The average Briton now delays making a Will until they are 72 years old according to a recent survey by Remember a Charity. Only three in 10 people in the UK actually have a Will and many of us simply don’t write a Will at all in spite of this being an age of increasingly complicated financial affairs, complex family dynamics and people moving between countries. The lack of engagement or willingness to arrange our affairs is somewhat surprising given the difficulties that can arise if matters are not dealt with and how these may affect the passing down of wealth to your children and through generations.
What’s left for the children if no Will is in place?
Should you pass away without a Will in place, the intestacy rules dictate how your estate is distributed. As of 1st October 2014, an intestate’s surviving spouse (or a same sex registered civil partner) receives a legacy of up to £250,000, including all personal goods and half the balance. The deceased’s children share the other half outright at adulthood, i.e. 18 years old.
If children are born to unmarried parents, the children are automatically entitled to receive a proportion of the deceased’s estate but the surviving unmarried parent is not. As a consequence, the surviving parent may be forced to bring a claim against the estate by using the Inheritance (Provision for Family and Dependants) Act 1975 legislation. This can be avoided if the parents of the child have a Will drafted. Families with step children or children from more than one relationship cannot rely on the intestacy rules to achieve their wishes and need to prepare Wills to ensure these are reflected.
How old is old enough to inherit?
The intestacy rules provide for children to receive their inheritance at the age of 18. This may be too young for some individuals and their parents may consider 21, 25 or even later to be a more appropriate age. A Will is a useful device for postponing an inheritance beyond 18 years. This can be done either by simply increasing the age or by building in flexibility through the use of trusts. A discretionary trust, for example, enables the trustees to decide at what age a child should inherit and payments could be staggered over time as and when money is required.
Protecting wealth through generations
With an increasingly aging population, parents often plan to pass their wealth down to the next generation during their life time. This can be done by asimple outright gift or by creating life time trusts for the benefit of future generations. By passing on wealth earlier rather than waiting until a parent has passed away, planning in this way can ensure that the next generation is able to utilise and invest the money far earlier than would otherwise be the case. It also has the added advantage that the value does not form part of the parent’s estate for inheritance tax purposes, provided the assets have passed to the next generation and the parent has survived seven years having made the gift.
Be wary of excluding children from your Will
An increasing number of wealthy individuals have reportedly decided not to provide for their children in their Wills, although they may have gifted substantial amounts to them during their lifetimes. A recent survey by Skipton Financial Services also suggested that more than one in five parents believe their children have already had their share of inheritance during their lifetime and consequently did not feel the need to benefit them again in their Wills.
However, we are experiencing an increasing number of adult children bringing claims against their deceased parent’s estates where they have been excluded from a Will and parents should take advice before adopting this route. Whilst you have the right to leave your estate to whomever you choose, disgruntled children who were financially dependent on their parent prior to death would be likely to have a successful claim under the Inheritance (Provision for Family and Dependants) Act 1975.
It is therefore important that you seek legal advice when considering generational wealth planning, regardless of whether you are planning to include or exclude your children.