When you have worked hard to manage, maintain and maximise your assets it’s vital to plan carefully for what will happen to them after you die.
If you have put a lot of effort into making your assets and investments as tax-efficient as possible, you won’t want your family to lose a sizeable chunk of their legacy to IHT, which is payable at 40% over a threshold of £325,000. Making a Will is the only way to ensure your assets are distributed as you would wish. You will need sound financial advice to make sure your estate is planned in the most tax-efficient way for your beneficiaries.
However, 30 million Britons have yet to make a Will, including 70% of adults with children under 18, and 36% of people over the age of 55, according to a recent survey by unbiased.co.uk.
If you die intestate, the division of your estate will be decided by the state, based on intestacy laws that were mostly enacted in 1925, through the Administration of Estates Act.
Wills for modern families
If you are part of a married couple with assets amounting to less than £125,000, current intestacy laws dictate that even without a Will your husband or wife will inherit the entire estate, free of inheritance tax (IHT).
However, modern family arrangements tend to be a bit more complex than that, and if you and your partner have not married or entered into a civil partnership then things quickly get complicated – and expensive. This can also be the case if you have separated, have children, own property abroad, or have an estate worth more than £125,000.
A worst-case scenario is that your home ends up part of the estate – which will happen if it is in your name only – and has to be sold off by the surviving spouse to pay the IHT. There are also countless tales of family feuds resulting from the unequal or unsatisfactory disbursement of an estate. It’s essential to work closely with a qualified financial advisor to create the best Will for your individual circumstances.
Leaving legacies to charity
The 2011 Budget has included the introduction of a 10% IHT discount for estates that leave at least 10% of their value to charity. This will take effect from 6th April 2011. However, Chancellor George Osborne has been quick to point out that this will not result in the beneficiaries receiving more money. He said: “Let’s be clear: no beneficiaries will be better off, just the charities to the tune of £300m. I want to make giving 10% of your legacy to charity the new norm in our country.”
Nevertheless, if you were planning to leave some of your estate to charity anyway, this development is welcome news.
The move, which has been dubbed “10 for 10″, is likely to cost the Treasury about £170m a year by 2015-16 but could result in more than £350m worth of additional legacies in the first four years of the scheme.
From April 2012, there will be a reduced rate of IHT of 36% for estates leaving 10% or more to charity.
Don’t put off making a Will
It may be tempting to put off making a Will because no one wants to contemplate their own death too closely, and there are always other financial decisions to make that seem more pressing. However, writing your Will is the very best way to protect your assets and control what will ultimately happen to them.