‘Loved ones may lose everything unless you write will now

Graham Southorn shares inheritance tax tips

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Unless you write a will, there is a real danger your worldly goods will go to entirely the wrong people.

Your family may also end up facing a huge inheritance tax bill that could have easily been avoided.

Despite the dangers, around half of adults have not got round to writing a will, while others fail to upgrade theirs following key life events such as a death in the family or divorce. 

To avoid bequeathing your family a financial mess when you die, you need to plan ahead, said Rachael Griffin, tax and financial planning expert at Quilter. 

“Take time to sit down with your loved ones to discuss your wishes and to ensure your will is up to date and they know how to locate it.”

If you die without a will, known as dying intestate, your wealth will become subject to the litle-known laws of intestacy.

While modern family structures are increasingly complex due to the rise in divorce and trend for cohabiting, intestacy rules are clear cut and can seem brutal.

When someone passes away without a will, their next is kin is unable to divide the estate up as they wish, but must follow a strict set of rules.

Only married or civil partners and some other close relatives have an automatic right to inherit their deceased partner’s assets. 

Unmarried partners, including those who are living together, have no rights. The only thing they can claim is their share of any assets held in joint names.

Unless their name is on the title deed, they cannot even claim a share of the property they have been living in.

Six million now cohabit and many could be forced to move out of their home if their deceased partner owned it.

The partner’s children, parents, brothers and sisters, half brothers and sisters, grandparents, aunts and uncles, and their children (the cousins) are all ahead in the pecking order.

Griffin said there is a slim chance you could make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

But you will have to meet certain criteria and prove your case in court.

Even married couples and civil partners could be in for a nasty surprise unless they have drawn up a will, because intestacy rules set limits on how much they can inherit from their partner if it is not set out in a will.

If they have no children or grandchildren, the partner gets the full estate. But if they do have children, the surviving spouse or civil partner will only get assets up to £270,000, plus all their personal possessions, whatever their value.

They will also get half of all assets above £270,000, with the other half divided equally between the surviving children.

So if the estate was worth, say, £1million in total, they would get £270,000 plus half of the remaining £730,000.

In total, they would get £635,000 with the remaining £365,000 shared among the children.

When a spouse or civil partner dies intestate it could also trigger an unnecessary inheritance (IHT) tax bill.

Griffin said the amount left to a spouse will be exempt from IHT, but the part that goes to children is not. “If the estate is large enough to breach the available nil-rate band, the children’s inheritance may be reduced by an unexpected tax bill.”

Divorce adds to the confusion, as in contrast to death, it does not automatically invalidate a will. 

If you have divorced but fail to update your will, your money could go to your ex-spouse, and your new partner and any dependants may miss out.

Writing a will avoids all this confusion and makes sure the right people get the money, Griffin said. “It also gives you the opportunity to minimise your inheritance tax bill and the burden on grieving family members.”

Act now and you remain in control of your money, rather than the state.

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