Why should I make a Will?
Making a Will may seem like a daunting prospect; death is not the most jolly subject to think about. However, having a carefully drafted Will in place should give you the peace of mind that you have made appropriate arrangements for the loved ones that you are leaving behind.
It is easy to assume that your assets will pass to your intended loved ones, but this may not be the case. Without a Will, you could be leaving behind an array of problems for your family: they may have to pay more inheritance tax and your estate could pass to people whom you never intended to benefit.
Reasons for making a Will include:
- Controlling family inheritance: to make sure that your spouse or partner and your children inherit what you intend. If you die without a valid Will, the intestacy rules will apply to divide your estate between those you leave behind, often with undesirable consequences. The amount your spouse or partner will receive may be limited. Unmarried partners are not entitled to anything under the intestacy rules and, if you would like them to benefit, they should be provided for expressly in your Will.
- Protecting assets and providing for first and second families: To provide for a second spouse or partner and also a family from an earlier marriage or relationship. A carefully drafted Will can ensure that a spouse or partner (or a second spouse/ partner) is looked after during their lifetime, but that the capital assets are ring fenced to pass to your children, rather than under your spouse or partner’s Will.
- Complying with matrimonial arrangements: to make sure that provision for your spouse or ex-spouse complies with the terms of any pre or post-nuptial agreement or divorce order which you are bound by.
- Legal guardians for minors: To appoint legal guardians to look after your children, if you die whilst they are minors. You can also appoint guardians in a separate legal document to be stored with your Will.
- Choosing your executors: To have control over who is appointed to act as the Executor responsible for administering your estate.
- Setting up Trusts: To set up Trusts to hold your estate for your beneficiaries in the longer term, for example for children while they are minors, or so that they do not inherit large sums at a young age. Trusts can also be set up in your Will to enable your estate to benefit several generations, according to their circumstances as they change and also to afford an element of asset protection for the beneficiaries in the longer term.
- Tax efficiency: To make sure that your estate is as Inheritance Tax (IHT) efficient as possible. IHT is presently charged at 40% on the value of assets exceeding your available ‘nil-rate band’ (up to £325,000 as standard and additional allowances may be available from a former spouse or when a main residence is passed on death to direct descendants). You can avoid IHT by making a Will that leaves everything to your spouse (although not necessarily leaving it to them outright) or to a charity. In other cases, you can minimise IHT (e.g. by taking advantage of the additional ‘residence nil rate band’).
- Structuring the devolution of business assets: To direct partnership rights and other business interests in an appropriate manner, including taking advantage of all IHT reliefs. Consideration should be given to any restrictions on the transfer of business interests (for example restrictions in the articles of a company on who can inherit shares) and ensuring that your Will complies with such provisions.
- Bequeathing personal items: To leave personal items such as jewellery and heirlooms to specified beneficiaries.
- Making Cash legacies: To make cash legacies to individuals you would like to benefit from your estate (such as friends or godchildren).
- Benefitting charities: To benefit favourite charities and take advantage of a reduced rate of IHT for your other beneficiaries (36% instead of 40%)
Other points you should think about when making a Will:
- At the time of making your Will, consideration should be given to what the likely IHT exposure will be for your estate, so that (if required) planning can be undertaken to meet this liability, particularly where your estate includes illiquid assets which you would ideally like your beneficiaries to retain. For example, it might be appropriate to take out life insurance policies to provide the liquidity to meet the IHT due. IHT planning can be undertaken to put such policies into trust and therefore outside your IHT estate.
- At the time of making a Will, it is also prudent to review SIPP and other pension benefits nominations to maximise IHT benefit and ensure that they will pass as you wish on your death.
- Care should be taken in relation to any jointly held assets (e.g. a joint bank account or land held as joint tenants) which will pass outside the terms of a Will, unless action is taken to sever the joint tenancy to ensure that the asset passes under your Will.
- Your Will is effective on your death. If you would like to appoint individuals to deal with your assets or assist with your wellbeing if you lose capacity whilst living, you will need to put separate documents called Lasting Powers of Attorney in place.
- Consideration should be given to any assets you own in other jurisdictions and whether or not separate Wills are required in each jurisdiction. Care also needs to be taken if you are subject to a matrimonial regime or other regime which places restrictions on how your estate can pass; specialist advice is required here.
- You can also put a Letter of Wishes in place to sit alongside your Will (particularly if it contains trusts) which gives your Trustees guidance about how you would like to administer the trust for the benefit of your beneficiaries.
Once you have made a Will, it is important to keep it under review at regular intervals (at least every five years and particularly when family circumstances, finances and taxation laws change). Simple alterations can be made in a short document called a Codicil.
Making a Will can give you reassurance that your estate will be dealt with by people you trust; will pass to your chosen beneficiaries and will help your family at a difficult time.