In my experience no one takes any joy from planning for their death. It can be a necessary evil (similar to insurance!) but can provide peace of mind that your affairs are in order. The recent passing of British comedian Rik Mayall brought the issues of effective planning to the forefront yet again as it highlighted the importance of leaving a Will and also the financial benefits future planning can have.
The Probate records show that there was no Will when the Grant had been obtained to deal with the late Mr Mayall’s estate. Unfortunately this is a common situation and can occur for a number of reasons. For example, a Will was never made or an existing Will has been lost, destroyed or invalidated.
If no Will is in existence, the Intestacy Rules apply. These rules operate under strict criteria as to who inherits what. In the case of Rik Mayall, as he passed away in June 2014, his wife will receive £250,000 from his estate and have a life interest in half of the remaining funds. The other half will be shared between any children he left.
Interestingly the Intestacy Rules changed in October 2014 and are now more favourable to the surviving spouse who receives half of any funds over £250,000 rather than only receiving a life interest. In simple terms when this life interest arises, the surviving spouse is entitled to interest only on these funds rather than receiving the capital sum.
When dealing with a large estate the Intestacy Rules can be problematic, particularly when an inheritance tax bill is due. Spouses can inherit from each other without there being an inheritance tax liability, however when any children inherit, any sum over £325,000 will be taxed at 40%.
For example, if we look at an estate worth £1,000,000 under the intestacy rules, a surviving spouse would receive £625,000 without any inheritance tax due. The children however would have to pay £20,000 to HMRC as they would be due to receive £375,000 which is over the current nil rate band of £325,000. The nil rate band is the amount which can be left in an estate to a person other than a spouse without there being an inheritance tax liability.
Another issue to consider is the age at which the children will inherit. When drafting a Will you can ensure funds are held on trust for children and specify the age at which they are to receive their inheritance, for example at 21 or even 25 years old. In the absence of a Will, any children would inherit at age 18.
These situations can be avoided by leaving a Will combined with some careful financial planning. Realistically if you are given a simple choice as to who will benefit: HMRC or your family? I can only surmise as to who the majority would opt for!
Consider a Will as you would any investment. It makes good financial sense to seek advice now rather than it potentially costing your family in the future.