Last Will & Testament
It is important for you to make a will whether or not you consider you have many possessions or much money.
It is important to make a will because:
If you die without a will, there are certain rules which dictate how the money, property or possessions should be allocated. This may not be the way that you would have wished your money and possessions to be distributed. Unmarried partners and partners who have not registered a civil partnership cannot inherit from each other unless there is a will, so the death of one partner may create serious financial problems for the remaining partner. If you have children, you will need to make a will so that arrangements for the children can be made. If either one or both parents die it may be possible to reduce the amount of tax payable on the inheritance if advice is taken in advance and a will is made if your circumstances have changed, it is important that you make a will to ensure that your money and possessions are distributed according to your wishes.
For example, if you have separated and your ex-partner now lives with someone else, you may want to change your will. If you are married or enter into a registered civil partnership, this will make any previous will you have made invalid.
Is it necessary to use a solicitor
There is no need for a will to be drawn up or witnessed by a solicitor. If you wish to make a will yourself, you can do so. However, you should only consider doing this if the will is going to be straightforward.It is generally advisable to use a solicitor or to have a solicitor check a will you have drawn up to make sure it will have the effect you want. This is because it is easy to make mistakes and, if there are errors in the will, this can cause problems after your death. Sorting out misunderstandings and disputes may result in considerable legal costs, which will reduce the amount of money in the estate.
Some common mistakes in making a will are:-
not being aware of the formal requirements needed to make a will legally valid. Failing to take account of all the money and property available. Failing to take account of the possibility that a beneficiary may die before the person making the will. Changing the will. If these alterations are not signed and witnessed, they are invalid. Being unaware of the effect of marriage, a registered civil partnership, divorce or dissolution of a civil partnership on a will. Being unaware of the rules which exist to enable dependants to claim from the estate if they believe they are not adequately provided for. These rules mean that the provisions in the will could be overturned.
When it is particularly advisable to use a solicitor
There are some circumstances when it is particularly advisable to use a solicitor.
These are where:-you share a property with someone who is not your husband, wife or civil partner you wish to make provision for a dependant who is unable to care for themselves there are several family members who may make a claim on the will, for example, a second wife or children from a first marriage your permanent home is not in the United Kingdom you are not a British citizen you are resident here but there is overseas property involved there is a business involved.
Inheritance Tax and your will
If you leave everything to your husband, wife or civil partner In this case there usually won't be any Inheritance Tax to pay because a husband, wife or civil partner counts as an 'exempt beneficiary'. But bear in mind that their estate will be worth more when they die, so more Inheritance Tax may have to be paid then. However, if you are domiciled (have your permanent home) in the UK when you die but your spouse or civil partner isn't you can only leave them £55,000 tax-free.
Other beneficiaries
You can leave up to £312,000 tax-free to anyone in your will, not just your spouse or civil partner (tax year 2008-2009). So you could, for example, give some of your estate to someone else or a family trust. Inheritance Tax is then payable at 40 per cent on any amount you leave above this.
UK Charities
Inheritance Tax isn't payable on any money or assets you leave to a registered UK charity - these transfers are exempt.
Wills, trusts and financial planning
As well as making a will, you can use a family trust to pass on your assets in the way you want to. You can provide in your will for specific assets to pass into a trust or for a trust to start once the estate is finalised. You can also use a trust to look after assets you want to pass on to beneficiaries who can't immediately manage their own affairs (either because of their age or a disability).You can use different types of family trust depending on what you want to do and the circumstances. Setting up a trust is complicated and you'll need to get specialist advice, so it's normally only worthwhile if you've got a large estate. If you expect the trust to be liable to tax on income or gains you should inform HMRC Trusts as soon as the trust is set up. For most types of trust, there will be an immediate Inheritance Tax charge if the transfer takes you above the Inheritance Tax threshold. There will also be Inheritance Tax charges when assets leave the trust. Read our related articles to find out more. Joint and common ownership of property If you and your spouse or civil partner own your home as 'joint tenants' then the surviving spouse or civil partner automatically inherits all of the property.If you are 'tenants in common' you each own a proportion (normally half) of the property and can pass that half on as you want.If you want to change the way you own your property a solicitor will be able to help you.
Gifting your home to your children
If you want to give your home away to your children while you're still alive, you might want to bear in mind that:gifts to your children - unlike gifts to your spouse or civil partner - aren't exempt from Inheritance Tax unless you live for seven years after making them if you keep living there without paying a full market rent (which your children pay tax on) it's not an 'outright gift' but a ' gift with reservation' so it's still treated as part of your estate, and so liable for Inheritance Tax from 6 April 2005 on wards you may be liable to pay an Income Tax charge on the 'benefit' you get from having free or low cost use of property you formerly owned (or provided the funds to purchase) once you have given your home away your children own it, it becomes part of their assets; so if they are bankrupted or divorced, your home may have to be sold to pay creditors or to fund part of a divorce settlement if your children sell your home, and it is not their main home, they will have to pay Capital Gains Tax on any increase in its value Downsizing to a smaller property If you decide to downsize to a smaller property and give away the proceeds of the sale of the larger property, these gifts may qualify as:'potentially exempt transfers' (PETs) so they wouldn't be taxable unless you die within seven years part of your annual exemption in £3,000 chunks each year For example, if you give £10,000 away, £3,000 will be exempt under your annual exemption and £7,000 will be a PET.
Trusts
You may decide to use a trust to pass assets to beneficiaries, particularly those who aren't immediately able to look after their own affairs.If you do use a trust to give something away this removes it from your estate, provided you don't use it or get any benefit from it. But, bear in mind that gifts into trust may be liable to IHT. Trusts are complicated and it's best to get specialist professional advice.
Equity release
A commercial equity release scheme is a method of using the value of your home to raise money. This is like having a mortgage on your property but, instead of making monthly repayments, you repay the money when your house is sold. You can use these schemes to:buy an annuity to give yourself a regular income for life release cash to invest or spend as you want Before using a commercial equity release scheme you need to get proper advice because there are risks:
the interest rate is fixed at the time you release the money - if the value of your home falls or doesn't grow by enough you could end up with no equity in your home if you change your mind after taking out the loan you could face substantial penalties