Making a will is an important part of insuring your family’s financial future. Wills are legally-binding documents which provide an essential guide as to how your estate and assets should be distributed after death. This includes one of your largest assets: property.
In this blog post, we explore the reasons for having a will, detail the points that can and should be included, and explain the ways property is allocated and assets are taxed according to the will.
Why would I need to write a will?
Contrary to popular belief, writing a will is not something that only the elderly and vulnerable should be thinking about. In fact, individuals with any sum of wealth should seek to clarify exactly how they would like their assets to be distributed in the event of any unfortunate – or unforeseen – circumstances. Understandably, recent events have resulted in a surge in enquiries into wills.
If you were to pass away without a will, your assets would be distributed according to the law, and not your personal wishes. This could result in loved ones being unable to access the assets they had expected to inherit, and a higher percentage of inheritance tax paid. In cases where there are no living relatives, estates are passed on to the Crown or the government.
To avoid any dispute, it is imperative to write a will as early as possible. First time property buyers in particular should consider the task a part of their property buying process.
How is property allocated using a will?
The most common reason for writing a will is to allocate property; though other requests, such as allocation of gifts and letters of wishes, can also be included. In England and Wales, you are free to distribute your property to your chosen beneficiaries, but before assets are handed over, some minor restrictions must be addressed first. These include any necessary inheritance tax payments, the settlement of any debts owed, and the allocation of a ‘reasonable provision’ for those who are financially dependent on you.
If your property is held in a joint tenancy, then your half of the property will pass onto the remaining tenant. You may also include a ‘right of residence’ in your will, which will allow any beneficiaries to live there for a specified period.
With regard to overseas property, it should be noted that wills are not automatically valid in every country, and it is advised that legal advice is sought to mitigate any challenges for bereaved loved ones.
What should be included in my will?
Your will should specify the person, or persons, you would like to receive which assets. This may also be referred to as a specific legacy or bequest of property. Assets may also be placed into trusts, which can be used to financially support bereaved loved ones. It should be noted that any property left to children under the age of 18 will require a trustee to manage the property until the beneficiary reaches adulthood.
It is possible to provide a beneficiary with ‘residue’ share of your property. Residue concerns the property of yours that is left over after the deduction of inheritance tax, gifts, debts, legacies, administrative costs, etc. For example, you may wish to leave a percentage of your assets and savings to friends and family, and the residue to a chosen charity.
To carry out of the instructions included in your will, you must select an executor. Anyone over the age of 18 can be an executor of your will, and there is no rule to prohibit a named beneficiary being your executor.
As a quick overview, when writing your will you must consider:
All points must be clearly documented in the will and signed by yourself and two witnesses to form a legally-binding document.
How will my assets be taxed?
All property that is passed on in a will is subject to inheritance tax. There’s normally no inheritance tax to pay if the value of the estate is below £325,000, or if the entire estate is left to a spouse, civil partner, charity, or Community Amateur Sports Club (CASC), regardless of its value. It should be noted that if you decide to leave more than 10% of your estate to charity, the inheritance tax rate on your remaining estate falls from 40% to 36%.
Should you wish to leave a gift to a charity in the will, it is imperative that the charity’s correct details, including its registered address and charity number, are included. Any incorrect information may prevent your chosen charity from receiving your gift.
In summation, it is important for individuals with any sum of wealth to make a will as early as possible to better protect the financial future of loved ones, and mitigate any challenges for bereaving families. When writing the will, a number of careful considerations must be made in advance.
Throughout this process, it may be wise to seek legal advice to support you in making the best decisions for you and your loved ones, especially in relation to inheritance tax. If you would like to find out more about the ways we could assist you with your will, please do not hesitate to get in touch.