Life certainties: Death, taxes and risk grieving loved ones will rue lack of will

THERE is an old adage that “in this world nothing can be said to be certain, except death and taxes”.

Yet research shows that despite these inevitabilities many of us are reluctant to plan what will happen to our assets after we die.

This means that increasing amounts of personal wealth is ending up subject to inheritance tax, which last year raked in a record £5.2 billion for the tax man.

A recent survey of over 6,000 people undertaken for Tilney, found that 58 per cent of the UK adult population and 60% of those living in Scotland do not even have a will expressing their wishes on death.

While this was understandably high among younger people, a still-worrying 78% of 35 to 44-year-olds and 63% of 45 to 54-year-olds also admit to not having a will, despite often having dependents and assets such as a property. Over one-quarter of those aged over 55 do not have a will.

Dying without a will in place – a situation known as intestacy – can be seriously problematic both financially and emotionally for family and friends. It may mean your assets do not end up with who you would wish to receive them and potentially leave people you care about in a difficult position.

The risks are especially acute for people who are in relationships but aren’t married or in a civil partnership as the default apportionment of assets under intestacy flows through relatives.

While the Family Law (Scotland) Act 2006 provides cohabitants with certain rights, there are time limits on claims and these can end up competing with those of the deceased’s surviving children, creating scope for strife.

Where no surviving family members exist, the lot will end up with the Crown rather than the people or causes you might have chosen.

Where you are unmarried or don’t have children, assets could end up with elderly parents or aunts or uncles, even if you are long estranged from them.

Assets that unexpectedly land as windfall for an elderly relative might then push their own estates deeper into the scope of inheritance tax.

While it is natural to not want to think about death and to delay making plans until late in life, for anyone with dependents or assets it is imperative to do so.

None of us know for sure when our lives will end and a will is also the place to make your wishes known on who you would want to look after your children or receive items that may have sentimental rather than financial value.

Even where you have a will, it is vital to review it regularly, which one-quarter of people who have them admit to not doing. This is especially important following any changes in personal circumstances.

While putting a will in place is important, do not assume that the division of your assets is a matter to be left solely until your death.

By the time you die, it may be too late to avoid unnecessary taxes being levied on your estate, leaving grieving family and friends worse off than they needed to be.

With sound financial planning, exposure to future inheritance tax liabilities can be mitigated by taking actions while you are alive, so that the people or causes you care about benefit the most.

These include making lifetime financial gifts to children or grandchildren to help them get a head start in life, funding pensions as these pots can be passed on very tax efficiently, establishing trusts or moving existing investments into assets, such as Aim-listed shares, that are likely to qualify for business relief once held for two years and become exempt from inheritance tax.

Financial advisers and solicitors therefore both have vital roles to play in helping people ensure their assets are passed on to who they want as efficiently as possible.

If you have yet to think about death and taxes, do add addressing these life certainties to your list of New Year resolutions.

Jason Hollands is managing director of investment and financial planning group Tilney.