Having a will in place provides protection for beneficiaries and is a tax-effective method of financial planning around assets and investments, says Andrew Megson, executive chairman of My Pension Expert.
Britons tend to be a reticent bunch.
Indeed, according to a recent poll from YouGov, a large majority of the population (60%) consider themselves to be reserved. Such figures imply a national reluctance to discuss topics deemed ‘uncomfortable’.
High on the list of topics is what happens after we die. This may now appear harmful at face value. However, this approach can impact how individuals’ approach – or indeed avoid – asset management such as creating a will, simply because they consider the subject to be taboo. In fact, three in five (59%) UK adults do not have a will in place.
Ultimately, a failure to have a will in place can cause a great deal of unnecessary difficulty – both emotional and financial – to friends and family, in the event of an untimely death.
So, how should the industry go about addressing this issue?
The crux of the problem
Tackling the will writing dilemma must first begin by getting to the crux of the problem. As mentioned earlier, death is a taboo subject for many Britons, but beyond this, age and wealth also influence people’s consideration of wills.
This is particularly an issue in the younger population, as 76% of people under the age of 35 do not have a will in place. This is largely because they believe that they are too young, or not ‘asset rich’ enough to warrant a will. Likewise, the fact that individuals will not see any immediate benefits from their efforts (as they would if they were to save into an ISA, say), and this might deter some from writing a will.
Consequently, in the event of an unexpected death, friends and family could be left shouldering a great deal of emotional and financial distress.
Intestacy laws can be testing
Adding to complications are intestacy laws, which are imposed if an individual dies without a will in place. Usually, this means that the deceased’s assets are shared between married partners or blood relatives.
This system also overlooks those who have long-term unmarried partners, stepchildren, or any close friends to whom they would like to inherit their assets. For example, if an unmarried person with no children or blood relatives passes away, then the crown will inherit their assets – regardless of their relationship status. Likewise, for those who have non-blood relative dependents, these individuals will receive nothing under inflexible intestacy laws.
It is possible to contest these laws, by filing a claim under the Inheritance (Provision for Family and Dependants) Act, however it can be very difficult to do so. Individuals can claim that they were financially dependent on the deceased, for example, to apply for a deed of variation, in order to persuade those who inherited the deceased’s assets, to redistribute this inheritance. That said, this process can be extremely time-consuming and complex, which will no doubt be an added stressor at an already difficult time.
Having a valid will in place is a good way for Britons to avoid this distress, and ensure that their assets are distributed exactly how they intend – allowing their nearest and dearest to benefit from their wealth, no matter their relation.
Wills can be tactical
Britons should also look to create a will to avoid the fate of their friends and family running into any financial burdens.
Presently, it is possible to leave beneficiaries up to £325,000 tax free – this is known as the IHT nil-rate band. That said, dying without a valid will can cause difficulties. For example, whilst a spouse is exempt from IHT bills, other recipients are not. This means that if a married individual with children dies without a will, the law states that the spouse’s inheritance of the first £250,000 tax-free, while their children, who inherit the remainder of the estate, will be landed with the cumbersome IHT bill.
IHT is ultimately unavoidable. However, individuals can use their will be more tax efficient with their asset management. For example, they could allocate a “gift with reservation of benefit” in their will. Provided this is done seven or more years before their death, the gift will be exempt from IHT – this can apply to a range of assets, from a fixed sum of money, to property and shares.
Trusts can be another guard against IHT. Here, individuals are able to set money aside to support beneficiaries outside of their estate), meaning that they are exempt from IHT.
A collective effort
Clearly, a culture change is in order. Various stakeholders and industry bodies, such as the The Society of Will Writers, Solicitors Regulation Authority, the Legal Ombudsman, and the Legal Services Board should band together, to raise awareness about the benefits individuals stand to gain from having a will in place. Furthermore, these bodies can make the laws around intestacy and inheritance tax more widely known, so that Britons have a greater awareness about the issues their loved ones might face, should they not have a valid will at their time of death.
Likewise, the financial services sector must also play a part, to ensure that individuals are managing their estate effectively. For one, regulatory bodies should be more proactive in promoting a will as a tax-effective method of managing their assets and investments, and further still, this process should be made as simple as possible.
Finally, some of the onus must fall on individuals themselves. Confronting the topic of what happens after one dies will never be comfortable, nor will it be easy – however, this can save a lot of financial and emotional stress after one dies. Writing a will ultimately remains one of the best ways to take care of your loved ones, and I hope to see industry bodies working together to make this process as easy as possible.