Why Write a Will?

BARRY LEIGH AND BARUCH BRENIG OF COHEN ARNOLD REFLECT ON THE IMPORTANCE OF WRITING A WILL AND THE BENEFITS OF INCLUDING CHARITABLE BEQUESTS IN A WILL

Recent polls show that around 60% of UK adults don’t have a Will. Even amongst those aged 55 and over, more than a third don’t have a Will.  This equates to over 31 million people who run the risk of dying intestate and their estates being distributed according to intestacy law.

This article explores the FAQs surrounding the writing of a Will and how the inclusion of charitable legacies can reduce the amount of Inheritance Tax [IHT] paid.

Why do I need to write a Will?

Executing a valid Will ensures that your estate is divided according to your own wishes, not in the standard way dictated by the law of intestacy.  A Will is especially important if you have dependents who rely on you financially or if you wish to benefit non-family members.  A carefully drafted Will can reduce the amount of IHT payable, thus leaving more to those you care about.  A Will can also be used to give other instructions such as the appointment of guardians for minors or funeral arrangements.

Does it need to be long with lots of legal jargon?

No; your Will is valid as long as it is:

  • In writing
  • Signed and dated by you in the presence of two independent witnesses
  • Made when you are of sound mind, able to make your own decisions, and not under pressure as to how to divide your assets

What do I need to think about?

  • Family members that you have a moral or other obligation to look after financially
  • Whether any family members have specific health or other needs
  • Do you wish to leave a gift or a legacy to any non-family members or to charity?
  • Who should act as your Executors? These are the people who you trust to look after your affairs when you are gone and carry out your wishes
  • Jointly owned assets – are these held as ‘beneficial joint tenants’ or ‘tenants in common’? These two types of legal ownership are profoundly different and have an impact on estate planning

Is IHT charged on everything in my estate?

IHT is levied at 40% on the assets of an estate that are in excess of the Nil Rate Band [NRB]. This currently stands at £325,000 for each individual but can be lower if certain transfers were made by the deceased prior to his or her death.

Assets left to a spouse or civil partner [CP] or charity are exempt from IHT.  Indeed, it is common practice for married couples or CPs to bequeath all the assets of the first to die to the survivor, so that there is no IHT payable on the first death.  Where the first to die does not utilise his or her NRB, it is normally possible to transfer the unutilised NRB to the survivor, so that there is an effective double NRB (£650,000) on the second death.

How can leaving a charitable legacy be beneficial?

As mentioned previously, assets left to charity are exempt from IHT.  Additionally, where 10% or more of an estate is bequeathed to charity, the remaining estate will qualify for a reduced rate of IHT of 36%.

The effect of this is best demonstrated using the example of Bob, who is unmarried and leaves to his sister an estate worth £1,325,000.

 No Charitable legacy

£

 10% charitable legacy

£

Gross Estate

         1,325,000

        1,325,000

Less: NRB

(325,000)

(325,000)

Potentially taxable estate

         1,000,000

        1,000,000

Less Charitable legacy

 NIL

(100,000)

Taxable estate

         1,000,000

            900,000

IHT @ 40% / 36%

             400,000

            324,000

Net estate received by sister

             600,000

            576,000

 

Bob is able to donate £100,000 to charity but his sister loses only £24,000!

Detailed requirements govern the ability to qualify for the lower rate of IHT and so careful drafting of Wills is paramount.

Conclusion

Executing a basic Will is relatively simple and allows you to ensure that your estate is disposed of as per your wishes; yet millions of people fail to do so. Will you?!

The reader of the above should not rely on the contents of this article without seeking specific advice on any relevant matters.

 

Website maintained by Speak Digital