There is much more to Will writing than simply detailing your wishes and signing a few documents. Some obscure facts and knowledge about Wills may influence your decisions.
Gifts Can Mitigate High Inheritance Tax
Inheritance tax (IHT) is a tax payable on your estate after you pass away. It is expensive and can eat up a big chunk of your estate, leaving less to go to your loved ones. With gifts, however, you can reduce the amount that you pay. All gifts you give to your loved ones are tax-free and will not be counted as part of your estate.
However, this comes with some caveats, and giving gifts to reduce your IHT bill requires careful planning. Gifts can still be counted towards your estate if you give them seven years before you pass away. When first made, the gift is labelled as a potentially exempt transfer (PET), and if you pass away before the seven years are up, it is called a chargeable transfer.
The annual gift allowance that you have each year is £3,000, allowing you to give gifts that will not incur IHT. This can also be carried over into the following year, making your total gift allowance for two years £6,000 if you give no gifts the year before; however, it can only rollover for two years.
Charity gifts can also reduce your IHT bill significantly. If you leave a total of 10% of your net estate to a charity upon your death, the IHT rate is reduced from 40% to 36%. This is quite a complicated area, so seek professional advice from the experts at The Planning Bee to make sure your gifts will qualify.
Gifts worth less than £250, gifts to help with living costs, and wedding gifts are tax-free gifts that can lower the amount of IHT payable on your estate. However, in the case of a wedding gift, different rates apply:
- You can gift your child up to £5,000 tax-free
- You can gift your grandchild or great-grandchild up to £2,500 tax-free
- You can give another relative or friend up to £1,000 tax-free
Your Will is Invalidated After Marriage – But Not Divorce
It is always good to review your Will every few years, but in some cases, your Will might need to be changed entirely or it may be revoked without you knowing it. This happens if you remarry or marry for the first time and you already have a Will in place.
Under marriage laws in England and Wales, your Will is automatically revoked when you marry. However, this is not the case in the event of divorce, and your Will is still valid if you divorce your spouse.
If you forget to update your Will after marriage, your estate will be distributed according to the rules of intestacy, and people who you may want to benefit will not receive anything. Review and update your Will every few years to avoid this, no matter the circumstances. You can do this by either creating an entirely new Will outlining your new wishes or adding a codicil to your Will if you are only changing minor details.
It is possible to keep your Will after marriage if you specify that the Will was made in contemplation of marriage. This negates the need to create a new Will after marriage and requires specific details of the person you plan to marry.
Although divorce does not revoke your Will, it can change its terms. Your ex-partner will no longer be able to be a beneficiary in your Will or act as an executor. The law treats your ex-partner as though they passed away before you, making things difficult if you pass away without changing your Will.
Your Spouse Will Not Automatically Inherit Your Estate
Many people think that they do not need a Will because their spouse will simply inherit everything they own automatically. However, this is not the case – although your partner will inherit some, not everything will go to them.
If you pass away without having a Will in place, your estate will be divided according to the rules of intestacy. Your spouse will inherit the first £270,000 of your estate, plus all of your personal property and half the remaining amount. After your spouse has received their half, any children will inherit the rest.
For example, on an estate of £300,000, the spouse would inherit the first £270,000. Of the £30,000 remaining, the spouse would inherit another £15,000, and the remaining £15,000 would be distributed between any children. If a person passes away without a Will but has no children, their spouse will inherit everything.
If you want your partner to inherit your whole estate, ensure that you have a Will in place that states this. If you are not married to your partner and want them to inherit everything, a Will is essential, as unmarried partners are not entitled to inherit anything under intestacy rules. A Will helps to smooth the path for your partner to inherit, whether you are married or not, and can bring many other benefits too.
Will writing is not as straightforward as it may seem. There are specific things that must be kept in mind when creating your Will, such as updating it regularly and thinking about using your gift allowance to lower your inheritance tax bill.
Contact The Planning Bee today if you have any questions or concerns about your Will. Our legal experts can run through any queries you may have and guide you through the entire Will writing process.