With the best will in the world
WHERE there is a will there is a way, they say, but first you have to knuckle down to write one.
Too many people fail to prepare their last will and testament, including one in four over-55s, and their families risk inheriting serious financial problems as a result.
Some could end up paying far more in tax than they need to or get embroiled in a bitter family dispute.
Next week sees the start of Free Wills Month, where charities offer the over-55s the chance to have simple wills written or updated free of charge, so start revising your own plans now. GET UP TO DATE Nicola Waldman, private client solicitor at law firm Hodge Jones & Allen, says making a will in later life can be complex and earlier wills may need updating: “By age 55 many people may have divorced, remarried and had second families, while some may also be enjoying greater wealth.”
With more than 130,000 divorces every year in England and Wales, many are torn over what assets to leave their first and second families. “One option is to create a trust allowing your second spouse use of your assets if you die, which on their death will then go to your children.”
Waldman adds growing numbers of people with wealthy children now pass on assets to the grandchildren instead: “If your grandchildren are young, some form of trust may be appropriate.” OVERSEAS PROPERTY If you own a second property overseas, such as a holiday home in Spain, you may be hit by succession laws in the local country. She says: “Sometimes, you will need to make two wills, one in the UK and one abroad, and the two must be consistent.”
Your property may even be subject to foreign inheritance tax: “This can be punitively high, particularly if your beneficiaries are not family members. This is a complex area and it is essential that you take advice.” POWER OF ATTORNEY The over-55s should also seriously consider setting up a lasting power of attorney (LPA).
This gives a trusted family member or friend the legal authority to make decisions on your behalf should you lack the mental capacity to do so yourself in the future. Waldman says: “You can set up an LPA either through a solicitor or by contacting the Office of the Public Guardian.”
However, too few families set up an LPA warns Paula Myers, a specialist will and trust lawyer at Irwin Mitchell, and this can cause a legal headache.
“Family and friends may dispute who should make key financial and health decisions and the Court of Protection could be forced to step in,” she says. INHERITANCE TAX You do not have to be wealthy to pay inheritance tax (IHT) and many ordinary families are now caught in the net thanks to rising house prices.
IHT is charged at a hefty 40 per cent of family assets above £325,000, which includes the value of your home, says Patrick Connolly, a certified financial planner at Chase de Vere: “The good news is there are plenty of straightforward things you can do to reduce the potential bill.”
Married couples can pass assets worth up to £325,000 free of IHT to each other on death, effectively doubling their allowance to £650,000.
The new “main residence nil-rate band”, phased in from next April, will allow £175,000 of the home’s value to be passed on free of IHT. Connolly says: “This means a couple could have IHT exemptions worth £1million in total.”
You can shrink your estate by making gifts of up to £3,000 a year free of IHT, or £6,000 for couples, plus smaller gifts to others of up to £250 each. Larger gifts will become completely IHT-free only if you live for another seven years.
However, Connolly adds that you need a valid, updated will to ensure your assets are passed on as you wish: “Otherwise they may be divided up according to the law of intestacy, which may not reflect your wishes or be the most tax-efficient option.”