Will You?

BARUCH BRENIG AND BARRY LEIGH OF COHEN ARNOLD REFLECT ON THE IMPORTANCE OF WRITING A WILL AND HOW THE INCLUSION OF CHARITABLE BEQUESTS CAN BE BENEFICIAL

A dramatic increase in enquiries about Wills has been reported by Will writers as Covid-19 has prompted people to “put their affairs in order”.  That said, 60% of UK adults still do not have a Will and 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
  • Made when you are of sound mind, able to make your own decisions, and not under pressure as to how to divide your assets
  • Signed and dated by you in the presence of two independent witnesses. The need to sign the Will in front of two independent witnesses whilst maintaining proper social distancing was the subject of much discussion in the industry with many innovative methods and solutions deployed. The Government has now brought in temporary legislation allowing Wills that are executed before 31 January 2022 to be witnessed remotely via video link. Due to the concern that Wills executed in this way are more prone to be successfully challenged in Court, the advice remains that people should make Wills in the conventional way if at all possible.

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; those who you trust to look after your affairs and carry out your wishes after you pass away;
  • Jointly owned assets – are these held as “beneficial joint tenants” or “tenants in common”? These two types of legal ownership are profoundly different and impact 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 a 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 Fred, 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

Fred 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.

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