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There is no legal requirement to make a will, but there are a lot of reasons why it’s important to have one.
If you die without a will, your estate is dealt with according to the Rules of Intestacy:
- This will result in legislation – and not you – deciding what happens to your money, property and possessions.
- This could mean family and friends are left with a lot of complications, including tax bills and arguments over who gets what.
By putting a will in place – and keeping it updated – you can ensure your estate passes to those you want it to, as tax-efficiently as possible, when you die.
Writing a will doesn’t have to cost a fortune, and won’t take long. Whatever your circumstances, it is well worth doing.
Why write a will?
As well as ensuring your estate goes to the right beneficiaries, there are a host of other reasons why it makes sense to make a will.
*To manage your inheritance tax (IHT) bill
One of the big reasons for drawing up a will is to mitigate your inheritance tax (IHT) liability.
If you die intestate, and your estate is distributed according to the Rules of Intestacy, you are likely to have to pay significantly more tax than if you had left a valid will.
With a will in place, you can avoid handing large sums to HMRC, and ensure your nearest and dearest get as much of your inheritance as possible.
IHT is paid after death on the proportion of an estate over the tax threshold.
Under current rules, you can leave an estate valued at up to £325,000 without your beneficiaries having to pay tax on it. Above that amount, anything you leave behind (including the house, savings and possessions) is taxed at 40%.
There is no IHT due between spouses or civil partners, meaning the allowance doubles to £650,000.
On the death of the survivor, IHT at 40 per cent is then due on anything you leave over the £650,000 threshold.
One way of reducing an IHT bill is by leaving a gift to charity, as charity gifts are IHT-free.
Other ways to reduce future IHT liability include setting up trusts, and taking out specific insurance products.
It’s also worth noting that from 2017, a new tax-free allowance that can be used to save IHT on the family home is being introduced. Known as an “additional main residence allowance,” this will rise from £100,000 to £175,000 for each person by 2020.
By this time, it will be possible for a married couple to leave a main home worth up to £1m free of IHT.
*To look after an unmarried partner if you cohabit
While the Rules of Intestacy were updated in 2014, some groups have not benefited from the changes.
For example, if the deceased has a common law partner (rather than a spouse), there is no automatic legal protection to the survivor, and they can end up without money – and potentially homeless too.
Making a will allows you to ensure your assets go to the people you want them to on your death.
*To name your executors
By writing a will, you can appoint executors. It will fall to these individuals to ensure that the directions in your will are carried out. The key is to choose a person – or people – that you trust, and who are happy to take on this responsibility.
*To make a specific legacy or bequest
A will can set out specific wishes for items of value, if, say, you want particular belongings, such as jewellery or art, to go to certain people.
*To choose guardians
If you have a family, you can use a will to set out who will be guardians for your children – rather than let the courts decide this for you. This is particularly important for unmarried parents because guardianship doesn’t automatically go to the remaining parent.
Keep your will updated
Once you’ve drawn up a will, it’s important to review it and update it from time to time. This is especially important if you divorce, re-marry or have more children.
While you can write a will without the help of a professional, if your circumstances are at all complicated, it makes sense to ask a solicitor or independent financial adviser (IFA) to handle both your will writing and tax planning in tandem.
This may be the case if, for example, where there are business or foreign investments to share out, or where a couple is unmarried or has children – or stepchildren – under the age of 18.
The cost of having a basic will drawn up is usually no more than £200. Mirror wills, designed for couples who have similar wishes, usually cost less than two individual wills.
Will Aid (Willaid.org.uk) runs throughout November. With this campaign, solicitors waive will-writing fees in return for a donation of £95 to charity (or £150 for a couple). So there’s no reason not to write your will and save money.
Other ways to reduce your IHT bill
*you can make donations that escape IHT, known as “potentially exempt transfers.” But you must subsequently survive at least seven years.
*in each tax year, you can make a gift up to the annual exemption of £3,000. If you don’t give it away one year, you can carry it forward for one tax year and use it then.
*you can give small gifts of up to £250 to as many people as you like, free of IHT.
*if your son, daughter or grandchild is getting married, you can give them gifts without being subject to IHT.
You can give up to £5,000 to a child and up to £2,500 to a grandchild.
*you can reduce the impact of IHT on the estate by using a life assurance policy written in trust. The death benefit of the policy is used to meet all or part of the IHT due, thus preserving the estate.
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