Three quarters of people do not have a will because they believe they have nothing of value – but end up making terrible mistakes by forgetting to add their homes into their estates.
That’s the finding of recent research from The Law Society.
The main reasons for having a will are to make sure your personal wealth and belongings go to the people you want to have them – and for the wealthiest, to plan for inheritance tax.
To help, here are some tips to make sure your loved ones keep a little more of your wealth:
Do you have to worry about IHT?
Many people waste money on complicated wills and tax strategies when they probably never have to worry about paying IHT.
The tax is due at 40% on estates with a net worth of more than £325,000.
For most people, especially in London and the South East, the main asset that drags them into the IHT net is the value of their home, but if that is sold to pay for care costs, they are unlikely to have to worry about the tax.
If you are an expat and have property and investments in more than one financial jurisdiction, then make a will in each place as IHT laws are likely to be different in each one and may even conflict – so take professional advice
Keep IHT in the family
Special rules mean the first spouse or civil partner to die can pass their nil-rate bands on to their partners, giving them a £650,000 nil-rate band to pass on to loved ones
Write that will
Putting your intentions in writing resolves a lot of problems when you are not around to answer the questions. Also, if you die without a will, special rules order the way your estate is distributed and the people you want to benefit might not.
Signing a simple form from your life insurance provide puts any payment when you die outside your estate for IHT – and also means the money is immediately available as a cash cushion to pay bills
Seven year hitch
If you have belongings or cash you want to leave to your loved ones, make gifts called ‘potentially exempt transfers’ (PETS). Providing you live seven years after making the gift, no IHT is due.
No strings attached
Gifts with strings attached are not gifts and can result in a surprise IHT demand for the tax man – such as gifting your home to someone on condition you can live there for the rest of your days
Giving to charity
If you leave 10% of your net estate to charity, the tax man slices the IHT rate down from 40% to 36%
Write everything down
Make notes and clearly identify your belongings so you executor knows where your bank accounts, investments and personal belongings are kept.