £325,000. The £325,000 limit per person is called the ‘nil-rate band’. This threshold is to hold good until 2015.
For example, Tom leaves his son Harry £400,000 in his will. Tom is allowed to give £325,000 to Harry tax-free, but the £75,000 that exceeds the nil-rate band is taxed 40%.
40% of £75,000 is £30,000. Take this away from the full amount given to Harry and he is left with £370,000 inheritance – rather than the £400,000 his father left him.
Between married couples and civil partners, no inheritance tax needs to be paid. And under new laws, any amount of the nil-rate band not used when one spouse (civil partner) passes away can be transferred to the remaining spouse.
For example, if a husband dies and leaves his entire estate (worth £350,000) to his wife, there is no inheritance tax to be paid.
The wife now has the £350,000 given to her by her husband, and a further £350,000 of her own money – meaning she has £700,000 to give away.
£650,000 of this is available to give away as a tax-free inheritance (her £325,000 nil-rate band, plus her deceased husband’s unused nil-rate band). But – the remaining £50,000 is still taxable.
With the new law in place allowing married or civil partnership couples (not cohabiting couples) to transfer their nil-rate band, IHT planning is much simpler. If you’re married and your combined estate is worth less than £650,000, you don’t have to plan ahead for it.
If you’re married or living with a civil partner – and your estate is worth less than £325,000 – you also have nothing to worry about (although it’s essential you make a will if you want to leave your estate to your partner and you are not married).
If you’re single or your combined estate exceeds the nil-rate band (currently £325,000), it’s important that you get professional advice to avoid IHT – ideally from a good tax accountant and/or lawyer. Independent Financial Advisers should be able to help too. Here are some options you might like to consider:
- The easiest way to avoid inheritance tax is to give ‘gifts’ while you are still alive. You are allowed to give away £3,000 per year in gifts tax-free, and £250 per person per year tax-free. However, you are not allowed to give both gifts to the same person. Over a number of years you will find this amounts to a lot of money!
- Any money given to charity in a will is also exempt from IHT, and wedding gifts (to either of the couple) are also exempt from IHT up to certain amount: Parents can each give £5,000, grandparents and other relatives can each give £2,500 and anyone else can give £1,000.
- If you give a large sum of money to a family member at least seven years before you die then that is also exempt from IHT.
- A discretionary trust is another way of potentially avoiding inheritance tax.
Essentially, a discretionary trust is a way of cutting down the tax your family and friends would have to pay if they were simply left all of the money in your will. The downside for them is that other people, trustees that you have appointed, pay money to the beneficiaries at their own discretion according to the rules you have laid down.
For example, a man leaves £250,000 in a discretionary trust, with his wife as a trustee and his two children as beneficiaries. The wife has full control over the money in the trust, and when it is paid out the children have no right to demand the money.
This is a handy option if you have children who are too young to handle money themselves, or if you don’t trust a beneficiary to spend it as you would wish.
For example, if you’d like to leave everything to your brother – but he is addicted to gambling – you could appoint a trustee to ensure he is only given certain amounts of money for specific purposes.
By leaving a spouse inheritance in the form of a trust, you can avoid paying a certain amount of IHT. When the surviving spouse dies, the funds included in the trust are not classed as part of the estate and are therefore exempt from IHT (although other taxes do apply).
Setting up a trust is should be carried out under the guidance of a trained professional to get the best advice. You can find a local one through STEP (the Society of Trust and Estate Practitioners).
Actually yes. If you have no family or friends you would like to give any personal items to, or any children for whom you may need to arrange guardianship, you might still want to give your personal belongings to charities. If you don’t put this in a will they won’t benefit.
Also, if you have family heirlooms or gifts you want to pass on for sentimental value, it’s worth making a will. And if you have any children, it’s really important that you write a will because you will need to say who you would like to look after them if you are not around.
In the event of the death of the mother – where the mother and father are not married – the father will not necessarily be given guardianship of the children. Social services will place the children with whomever they see fit.
Even if you are a married couple – as miserable as it sounds – you need to plan for the possibility of you both dying at the same time. Who will look after the children then and will there be any money to leave to them?
If your estate is worth less than £5,000 and you have no children, you may well be able to make a will yourself using a ‘write your own will kit’.
If you have assets of over £5,000 – or under £5,000 and have children – it’s a good idea to get a will professionally written.
Solicitors often offer to write their clients a will. This is perfectly acceptable and if you trust your solicitor, it’s a practical way to get your will written.
However, many solicitors actually go to professional will writers to get their wills written. They are generally more qualified to deal with specific issues, particularly inheritance tax planning and trusts.
If you think that your will is likely to be complicated in any way, you should go to a professional will writing company, as mentioned above, which is a member of either The Society of Will Writers or the Institute of Professional Will Writers or STEP (the Society of Trust and Estate Practitioners). In fact, the members of STEP are ones who can help you the most with tax planning. These people are lawyers, tax specialists, accountants etc who specialise in stopping you and your inheritors paying any more tax than you absolutely have to.
When you die, any debt you have will be repaid by selling off parts of your estate. This includes mortgage payments, credit card bills and any other money owed to creditors.
So, if you leave your house to your son – and you still have £100,000 left to pay on the mortgage – your son will inherit the responsibility of either paying the mortgage or selling the house to pay for the mortgage. In this case it’s a good idea to set up a life insurance policy, set in trust, that is there specifically to pay off the mortgage when you die. Find out more about life insurance in our article here.
If you die with debts – and your estate is worth nothing – your creditors will remain unpaid and your family will not be responsible for any payment of debts.
A beneficiary is anybody that receives anything from your will. This can even be for something as small as a pair of earrings.
When you write your will, it’s a good idea to appoint executors – the people who will carry out all your wishes.
You’re allowed as many executors as you like. However, the law only allows four executors to act on one will at any one time.
Executors don’t have to be beneficiaries – but they can be if you like. They can be a friend, family member, work colleague, lawyer – in fact anyone who’s over 18.
If a person dies intestate (without a will) the courts will appoint a person (usually the deceased’s next-of-kin) to distribute the estate and pay any taxes or funeral costs. This person is known as an administrator.
In 2007, an enduring power of attorney (EPA) was changed to a lasting power of attorney (LPA).
An LPA is the document (instrument) under which you (the donor) appoint a person or persons (your ‘Attorneys’) to manage your affairs should you become physically or mentally unable to do so for yourself.
You appoint people you trust to be your attorneys so that in the event that you can no longer look after yourself, they are in charge of your property, finances, health and welfare.
There are two types of LPA, Health and Welfare and Property and Affairs. The Property and Affairs ones cover everything to do with money – signing cheques, dealing with banks, your property etc. Lasting Powers of Attorney Health and Welfare allow the attorney to choose a new home for you or to select a care home, or care staff. It also allows them to deal with medical staff as if they were you. However they do have to be specifically given authority to refuse life sustaining treatment on your behalf and not everyone will choose to do that.
An LPA fulfills the same role as an EPA used to – but if you’ve made a will using the term EPA it is probably best to have it updated as it may be invalid.
What is probate?
Probate is a term that’s commonly used to describe the process a will goes through when the testator (the person who made the will) dies.
One or more of the executors of your will are required to bring it before the authorities to check that it’s valid and reasonable, so that all your last wishes can be carried out and your estate can be divided in the way you want.
Permission for the will to be executed is granted by the Probate Registry. A will can fail at probate for a number of reasons, including spelling and grammar mistakes or any misinformation.
If it does fail, your estate will be distributed according to the law of intestacy (see below).
I already have a will which just needs updating, what do I do?
It depends on the changes that need to be made. When you write your will with certain will writers, they’ll give you the option of updating your will for free or for a reduced fee.
If you don’t have this option, you should seek legal advice from a professional as to whether a codicil (an extra bit) should be added, or whether the will needs to be re-written completely.
Even if you can’t think of any reason why your will might need updating, it’s advisable to get it reviewed at least every five years, just to make sure its up-to-date with current legislation.
Where should I store my will?
It’s vitally important that you keep your will safe and away from any possible water or fire damage. If you decide to keep it at home, we recommend you keep it under lock and key and somewhere you’re not going to forget where it is!
It’s also important that you’re not the only person that knows where it is. If you are, and you die, it won’t necessarily be found and the whole process will have been for nothing.
Most will writers offer a storage facility for a small fee. Providing they don’t charge an extortionate amount for this service, we advise you take them up on it.
What’s the difference between a mirrored will and a mutual will
Mirror Wills are two independent documents that ‘mirror’ each other but will have differences and can be changed or revoked independently of the other. They are generally set up by married couples or those in a civil partnership.
A mutual will is pretty much the same, but an added clause is thrown in to prevent the surviving spouse changing the details of their will when their partner dies.
Many DIY wills fail at probate because of silly things like spelling and grammar mistakes. For this reason, if you have assets over £5,000 or any children – it’s widely recommended you get a professional will written.
If you do decide to make a DIY will, buy a will pack from a company you trust – the Post Office offers these, as do WHSmith. They’re only about a fiver and pretty easy to fill in. Just get the whole thing spell-checked if you do it.