Britons warned forgetting ‘key document’ could cost thousands in IHT
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Wills are often forgotten when it comes to estate planning however it is one of the key documents that people need. As more and more people expect to rely on inheritance to get by, experts warn that heated household ‘tiffs’ about who gets what in Wills are also set to increase.
Jim Sisson, Finance Director at Tower Street Finance explained that a Will is one of the most important documents people can have in their lifetime.
He stressed the vitality of the document in a proper, straightforward estate plan.
Most UK adults (72 percent) expect to leave an inheritance to family, friends or other people when they pass away, research from Tower Street Finance shared. But two-thirds (66 percent) have not discussed the details of this with loved ones yet.
Recent figures show that inheritance tax receipts for April 2022 to January 2023 are £5.9billion, which is £0.9billion higher than in the same period a year earlier.
Britons are spending more than £100,000 on court cases because people are failing to make their inheritance planning wishes clear while they are still alive.
Mr Sisson said: “A Will is one of the most important documents an individual can create in their lifetime. A properly constructed Will allows certainty of how an individual’s estate will be dealt with after they have passed away.
“That said, research suggests less than 50 percent of the adult population has a Will in place. Drafting a Will is not a reserved activity, in that you don’t have to use a solicitor or Will writer to do this – there are many “DIY” solutions available.
“However, many legal professionals have been advising caution in using a DIY Will for various important reasons.”
Britons can make the necessary arrangements to avoid falling into the inheritance tax (IHT) trap, and spend time planning how to give assets out in the most tax-efficient way.
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One way to minimise the IHT bill is to make sure the estate within One way to minimise the IHT bill is to make sure the estate within one’s tax-free IHT allowance, is given to someone who is exempt such as their spouse or a charity or to hold assets that qualify for IHT exemption (business relief schemes).
He explained a combination of these is desirable.
A Will is an important legal document, and whilst a court can “look through” the drafting and try to ascertain the Testator’s intention, a properly drafted Will can “avoid these difficulties,” he shared.
Common issues cited by specialist lawyers include in regard to DIY Wills (those written without any expert guidance) include:
- Wills not properly signed, dated or witnessed
- Will that don’t revoke previous versions (this is known as ‘improper execution’)
- Spelling mistakes, which can be especially problematic in respect of naming beneficiaries
- Lack of proper provision for pre-death events (e.g. what happens if a named beneficiary passes before the Testator)
- Improper assumptions on the part of the Testator – e.g. assuming that a partner (not married) will automatically inherit.
- Insufficient care in dealing with assets (for example missing assets)
- Lack of clarity and proper provision for costs (e.g. how IHT should be paid)
- Unequal distribution without commentary or warning, which can give rise to conflict among beneficiaries.
Mr Sisson added: “DIY Wills do have a place, but only if a person’s affairs are quite simple and there is going to be no contention about how they have left their money following their death.
“There has been a substantial increase in disputed Wills of late – one report estimated that there were 10,000 cases of Will disputes in 2021, a 37 percent increase compared with 2019.”
Professionals such as a Will writer or solicitor can, in addition to helping a person get a Will worked up, offer or source additional advice regarding Estate Planning.
They can also minimise tax burdens after death and/or provide advice on Trusts to deal with younger or vulnerable beneficiaries. Forward planning is essential as in some cases, it takes seven years for financial gifts that are made to leave one’s estate.
There are a number of ways that people can legitimately reduce, or even potentially wipe out an estate’s inheritance tax liability.
This means that more can be passed on to loved ones without the government taking a sizeable cut and without losing control of assets during the person’s lifetime.
Britons can gift. People are able to give away a total of £3,000 worth of gifts annually, without them being added to the value of one’s estate under the annual exemption.
As many gifts of up to £250 per person are allowed each tax year, as long as a person has not used another allowance on the same individual.
Each tax year, a tax-free gift can be given for a wedding or civil partnership with the value of:
- £5,000 for a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person.
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