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Wills and probate
Last month's feature on using Wills to save Inheritance Tax certainly 'stirred the blood' of several Exclusive readers, so I thought it would be worthwhile taking a closer look at wills and, in particular, the problems that your family might face if you don't have one.
If you die without a will your estate is subject to certain rules called the Laws of Intestacy, which dictate how your money, property and other assets are distributed. This may not be how you would have wished your possessions to be distributed, and you might be surprised to learn who could end up with your money.
If you are married with children
If you die without a wWill in England and Wales leaving a spouse and children, then your spouse will receive any jointly owned property, your personal effects, (referred to as 'chattels'), and the first 125,000 of your estate.While 125,000 might sound like a lot, when you include death in service benefits from an employer, insurance policies, investments, and pension funds, an individual's personal estate can be well above this threshold.
Of the remainder of your estate, your spouse gets a life interest in half and the other half is divided between your children. A life interest means that your spouse is entitled to the income on that half for their lifetime but will never be able to have access to the capital. On the death of your spouse, the half that she has a life interest in will also pass to your children.
If you are married without children
If you die with no children, but have surviving parents or siblings, then your spouse gets the first 200,000 plus joint assets and personal effects. This is of course a very strange rule – as it means that your spouse actually gets more money when he or she has no children to raise than if your death left her responsible for raising dependent children.
The remainder is divided in two ways.Your spouse will get half absolutely and the other half goes to your parents.If your parents have pre-deceased you, this share is divided between your siblings, (brothers and sisters).
If you are not married at the time of your death
If you leave children then it will be divided equally between them.
If there are no children your estate defaults to surviving parents, then siblings, then grandparents, then uncles and aunts, depending on who is still living.
If there are none of the above then depending on where you live, your estate will pass to the Crown, the Duke of Lancaster, or the Duchy of Cornwall. That means her Majesty the Queen or Prince Charles could end up with your money!
So, if you don't want the Law of Intestacy to decide how your assets should be divided and distributed – the answer is to make a will.
Top ten tips to make a will
Take professional advice
You can make your own will, but the process is full of pitfalls and errors are very easy to make. Lawyers make a lot more money sorting out badly drafted wills and dealing with claims against those wills, than they make for drawing up wills! DIY is okay for home improvements – not for wills!
Choose your executors well
Executors are responsible for exercising your estate in accordance with your instructions after you have died. It is a responsible and demanding role and involves handling large sums of money.
Appoint a default or substitute executor
If you are married, you will probably want your spouse to be your executor, but don't appoint them as your sole executor. If you both died together in a plane crash or a car accident, neither of you would have an executor living. Always appoint a default or substitute executor as a fall-back position in case your spouse is unwilling or unable to act.
Appoint guardians
If you are the last living parent and you die leaving children under age 18, a guardian will be appointed by the court if you have not specified who this should be in your will. If you are unmarried but you and your partner have children, you might not even get guardianship of your children. If an unmarried male dies, his female partner automatically gets guardianship of their children, but if an unmarried female dies, her male partner does not. You should appoint each other as guardians in your wills to overcome this problem.
Appoint trustworthy trustees
This might sound like an obvious statement, but if you are setting up a trust in your will or if your beneficiaries could be aged under 18 when you die, you will need to appoint trustees. Trustees will be responsible for managing and investing money or looking after property until it passes to the beneficiaries, so make sure they are people with a good grasp of financial matters.
Make specific legacies
If you want to keep heirlooms or items of special sentimental value in the family (a grandfather clock or a wedding or engagement ring), leave them to a named beneficiary as a specific legacy.
Make sure you leave a residual legacy
The 'residue' is what is left over in your estate after you have made any specific or pecuniary (money) legacies. You must specify who this goes to, as if you fail to do so, you will create a partial intestacy in your will. In other words, the small gifts and legacies would pass according to the will, but the residue would be subject to the laws of intestacy.
Save tax with a trust
Inheritance tax is becoming a burden for many families, particularly where the value of a property pushes the value of an estate above the nil rate band for inheritance tax. If you are married, you can include a discretionary trust in your wills, which can save your children 120,00 in inheritance tax.
Sign your will
It's all very well having your will drafted, but if you don't sign it in front of two independent witnesses (one in Scotland), it will not be valid. A witness cannot be anyone mentioned in the will or anyone married to anyone mentioned in the will.
Get it stored safely
Once your will has been correctly signed and witnessed, have it stored in a proper safe storage facility. This will protect it from fire, flood, damage, or loss. Your executors will be provided with a certificate showing them where your will is stored and how to get hold of it if you die. Whatever you do – don't hide your will. Your will is no good to anyone if it cannot be found after your death.
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Weather for Bury St Edmunds
Wednesday 08 February 2012
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