Do you have will-power?

Writing and maintaining a valid will is vital if clients and their families are to plan ahead with any security. Bob Perkins outlines what needs to be done

A very large proportion of the population in the UK have no wills in place. Many may not even think about it until later in life and even if they do have them they are reviewed infrequently.

However, taking no action can cause significant problems and uncertainty for those left behind.

Many people believe that if they are married they do not need a will because their spouse's property becomes theirs automatically. In England, jointly owned assets pass to the survivor but in Scotland, the law in relation to survivorship is different.

Couples who are not married or joined in a Civil Partnership, who have no wills, currently have no rights over their partner's assets at all. This means that the deceased's assets might pass to their blood relatives rather than to the surviving partner.

Intestacy

Individuals who die without leaving a valid will are said to have died "intestate".

Rules for disposing of an estate for someone who has died intestate are different in England, Wales, Scotland and Northern Ireland. However, the effect is the same in that it is these rules that decide who inherits and how.

In England, a legal spouse or civil partner, who might expect to inherit all of the deceased's estate free of inheritance tax under the spouse exemption, will only receive at most £200,000 tax free, depending upon the circumstances.

Even if there is no will, the deceased's estate cannot be disposed of until an appropriate grant has been obtained and that can take a while to sort out. At best it can take months to resolve and at worst it can take years, for example where the estate is complicated by business interests and overseas properties etc.

Not only could it take time to establish the extent of the person's estate but it could also take time to trace relatives who might potentially benefit.

By contrast, a valid will takes on average three months to resolve and in accordance with the deceased's wishes as opposed to a prescribed basis.

While an intestate estate is going through administration there is uncertainty and no access to assets. The surviving dependants still have to live and pay bills etc, which could cause hardship. Surviving financially for two or three months is potentially easier than trying to survive for longer periods, perhaps years rather than months.

Wills can be used to facilitate tax planning, for example the use of trusts created in the will can ensure that the maximum use is made of a couple's nil rate band. This is frequently used in relation to the family home and although the recent "Phizackerley" case has raised concerns, there is still scope for planning in this way.

Trusts

The will would create a discretionary trust under which the surviving partner is also a potential beneficiary in order for the trustees to advance capital or pay income to the survivor in future without the trust assets forming a part of their estate upon their death.

The assets that pass into the trust should be those other than the family home because as a rule there are fewer complications around dealing with other assets. Where the deceased's assets other than the property are insufficient to make full use of the nil rate band, there may be no option but to bring the share in the property into the equation.

Normally a trust arrangement of this nature creates a legacy up to the available nil rate band. The personal representatives are given the power to satisfy the legacy by putting a charge over the deceased's property, including their share of the private residence. If this is done the value of the private residence for IHT purposes in the estate of the survivor is reduced by the amount of the charge.

Upon the survivor's subsequent death, the intention is to create a debt on their estate, reducing its value for IHT purposes.

The "Phizackerley" case shows how closely HMRC are looking at the details of this type of trust. They will want to see that the trust is properly administered, not a "sham". Simply creating the debt and then just leaving the matter to run its course would be unsatisfactory. Trustees must review the position on a regular basis and consider whether the loan is still commensurate with the provisions of the trust.

Last word

Wills can be simple or complex but in any event, it is essential to seek proper advice. In many cases the "do it yourself" approach should be avoided and though seemingly cheaper, it can create greater problems in the long term.