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09-07-2013

Do I Need to Make a Will?

In the majority of cases, the answer to this question is most emphatically “yes”. If you die without making a Will, then your estate will be distributed in accordance with the rules of Intestacy and the results of that may well be not what you imagined. It is worrying that about 70% of the adult population in the UK has not made a Will. To some people, making a Will raises unpleasant thoughts of their own mortality, but fears of the afterlife are not to sufficient reason to leave behind confusion and uncertainty. To other people, making a Will means facing major family issues, which have not been resolved, such as divisions between first and second families (an increasingly common situation).

You often hear married people say that they do not need to make a Will because, when they die, everything would go to their spouse and that is what they would want to happen in any event. Unfortunately, this is far from the truth. Take the example of Bill, who is married to Jane and they have two small children. Bill has no Will and dies in a car accident, leaving an estate of £750,000. Under the Intestacy rules Jane inherits £250,000. That is hers to do with as she wants. The remainder of the estate, £500,000 is divided into two equal shares. One share is to go to the children. As they are young, it will have to be held in Trust for them until they reach the age of 18. The other share is held on Trust for Jane and she can receive the income on that money, but she has no right to the capital. When she dies, that share passes to the children.

In other words, if you die without a Will, your entire estate only passes to your spouse if it is worth less than £250,000. Even today, property prices are such in the South East that the majority of estates will be in excess of this amount.

The surviving spouse, Jane, has two immediate problems:

1. She only has access to £250,000. This will undoubtedly restrict what she can do in the future and may well have a serious impact on her quality of life as she gets older.
2. The children will inherit their share of their father’s estate absolutely at the age of 18. In this example, that means that they would receive £125,000 in cash. The majority of parents would probably consider this to be an excessive amount of money to give to a child who had probably just left school.

There are also tax implications, which will affect all the family. Everyone has what is called a Nil Rate Band, which is the amount of an estate that you are allowed to leave free of Inheritance Tax. At the moment that is pegged at £325,000 and the Government has gone back on its promise to increase this threshold. The value of the estate in excess of the Nil Rate Band is liable to tax at 40%. There are two major exceptions to this. Any bequest to a spouse is tax free, so a simple Will by Bill leaving everything to Jane would have passed free of Inheritance Tax. Any bequests to charity pass free of Inheritance Tax and often elderly people with no near relations choose to leave their money in this way.

What about the children?

Apart from financial considerations, if both parents die in an accident, without a Will, there are no appointed Guardians. Unless the family can agree, the Court will have to decide who is to have responsibility for the upbringing of the children. This is an expensive and stressful process. Even if the two families do agree, there is a possibility that their plans and what they perceive to be in the children’s best interests may not accord with their parents. Even the most basic Will should provide for Guardians and parents can also, if they wish, leave a letter to the Guardians and the Trustees of the estate, explaining their wishes with regard to their children. For example, some parents have very strong religious beliefs and would like to ensure that their children are brought up in a particular religion and attend a school that appropriately reflects that religious belief.

Two Families?

John is divorced and has remarried. There are two children from his first marriage. He dies without making Will after his remarriage and so his old Will is automatically revoked. John dies without making new arrangements and his second wife is therefore entitled to £250,000 from his estate. The remainder of the estate, as in the example above, will be divided into two equal shares and the second wife will be entitled to an income on one share, the two children receiving their share absolutely when they are 18 and the step-mother’s share on her death. However, this may not have been what their father intended. There is every possibility that their step-mother will use the £250,000 during the course of her lifetime and, even if she does not, she can leave it to whoever she wishes and that may well not be the step-children from her husband’s previous marriage!

Not married?

The rules of Intestacy make no provision at all for unmarried couples, no matter how long they have been together. It is possible for a surviving partner to bring a claim against the estate, but as with all litigation, this is an expensive and stressful procedure.

This is not the place to give any detailed Inheritance Tax advice, but where there is an estate of a significant value, making a Will is the perfect opportunity to look at the tax situation and see what steps can be taken to minimise the amount of money paid to the Treasury and to maximise the amount of the estate that will pass to family and friends.

No Near Relations?

This firm has recently acted for a Deputy who applied to the Court of Protection to ask for the Court to approve the making of a Statutory Will. As Deputy, he was responsible for looking after the financial affairs of an elderly lady Mrs F, who has severe dementia. The Deputy, who was appointed by the Court, found himself in the position of administering a very significant estate. No trace of a Will could be found. Mrs F was a widow with no children and the only relation left to whom she was close was a first cousin once removed. The Deputy went to the Court to ask them to make a Statutory Will for Mrs F which the Court of Protection is empowered to do having regard to Mrs F’s “best interests”. However, the first issue to be determined was the identification of all persons who would be entitled to inherit under the rules of Intestacy in the event of Mrs F’s death. As Mrs F’s parents came from large Victorian families, the tracing of her various relations was a long and expensive process. There was a Court Hearing to determine the precise terms of the Statutory Will and the Judge had to decide how the Statutory Will should be drafted and how the estate should be distributed, in the event of Mrs F’s death. There were a large number of the family, who, during the course of investigations, had said as they had never heard of Mrs F before, they did not want to claim their inheritance when the time came and were quite content for the Court to give prominence to the first cousin once removed who had been the sole member of the family who had a relationship with Mrs F. Other members of the family took a very different view. Whilst they conceded that they either did not know of Mrs F’s existence, or had not seen her or had contact with her for 50 years or more, they felt that they should be entitled to inherit a proportion of her estate and that the rules of Intestacy should apply. After a full day’s Hearing, many thousands of pounds being spent on legal fees, and the intervention of the Official Solicitors Office, who were acting for Mrs F, the Judge decided that there should be some charitable bequests and then the remainder of the estate as and when Mrs F died, should be divided equally between the first cousin and all those members of the family who would have inherited under the rules of Intestacy. The upshot of this is that almost half of Mrs F’s estate, acquired by years of work, careful spending and cautious investments, will be distributed to people of whom she has no knowledge and who most of whom she has never met.

The moral of the storey is, yet again, make a Will. It may be that Mrs F, if she were able to answer the question, would say that she was perfectly happy with this outcome. It may be that she would be horrified and upset at the consequences of her failure to make a Will. We shall never know.

If you would like to discuss your Will or planning how you want your estate to be handled – we would be happy to talk.