Yesterday’s entertainment on the radio was a report that around 20% of wills made in England and Wales are invalid for some reason (there are strict legal requirements about the content and form of a will). Apparently there is no significant difference in the statistics between will writers and solicitors, so professional qualifications appear to be no guarantee of success in this particular case.

No detail was given of where bank trustee departments rank in these statistics (if there still are such things in the less than brave new world of banking), but this did bring to mind my experience on the death of my father, who was at the time in charge of the tax section of the trustee department of Barclays Bank in Manchester.

Apparently, the  pages of his will, retained not unnaturally at the bank, were not properly attached to each other, which raised some questions about its validity. This led to some deep black family humour along the lines of “make a will with Barclays and you won’t live to regret it”. I suspect that someone senior threw his weight about in the office, because it suddenly ceased to be a problem, and to be fair Barclays were extraordinarily generous to my mother, but it was a first hand insight into how such matters can cause upset at a very tragic time for families.

Incidentally, our will writer, the excellent Ian Douglas of County Wills, asked us to sign every page of our wills, which I guess very effectively avoids that particular problem.

However, if you really want to upset your family even more than you do by dying, not leaving a will at all is arguably even more effective than leaving a will of dubious validity. Despite this, a very large percentage of the UK adult population does not have a valid will (roughly 60% according to Moneywise).

This is a little hard to explain at first sight, since one of  life’s few certainties is that we are all going to die, but perhaps people do not like contemplating the reality of their own mortality. Or perhaps they fail to update their wills when something happens that makes it invalid (notably marriage, but not, oddly enough, divorce, which simply invalidates any bequests to divorced spouse or their appointment as executor).

As one of life’s few other certainties is that you can’t take it with you, one would have thought that people would have been anxious to be sure to whom their wealth would pass. Admittedly you do not have a totally free hand in this, as there are certain requirements to provide for dependants, but you certainly have more say if you make a will than if you do not, and simply rely  on the intestacy rules to determine the destiny of your estate.

So what are the intestacy rules (I am indebted to Cornerstone Wills for the following data):

Single Person

The entire estate is distributed in the following order: (If any relative is found at a level then the “search” stops and the entire estate is either distributed to that one relative or equally distributed to the relatives found).

  • Children (but if deceased then their children, if any)
  • Parents
  • Brothers & Sisters (but if deceased then their children, if any)
  • Half Brothers & Half Sisters,
  • Grandparents
  • Aunts & Uncles (but if deceased then their children, if any)
  • If no Cousins then it goes to the Crown (the Government).

Living Together – (Heterosexual or Same Sex)

Regardless of how long a couple have lived together, or if there are children involved, under intestacy law they are currently classed as single. Their partners have no automatic inheritance rights.

Married or in Civil Partnership – No Children

For married couples with no children the entire estate is distributed as follows:

  • The surviving spouse gets the first £450,000 plus goods and all personal chattels.
  • They also get half of the remainder.
  • The other half is distributed to the deceased’s parents, if none then to their brothers and sisters and, if any of the brothers and sisters have died, to their children.
  • However if none of the above deceased’s family are alive to inherit, the surviving spouse gets everything.

Married or in Civil Partnership – With Children

For married couples with children the entire estate is distributed as follows:

  • The surviving spouse gets the first £250,000 plus goods and all personal chattels.
  • Half the rest goes to the deceased’s children immediately (or on trust until they are 18.)
  • The other half goes to the children but the surviving spouse gets a lifetime interest. Hence they can spend the income but not touch the capital.

I am prepared to speculate that the intestacy rules do not precisely match many people’s wishes for the distribution of their estate, and I am sure in many cases they run directly counter to those wishes. In particular, in a country where marriage sometimes appears to be going out of fashion, the fact that a co-habitee who is not a spouse or civil partner has no automatic rights whatsoever under the intestacy rules means that many such couples are storing up massive potential problems by not having a will.

So having urged you to make a will, I will now move on to my favourite subject of tax in terms of advising what you might like to put in it.

1. We now have a transferable inheritance tax nil rate band (currently £325,000 per person), which means that one spouse or civil partner can pass on their unused nil rate band to the surviving spouse or partner. Given that the nil rate band has never gone down, and that the survivor is given a second nil rate band at the same level as their own, it looks like a good idea for will planning to pass all assets to the surviving spouse.

2. However, life is not always that simple. If the surviving spouse is likely to need expensive nursing or residential care, it may make more sense to create a discretionary will trust of assets equal to the nil rate band for surviving spouse and descendants, so that the assets do not fall into the survivor’s estate and thus become vulnerable to being used to meet care cost. And if the marriage is a second one, and there are children of the first, it is likely that the testator will wish to make provision for those children rather than leaving everything to the surviving second spouse.

3. There is also sometimes further planning to be done. If husband and wife have run a trading business (partnership or company) and the survivor will continue to do so, it is highly tax-efficient to do the following:

i. Leave the share in the business (which will be inheritance tax exempt anyway as a trading asset) to the children, and the remaining estate to the spouse.

ii. Spouse buys the deceased’s interest in the business from the children, with the debt left outstanding as an interest free loan.

iii. When spouse dies the whole business is eligible for 100% inheritance tax relief, and the debt to the children is an allowable deduction in the estate (and the survivor gets the deceased’s nil rate band too).

4. Charitable bequests are exempt from inheritance tax, but it gets better than that. If at least 10% of the chargeable estate (after nil rate band and exempt transfers) is left to charity, the rate of inheritance tax applied to the remainder of the chargeable estate falls from 40% to 36%, with the result that HMRC picks up most of the cost of the charitable bequest, as opposed to the beneficiaries. So do we deduce from recent government policy that the message is “give to charity when you die, not during your lifetime”?

One penultimate sobering thought. If your heirs do not like the way you have divided up your estate, they can all agree to change the distribution of assets by way of a Deed of Variation, which effectively re-writes your will for capital taxes purposes with retrospective effect. This can also happen with the intestacy rules, but it seems somehow less likely in such a case that all the beneficiaries will agree, as the impact on their respective entitlements may be much more dramatic.

One final sobering thought. Stieg Larsson, Swedish author of the phenomenally successful “Girl with the Dragon Tattoo” trilogy, died intestate and without making financial provision for his very long-standing partner. Cue a long-standing, bitter and still ongoing dispute between his (semi-estranged) family and the unfortunate lady. So let your watchword be:

“If there’s a will, there’s a way …. to make as sure as I can that the people I wish to get my assets do”!

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