Your New Year’s Resolution..make a Will for 2020
Never made a Will? Made a Will but it is out of date? Either way you could risk your nest egg passing to the wrong person and leaving your loved ones in the lurch. Make 2020 the year you make a new Will.
“The importance of making a Will cannot be overstated. It is not safe to assume that your assets will simply pass to your next of kin. The implications for your family, loved ones and/or friends of you dying without a Will can be far reaching” explains Ben Holden Solicitor at MacDonald Oates.
What if I die without making a Will?
If you die without making a Will, a set of laws known as the intestacy rules will apply to your estate. These rules set out the beneficiaries of your assets. If you are married with children, the intestacy rules divide your assets so that your spouse receives a legacy of £250,000 plus your personal effects. The rest of your estate is divided into two – one half to your children and the other half to your spouse. This can cause difficulties for those that are in a second marriage but have children from a first marriage and/or if the family home forms part of your estate. A well-drawn Will however, can cater for both parties.
If you are not married and do not have children then you risk your estate passing to distant relatives. With a Will you can elect partners, friends, colleagues and/or charities to receive your estate. Remember the law does not recognise common law husbands or wives – if you die without a Will your partner might not receive anything.
Does it matter if my Will is out of date?
Equally as problematic is a Will that is out of date. With the passing of time priorities change. Parents with a young family are likely to have different priorities to those who are recently retired. If you have not checked your Will for more than 5 years there is a good chance that it will be out of date. As such you could risk your estate passing to the wrong beneficiaries.
Also the persons you appoint as executors, trustees and/or guardians may no longer be appropriate. Do you still keep in touch with your executors? Are they aware they have been appointed? Would they still be willing to act? If your executor is in a similar age bracket to you, you may consider appointing a younger executor to act alongside them.
What are the Inheritance Tax implications?
For Inheritance Tax purposes it can be advantageous to direct your assets to certain beneficiaries for example a charity. One such area for consideration is the family home and the new residence allowance. The Inheritance Tax threshold is currently set at £325,000. It is possible for homeowners to qualify for an uplift called the residence allowance. The residence allowance is set at £150,000 for this tax year and increases to £175,000 from April 2020. At that point, it will be possible to have a tax threshold of £500,000 – married couples can combine their allowances making their overall threshold £1m.
To qualify for the residence allowance your home must pass to your descendants and not on trust. Parents who leave their home (or their entire estate) on trust for their children until they reach adulthood may not qualify for the allowance. In such circumstances you may still qualify for the allowance provided you meet the conditions of a bereaved minors trust (the children inherit at 18 years) or an 18-25 years trust (the children inherit on or before their 25th birthday). If you specify a later age or if your Will has another type of trust, then you risk losing the residence allowance.
A similar exception to this rule does not apply to grandparents who leave part (or all) of their home on trust for their grandchildren. If your Will leaves any part of your estate (in particular your home or the residue) to your grandchildren or if the grandchildren inherit in the event that your children die before you, then you ought to review your Will.
The rules in this respect are complex and it is essential that you understand the implications of the terms of your Will, including gifts to grandchildren. A poorly drawn Will could risk exposing more of your estate than necessary to the 40% tax band.
When should I review my Will?
Ideally you should review your Will every 3-5 years, or sooner, if there is a change of circumstances. If for example, your financial circumstances have changed, you come into inheritance, have been divorced, widowed or the kids have flown the nest, it is time to review your Will.
If you are due to marry (or have married), you should be aware that marriage revokes a Will. Again, this can be important for those marrying for a second time and who have children from a first marriage.
Should I seek legal advice?
Legal advice is essential when preparing your Will. Whilst there are ‘DIY packages’, it is easy to get things wrong. Remember your Will deals with your assets, including your home, investments and savings. A faulty Will could result in those assets going to the wrong party. A professionally drawn Will, on the other hand ensures your loved ones are protected when you are no longer here…
…so if you have yet to think of a New Year’s resolution make 2020 the year you make your new Will.
*Note: In a recent announcement the government confirmed that the statutory legacy to spouses will increase from £250,000 to £270,000 from 6 February 2020.
If you need advice, please speak to a member of our team on 01730 268211 (Petersfield) or 01730 816711 (Midhurst).
About the author: Ben Holden is an Associate Solicitor at MacDonald Oates LLP Solicitors. He has over a decade of experience in Wills and Probate law and is also a qualified member of the Society of Trust & Estate Practitioners. Also, Ben is a Full Accredited Member of Solicitors for the Elderly. Ben takes a pragmatic approach and prides himself in taking the time to understand his clients’ needs.