If not now, when?

The COVID-19 pandemic has forced many people to come to terms with their own mortality, which has created a spike in the number of people writing wills.

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Emma Watson, Head of Financial Planning and Advisory Services, Rathbones

The COVID-19 pandemic has forced many people to come to terms with their own mortality, which has created a spike in the number of people writing wills.

Which? research found the number of people making wills during the first lockdown surged with a 682% increase in April 2020 compared to the previous year. The number of inheritance disputes heard in the High Court also reached an all-time high last year.

"Writing a will, though it may seem uncomfortable to do, is one of the most important things you can do for yourself and your family. Not only does it mean keeping your financial affairs in order and having some sort of control over your finances"

Writing a will, though it may seem uncomfortable to do, is one of the most important things you can do for yourself and your family. Not only does it mean keeping your financial affairs in order and having some sort of control over your finances, but it can also legally protect and support loved ones. 

Wills also need updating, particularly after life events like divorces, weddings, and births of children and grandchildren. It’s important to review your will regularly to make sure that it matches your current wishes, particularly when looking to financially gift to loved ones. Thinking ahead can help you and your family save money by reducing their inheritance tax bill.

Research from Rathbones has found that:

  • 44% of investors have made a will in order to reduce their inheritance tax bill
  • over half (55%) of parents plan to financially gift to their children and/or grandchildren in the coming years
  • meanwhile, only 28% of individuals have made a financial gift to reduce their inheritance bill

Here are some tips on what to consider when it comes to sorting your financial affairs and writing your will:

1. Think of your dependents

If you have children or stepchildren, writing a will is one of the most important things you can have in place to protect them financially and make sure they’re cared for. It’s important not only to consider how your estate is divided up, but also who you would entrust to care for your children (under the age of 18) if you and your partner were to pass away suddenly. It’s a huge decision to make, so make sure you speak to those who you’d want to appoint as guardians first, but if this isn’t in a legally binding document then the decision could be left to the courts.

2. Protect your partner

Fewer people are getting married, with ONS finding that cohabiting couple families are the fastest-growing family type. Sadly, the law hasn’t caught up with this fact, meaning that unmarried couples are unprotected if one should die. If you have children together then this could mean that your partner risks not being able to stay in the family home or have enough money to bring up your children. To make sure they are protected, it’s crucial that you have a will in place expressing your wishes regarding children and assets.

3. Put assets in a trust

Putting assets, such as cash, property, or investments, into a trust can mean they’re no longer part of your estate for inheritance tax purposes. However, the rules around trusts are complicated and have changed over the years; for example, you could be taxed as you pay in or take money out, so make sure to seek advice if you’re considering this option.

4. Gift to charity

Anything left to charity is free of inheritance tax, so it’s worth considering as a way to reducing your bill, while also benefiting a good cause. Additionally, if 10% of your net estate is left to charity, the rate of inheritance tax applicable on death is reduced to 36% from 40%, meaning the taxman would take a smaller cut of your estate.

5. Keep below the inheritance tax threshold

The nil rate band, which is not technically an exemption, means that the first £325,000 of chargeable transfers are taxed at nil percent, so are effectively tax free. Anything over the £325,000 limit can incur inheritance tax, which is 40%. However, if you leave everything over this limit to your spouse, civil partner, or a charity, then you can save on any potential IHT bill.

If you own a property, and this is passed to a direct descendant, such as your children or grandchildren, you also have a main residence nil rate band. This is a maximum of £175,000, subject to the value of your property, and tapered for estates with a net value of £2 million or more. If your executors do not use all of your nil rate bands, these can be transferred to your spouse or civil partner and used by their executors on their subsequent death.

If you would like to learn more about wills and estate planning, contact us and speak to a member of our team.