In the past I have referred to inefficiencies from an Inheritance Tax standpoint of not making a Will and the personal representatives of your estate having to pay Inheritance Tax early or unnecessarily. However we are not just talking about Inheritance Tax but your estate not being distributed as you wish.
They say, ‘size doesn’t matter’ and many clients I have talked to say their estate isn’t big enough for it to fall into the Inheritance Tax bracket, but I wonder how many of us know exactly what we are worth and it is my experience that most fold underestimate the extent of their wealth. However, the fact is that most of us will leave an estate of some description and there will be those we’d like to benefit from it and others we’d prefer not to benefit, for whatever reason. Without a Will we fall into the rules of Intestacy a set of rules that govern how an estate is to be distributed where there is no Will. I doubt if in any but the fewest of cases will those rules actually do what the deceased person would have wished, and irrespective of that, if the estate is of sufficient size to be subject to Inheritance tax then almost certainly tax will be paid unnecessarily because the rules just are not tax efficient.
Trying to explain this to individuals can be a difficult scenario. One gentleman client insisted that making his Will was tempting fate and he’d die soon after. I said if he didn’t make a Will in his particular circumstances his estate would pass to his brothers, one of whom is extremely rich and none of whom he had seen for many years. He said “I don’t want them to have my money,” and I told him that they were the rules. “Well I shall make sure they don’t get it,” he commented and I asked him “How are you going to do that when you’re dead?” (It’s useful to have good client relationships when you ask that sort of question). I also pointed out that actuarial tables pointed to him surviving for a further 25 years. He made 24 of those! However, he did make a Will and his estate passed to the people he wanted to benefit from it, and indeed he even reviewed it just one month before he died.
Statistics show that currently in the region of 70% of people in the U.K. don’t have a Will. Are you one of them?
So what are the rules if you don’t have a Will. Well:
Surviving Spouse or Civil Partner and children:
- Estate less than £250,000 – all to the spouse or civil partner provided survives 28 days.
- Estate more than £250,000 – Provided survives 28 days personal possessions and £250,000 to Spouse/civil partner plus Life interest in half the remaining estate with the other half of the remaining estate going to the children in equal shares and in trust for them if they’re a minor. The estate in the life interest trust for the spouse/civil partner passes to the children when that spouse/life tenant dies.
Surviving Spouse or Civil Partner, no children but either parents or brothers or sister of the whole blood:
- Estate less than £250,000 – all to spouse or civil partner providing survives 28 days.
- Estate over £250,000 – Personal Possessions and £250,000 to spouse/civil partner plus half remainder provided survives 28 days. Other half of the remainder to parents in equal shares or if no parents then to brothers and sisters of the whole blood in equal shares.
Surviving Spouse but no children, parents or brothers or sisters of the whole blood:
- All to spouse/civil partner providing survives 28 days.
Children but no surviving Spouse:
- Children in equal shares on reaching 18.
Neither Spouse or Civil partner nor children:
- Parents in equal shares.
Neither Spouse or Civil partner, children or parents:
- Brothers and sisters of the whole blood in equal shares. If none then brothers and sisters of the half blood in equal shares.
Neither Spouse or Civil partner, children, parents or brothers and sisters:
- Grandparents in equal shares
Neither Spouse or Civil partner, children, parents, brothers and sisters, or grandparents:
- Uncles Aunts of the whole blood in equal shares or if none, uncles and aunts of the half blood in equal shares.
No spouse or Civil partner or blood relative:
- The estate passes to the Crown.
As you see, it gets complicated and you also need to bear in mind that a Civil partner is someone who has entered into a registered civil partnership with another person. It doesn’t include those just living together as unmarried partners or as ‘common law’ husband and wife. If in doubt you need to check.
Of course what I seek to achieve is the best of both worlds, that is an Inheritance Tax efficient estate but one that also does what you want it to. Why not give me a call and see if I can help you?
For further information contact Philip Hunt on 01603 616300 or email firstname.lastname@example.org.