The legacy of 2016 will be remembered for a number of reasons, one of them being the number of high profile deaths, including the one and only Prince. Prince was a phenomenally successful musician, but unfortunately, one thing that he did not do was make a will. Why is this relevant? It’s important as almost half of the star’s $300 million dollar fortune may be lost in tax and family disputes have already been reported regarding the administration of his estate. It could have been very different had he made a will and perhaps something could have been done to make it easier for his family and also to honour his humanitarian efforts.
You may be surprised to read that Prince is not in the minority here; more than half of the adult population in Scotland have not made a will. Many people do not want to think about what will happen when they die. Others simply think that whatever they own will go to their loved ones anyway. Some have simply never gotten around to it, especially younger people who may not think they own enough to have a will.
Consider the following scenarios, and decide for yourself why making a will could be on your list of New Year’s resolutions for 2017.
Your loved ones
Where you do not have a will, do not assume that when you die everything will go to your spouse or civil partner. This is true to some extent, however if your estate is above a certain limit, then other relatives are entitled to a share. For example, if your house (or your share of the house) is worth more than £473,000 (not so unusual these days), then if you die without a will, your spouse or civil partner may not be entitled to your share of the family home.
There are legal rules called rights of succession which apply by default in Scotland when you die without a will. These rights will dictate how your money, property and possessions are allocated upon your death. Do you have specific items of value to you that you would like to leave to your children, for example jewellery or a car? If you do not have a will there is no certainty that your beloved piece of jewellery or car will even go to a close member of your family, never mind the intended person.
If you have young children, having a will gives you an opportunity to express your wishes regarding their care and upbringing in the event of your death. A will can be drawn up to include the appointment of a guardian for any child under 16 years of age. This may be of particular importance if you are separated or divorced from the other parent, or in a situation where the other parent is unable to care for the children.
Under rights of succession, your children will inherit their share of your estate at 16 years old. However, if you have a will you can set up trusts which allow the money to be allocated appropriately for the benefit of the child, for example for their education and general wellbeing. Trusts will also ensure that your children can inherit at a more sensible age, for example at 18 or 25 years old, or whatever age you feel is appropriate. Making a will allows you to make that choice.
Cohabitation is becoming increasingly common in households today. If you are a co-habitant, you are not automatically entitled to any of your partner’s estate upon death. Unless they are named in a will, a co-habitant has just 6 months from the date of death of their partner to make a claim in court. Such claims are considered entirely at the court’s discretion, and they are not always successful. This could be the closest person to you, but without a will they could end up being excluded from your estate altogether.
It can be highly expensive and time-consuming to administer an estate upon death if the deceased did not leave a will. The courts will have to appoint an executor, who will be required to make decisions and administer your estate. This will usually be your next of kin, who may not be the person you would have wanted or chosen as your executor. Having your will drawn up by a solicitor is money well spent when balanced with the administration hindrances of not having one.
Inheritance tax (IHT) benefits
When making a will, it is important to consider the benefits of IHT planning as it can lead to large cost-savings for the ones you love when you die.
IHT is payable on death for an estate at £325,000 or over. If the value of your estate is below this, no tax is payable. If your estate is at this level or above, IHT will be payable on this amount at 40%.
These are some of the main IHT exemptions:
- any transfers of money or property made longer than seven years before death are not charged;
- you can transfer up to £3,000 in any tax year without charge. If this transfer is not made in one given year, you can carry this forward and transfer £6,000 in the next year without charge or £12,000 for couples;
- you can make small gifts up to £250 in any tax year without charge; and
- any regular gifts out of your after-tax income are exempt, such as monthly payments to someone, birthday gifts and insurance premiums.
Importantly, estates are exempt from IHT where the sole beneficiaries are either a spouse, civil partner or a registered charity.
A new nil rate band will also be introduced for your home in April this year starting at £100,000, gradually increasing to £175,000 by April 2020. To gain the benefit of this, “direct descendants” such as children or grandchildren must inherit the family home or a share of it, making the need to take advice on estate planning even more crucial. We have blogged on this new tax relief previously at http://www.brodies.com/blog/residence-nil-rate-band/.
Already have a will?
If you already have a will, make it a New Year’s resolution to check that it is up-to-date and truly reflects your wishes and expectations. Beneficiaries? Executors? Provisions for children? Tax implications? We live in an ever-changing society where nothing stays the same for a minute. Failure to update your will can leave just as fatal consequences as not having one at all.