Emma Watson, head of financial planning at Rathbones Group Plc shares some things to consider when it comes to sorting your financial affairs and writing your will.
Writing a will, though it may seem uncomfortable to do so, is one of the most important things you can do for yourself and your family in terms of future planning. Not only does it mean keeping your financial affairs in order and some sort of control over your assets, but it can also legally protect and support loved ones without incurring additional expenses, as well as mitigate any chances of family disputes.
It is important to remember that wills also need updating — particularly after life events like weddings, divorces, births of children and grandchildren, and even moving jobs. Reviewing your will regularly can ensure it matches your current wishes and future plans.
Think of your dependants
If you have children or stepchildren, writing a will is one of the most important things you can do 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, which may not reflect your wishes.
Protect your partner
Fewer people are getting married, with ONS finding that cohabiting couple families are the fastest-growing family type.1 Sadly, the law hasn’t caught up with this fact, meaning that unmarried couples are largely unprotected if one should die. Unlike for married couples or those in a civil partnership, there is no legal right to property not jointly owned. 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.
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.
Gift to charity
Anything left to charity is free of inheritance tax, so it’s worth considering this as a way of 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.
Be aware of 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. There is also a Main Residence Nil Rate Band of up to £175,000 subject to certain conditions such as leaving property to your direct descendants and the total estate being under £2m. Anything over the available nil rate bands can incur inheritance tax, which is ordinarily 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. Calculating your IHT liability is a complex area, and you should seek professional advice if looking to reduce your tax bill on death.
Consider your legacy
If you have no surviving relatives who can inherit under the rules of intestacy, your estate will be deemed as ‘bona vacantia’, meaning ‘vacant goods’. This is the name given to ownerless property, and legally these estates are passed to the Crown. According to government data, there are currently around 6,500 outstanding unclaimed estates in the UK.2 Leaving a will with your expressed wishes, however, means that your estate will be passed onto whomever you wish, whether that be a charity or close friend, and you maintain some control of your financial legacy.
If you would like to find out more about any of the topics discussed above, or to arrange an initial meeting to discuss your situation, please get in touch with us.