Financial planning

TWO OUT OF THREE PEOPLE DON'T... WHAT?

Two out of three people do not have a Will in place, so why should you? Josh Jones discusses the importance of establishing a valid Will including what happens to your estate if you pass away without one.

Joshua Jones
Wealth Management Consultant
19 March 2021
5 Minutes

Did you know that nearly 2 in 3 adults do not have a valid Will, and that 30% of people who are age 55+ are also without a Will[1]? I must admit, I was shocked to find out that these figures are so high.

Clearly a Will is an essential document to make sure that you leave your wealth to the right people and should also be a priority for couples after they have started a family, to cover issues such as guardianship, deciding who administers the estate and how the beneficiaries receive their wealth. However, 6.5 million adults refuse to discuss their Will with their loved ones, while 14 million people in the UK believe it is too early to write one[2].

Do I really need a Will?

For those who do not have a Will in place, it could take at least 3-5 weeks for a relative to be permitted to administer your estate after death (after having first applied for a grant of letters of administration). This process could take longer if there are complications such as inheritance tax (IHT) to be paid, disputes over who receives the inheritance and the possibility of incorrectly filed forms. This issue could then be compounded by interest being accrued from any outstanding IHT liability, if six months has passed since the date of death.

Not only could this cause financial detriment to your family, but upon completing the administration of the estate, it may lead to younger beneficiaries receiving a large sum of wealth too soon (i.e., over 18 but still immature). Without a valid Will, you cannot control the distribution of your wealth, due to a set of rules known as ‘intestacy’. If married, these rules (for England and Wales, as the rules in Scotland and Northern Ireland differ) are as follows:

  • all personal property and belongings (chattels) are passed to the surviving spouse
  • the next £270,000 of your estate is also passed to the surviving spouse
  • the remaining estate is split 50:50, where the surviving spouse would receive 50% and the children would receive the other 50%, split equally between them
What other impacts could it have?

In some cases, it can lead to potential inheritance tax (IHT) issues: in 2019, £8 million[3] of IHT was paid to the Crown from those who were subject to the above rules. This may be mitigated by having a Will in place.

For example, Mr Smith is married to Mrs Smith and has 3 children, who are all below the age of 18. Mr Smith has an estate valued at £2 million, which includes an unencumbered main residence valued at £500,000, that is owned on a joint tenancy basis. Unfortunately, Mr Smith passed away in December 2020.

 

His estate could be distributed as follows, depending on whether he had a valid Will in place:

 

Scenario 1: Valid Will in place where Mrs Smith inherits all of Mr Smith’s assets:

The entire estate is passed to Mrs Smith, completely free of inheritance tax and, better yet, she inherits his nil rate band!

Scenario 2: No valid Will in place:

The main residence (as it is jointly owned by joint tenancy) and any personal belongings would be passed to Mrs Smith; however, the remaining estate of £1.5 million would be distributed as follows:

  • the first £270,000 of the savings goes to Mrs Smith
  • 50% of the remaining estate (£615,000) goes to Mrs Smith.
  • the remaining £615,000 of savings goes to his children split equally, who all receive £205,000 each

As £325,000 of Mr Smith’s estate is exempt from IHT due to his nil rate band, the amount that is subject to IHT (the children’s’ inheritance less the nil rate allowed) is £290,000. This could lead to an IHT liability of £116,000.

This situation could have been prevented by writing a Will that passes wealth to Mrs Smith, who would benefit from spousal exemption. This also saves the headache of his young children receiving a huge sum of wealth at an early age.

But I already have a Will in place, why is it so important to update my Will?

If your Will is not up to date, then your wealth may be passed to those who you do not wish to inherit, such as a separated spouse or an estranged family member. In fact, 75%[4] of people have not reviewed their Will in the last ten years, meaning the likelihood of the above scenarios occurring may be higher than we originally thought.

Some people may intend to pass their wealth to a long-term partner, but unless the partner is stated as a beneficiary in the Will, then they (the partner) will likely not receive anything.

Furthermore, if you have divorced and re-married since the last written Will, this nullifies any existing Will. Therefore, it is essential to review your Will periodically.

A Will should be a ‘must’, rather than an ‘if’

Every individual should have an up-to-date Will to help avoid any of the above scenarios. This is an area we address (in conjunction with our legal contacts) as part of any financial planning for our clients, as it helps to safeguard their family from financial distress in the event of a worst-case scenario.

Therefore, the question should not be ‘Should I get a Will?’, but rather be “How quickly can I get a Will in place?”

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[1] unbiased.co.uk, https://www.unbiased.co.uk/life/family-matters/what-if-i-have-no-will

[2] NS&I https://nsandi-corporate.com/news-research/news/no-will-no-way-over-38-million-us-uk-have-not-made-plans-later-life#

[3] Money advice service, https://www.moneyadviceservice.org.uk/en/articles/what-happens-if-you-dont-leave-a-will

[4] Unbiased.co.uk 2016 report 

This article has been produced for information purposes only. It is not intended to be an invitation to buy or act upon the comments made. All investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances and one must satisfy certain investor criteria before being considered eligible to invest. Any forward-looking statements and forecasted returns represent the current views of Mattioli Woods plc and may be subject to change. Your capital may be at risk and past performance is not a guide to future returns. Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.

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