While current events may make planning for the future challenging, writing a Will is one area where you can establish certainty. Having a properly drafted Will gives you the peace of mind that your assets will pass to the people you choose in the way that you wish.
What if you don’t have a Will?
If you die without a Will, your estate would be distributed in accordance with the intestacy rules. These rules would determine what would happen to your assets that would otherwise have passed under your Will. This can often result in unintended beneficiaries and an unfavourable tax situation. Intestacy can be particularly disheartening for unmarried couples, who have no entitlement under the rules.
What should you consider when making or reviewing your Will?
The key timeframe to consider is how you would like your assets to pass if you were to die in the next three to five years. You should think about the following questions:
Who would you like as your executors? The executors are the people responsible for administering the estate, including paying any debts and tax, applying for the grant of probate and distributing your assets in accordance with your Will.
Who would you like as your trustees? The role of a trustee is to look after any assets which form part of a trust in your Will. There might be assets that need to be managed until a child reaches 18 (or any older age specified in your Will) or your Will might include a more complex trust for your family. The executors are often also the trustees but bear in mind that the trustees’ role is likely to last much longer.
Who would you like to act as the guardians of any children under 18 should both you and the other parent die?
Would you like an outright gift of your residuary estate (what’s left once tax, funeral expenses, debts and specific gifts have been paid)? Or a trust structure that allows your spouse or civil partner to benefit from the assets while ensuring the capital is protected for your children? This is to deal with the possibility that if they remarried after your death and that marriage ended in divorce, the assets inherited from you could be diverted away from your children. It is also a common structure for people who have remarried and who have children from a previous relationship.
What age would you like your children to inherit (e.g. 18, 21 or 25) or would you prefer to include a trust to benefit them? This is frequently used to allow trustees to decide when a child is sufficiently mature to handle a potentially large inheritance.
Would you like gifts of any specific personal belongings (such as jewellery or art) or of digital assets?
Would you like to include gifts to charities? If you leave 10% or more of your net estate to charity, your estate can benefit from a lower rate of inheritance tax at 36% instead of 40%.
For business owners, it’s important to consider who you would want to inherit your share of the business. The partnership agreement or articles of association might prevent you from leaving your business interests as you would like to.
Do you have assets outside of England and Wales? If so, you might need advice in that jurisdiction regarding the succession and taxation of those assets and whether a separate Will is needed.
It is vital that your Will dovetails with documents that deal with assets not passing under your Will, such as jointly-owned assets held under a joint tenancy, life assurance policy proceeds that have been assigned to another person or to a trust, and pension death benefits.
It is helpful for your executors if you keep an up-to-date list of your assets (including those held digitally online) and any liabilities with your Will. You should also include securely-stored instructions for how to access your digital assets and accounts after your death.
You should review your Will every few years or if there is a significant change in your circumstances.
What are mirror Wills?
Mirror Wills (or “reciprocal Wills”) are usually Wills in which a couple leave everything to each other and to their children on the death of the survivor. Mirror Wills are very common, but they are not always the best way to achieve your objectives or the most tax-efficient option.
How can you maximise business property relief (BPR) and agricultural property relief (APR) from inheritance tax through your Will?
If you have assets that might qualify for BPR or APR on death (e.g. AIM shares), you should consider having a specific clause in your Will dealing with those assets to ensure that the valuable relief is not “wasted” on a person who is already exempt, such as your spouse. Although the relief would not be lost if your surviving spouse also qualifies for the relief on their death, there is a risk that the relief will not be available or not at the same rate.
It is often better to give business or agricultural property directly to children or into a discretionary trust. A trust is useful if the surviving spouse might have need of the business or agricultural assets, if there is uncertainty about whether the assets will qualify for relief, or if flexibility and protection is required.
What can you do if you want to change the distribution of assets you have inherited after someone has died?
If you want to alter all or part of your entitlement under someone’s Will in favour of other people or charities, you can use a deed of variation. There might be various reasons why you would want to redirect the assets to which you are entitled, including to provide for others or to save tax. For example, if you inherit business assets from your spouse that qualify for inheritance tax relief, you could redirect them to non-exempt beneficiaries to safeguard the relief.
One key advantage of using a variation is that it can have retrospective effect for inheritance tax and capital gains tax purposes, allowing tax to be saved that might otherwise arise in relation to a lifetime gift by you. For this to apply, the variation must be made within two years of the person’s death. The transfer can be treated as if it was made in the Will of the person who has died rather than by you, which might assist with your own personal estate planning.
What happens to your ISAs on death?
Current rules mean that the surviving spouse or civil partner of an ISA holder can use an additional ISA allowance equal to the value of ISAs held by the person who has died at the date of their death. It is important for the surviving spouse or civil partner to know how much they can subscribe to ISAs in addition to their own ISA allowances, and how to make the subscriptions as part of their ongoing estate planning.
If you have any questions or would like more information, please contact Fiona Lewsey:
Fiona Lewsey, Senior Counsel, Taylor Vinters
+44 207 382 8047
+44 7792 244396
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