www.step.org Why make a will? The professional body for trust and estate practitioners Why make a will? A will gives you control. A will gives you options. A will means that you can give other people opportunities. ‘It is too expensive’; ‘everything I own will go automatically to my spouse or my children’; or ‘my assets are too insignificant’: . these are common misconceptions. www.step.org 02 03 www.step.org How often in in your yourown life have youyou life have thought that you youwould wouldhave havedone done something takena journey, a journey, taken something,–taken taken a acourse course – but but thatyou youcouldn’t couldn’t because you didn’t have havethe themoney? money? A will can allow others totoenjoy A Will can allow others enjoy opportunities that that you younever neverhad. had. In essence, a will is the tool that In essence, a Will is the tool thatallows you to pass onpass your to allows you to onpossessions your benefit others. possessions to benefit others. The only certain way to ensure that your spouse, partner or relative, etc. inherits what you intend is by making a will. If you die without having made a will, the intestacy rules apply in an arbitrary manner, particularly if there are no children. This may lead to your spouse having to share your estate with relatives (e.g. brothers and sisters, aunts and uncles) whom you may never have intended to benefit. For Adam not that Theexample, only certain waydid to ensure bother to make a will,orthinking your spouse, partner relative, etc. everything would go to his wife, inherits what you intend is by making Eve. HeIfleft of GBP750,000, a Will. youan dieestate without having which propertyrules worth made aincludes Will, theaintestacy apply GBP650,000 and an investment in an arbitrary manner, particularly if portfolio. Adam and Eve there are no children. Thishad mayno lead to children, andhaving he wastosurvived by your spouse share your his wife andrelatives two nasty estate with (e.g.brothers. brothers and Eve is only entitled to thewhom personal sisters, aunts and uncles) you effects (furniture, etc), GBP450,000 may never have intended to benefit. and half the balance, giving her a further GBP150,000. Thenot brothers For example, Adam did bother to took each. everything As the value makeGBP75,000 a Will, thinking of the property Eve’s would go to his exceeds wife, Eve. He left an entitlement under theand intestacy estate of GBP300,000 no children. rules, she may have to sell He was survived by his wifethe and two property to release capital, or taketo nasty brothers. Eve is only entitled out a mortgage to enable her to pay the personal effects (furniture etc), off the brothers. GBP200,000 and half the balance giving her a further GBP50,000. The At present theGBP25,000 intestacy rules brothers took each.do not recognise co-habitees. Therefore, ifAtyou live with your partner and present the intestacy rules do not die without having made a will,if you recognise co-habitees. Therefore, your partner not automatically live with yourwill partner and die without inherit ofayour The will havingany made Will,estate. your partner estate will automatically passofto not automatically inherit any your your surviving (i.e. children, estate. The estatefamily will automatically parents, brothers and sisters) and pass to your surviving family (i.e. your partner will brothers have to make children, parents, and sisters) aand claim onpartner the estate your willclaiming have to make a financial dependence if appropriate. claim on the estate claiming financial dependence if appropriate. If you have children together with your then they will If you havepartner children together automatically inherit the estate, with your partner then they will and both your inherit partnerthe and yourand automatically estate, children will have and to get separate both your partner your children legal representation in order will have to get separate legalto fight for a shareininorder the estate. representation to fightThis for ais expensive and obviously a situation share in the estate. This is expensive that be avoided. simple and should obviously a situationAthat should will is all that needed be avoided. A is simple Willtoisensure all that is that yourtopartner and your yourpartner children needed ensure that are for. are provided for. andprovided your children The professional body for trust and estate practitioners Why make a will? The Civil Partnership Act provides a legal registration for samesex couples, which puts their relationship on par with married couples. Civil partners therefore have the right to inherit if a partner dies without leaving a will. The Civil Partnership Act, however, does not apply to non same-sex cohabitees with the inherent problems mentioned above remaining. Home-made wills should be treated with caution and should only be used in the most straightforward of circumstances. Some home-made wills can be disastrous, for example, people omit to cover the position if the main beneficiary does not survive; or refer to assets that are not owned on death. www.step.org Instead, have your will drafted by a properly qualified professional – in particular look to a member of the Society of Trust and Estate Practitioners (visit www.step.org/ stepmembersearch). Members are specialists in this field and can give expert advice. This leaflet is a brief guide to making a will. It includes: what a will allows you to do, practical advice on what the process involves, and a section on how more complex family or financial situations can benefit from welldrafted wills. Practicalities You must appoint executors to deal with your estate in the event of your death and hold property in trust, for example while a beneficiary is a minor. These executors have a very important role to play and should be either business-minded family or friends and/or professional advisors. To some extent executors can act before grant of probate, which is when the probate registry sends out a legal document that allows one or more people to deal with the estate. Three is an ideal number made up of, say, two family members and potentially a professional, which is advisable if the estate is complex or there is any friction within the family. You can provide for specific funeral arrangements. This is particularly important for some clients. Some people ask for their body to be donated to medical research. Often people who have suffered from prolonged illness want to help reduce other people’s suffering by helping to find new treatments. You can safeguard your minor children’s interests (i.e. children under 18 years of age) by appointing legal guardians to care for them if both husband and wife have died. 04 05 www.step.org Personal items itemssuch suchas asjewellery, jewellery, paintings and andheirlooms heirloomscan canbe be passed onthe in Will the will passed on in andand by by reference toan aninformal informalletter letterofof reference to wishes. You Youcan canbenefit benefitgood goodcauses causes by leaving leaving aalegacy legacyor orshare shareofofyour your estate to to charity, charity,free freeofofinheritance inheritance tax (IHT). (IHT). Charities Charitiesreceive receivebillions billions of pounds pounds per peryear yearthrough throughmoney money left to them in wills. left to them in Wills. It is an It is an important source sourceof offunding fundingfor for them and and ititmeans meansthat thatyou youcan cangive give opportunities toothers othersthat thatyou youdid opportunities to did not necessarily yourself. not necessarily enjoyenjoy yourself. Larger estates may be able to benefit from a reduced rate of IHT of 36 per cent if, subject to certain rules, more than 10 per cent of the estate is left to charity. Maximising the available IHT Recent changes nil-rate Prior to 9band October 2007, married Prior to were 9 October 2007, married couples advised to make best couples were advised makefor use of both their nil ratetobands best use of bothGBP312,000) their nil-rate IHT (currently on bands on death. This nil death. for ThisIHT involved including involved nil-rate band rate bandincluding discretionary trusts in their discretionary trusts in their respective Wills. While this ensured respective wills. While were this ensured that both nil rate bands that both nil-rate bands were preserved on second death, it often preserved on second death, it often involved complex arrangements, resulted especiallyinifcomplex a share inarrangements, the family especially a share in the home was if used to fund thefamily nil rate home was used to fund band discretionary trust.the nil-rate band discretionary trust. In October 2007, the government In October 2007, the government introduced the transferable nil rate introduced thewhich transferable nil-rate band (TNRB), provides that band (TNRB), which provides that the unused proportion of the first to the unused proportion the first to die can be passed to the of survivor. die can be passed to the survivor. This be illustrated illustratedin inan an This can best be example: husband died diedin in1992. example: The husband 1992. Having no lifetime Having mademade no lifetime gifts hegifts he passed whole estate to his passed hishis whole estate to his surviving When the thespouse spouse surviving spouse. When dies 2013, the the nil nil-rate bandfor forIHT dies in 2012, rate band IHT has increased to GBP325,000. has increased to GBP450,000. The The surviving spouse can leave surviving spouse can leave GBP650,000 of IHT. IHT. GBP900,000 free of The thenew new The simplicity of the arrangement be welcome welcomeby by arrangement will be many couples. Couples Couples many married couples. with nil-rate band with existing nil rate band discretionary shouldtake take discretionary trusts should advice deciding to toredraft redraft advice before deciding their flexiblenature nature of their wills, Wills, as the flexible the nil-rate band discretionary trust of the nil-rate band discretionary may other benefits and can trusthave may be have other benefits offer solutions to complex family and can offer solutions to more arrangements, and also may offer complex arrangements. some level of asset protection. Wills flexible solutions solutions Willscan can offer flexible to topractical practical problems The trustwithin withinthe the Theinclusion inclusion of a trust will, discretionaryor or Will,whether whether itit is discretionary gives spouse aaright righttoto givesthe the surviving spouse income of the thefamily family income or or occupation of home, attractive for fora variety home,may may be attractive aofvariety of reasons. reasons. Family Family arrangements arrangements Wills toprovide providefor for Wills can can be used to complex for complex family family arrangements, arrangements, for example childrenfrom from example to to include children previous will can cangive give previous marriages. marriages. A Will aasecond rightto tooccupy occupy second spouse the right the protecting thefamily family home, while protecting the children of ofan anearlier earlier thecapital capital for children marriage. ensurethat thatthe the marriage. This This will ensure assets outsidethe the assets will will not pass outside immediate may pre-empt preimmediate family family and may empt potential challenges potential challenges to the to the distribution estate. distribution of the estate. The professional body for trust and estate practitioners Why make a will? Asset protection protection An ever-ageing ever-ageingpopulation populationmeans means that tens tens of ofthousands thousandsofofhomes homesare are sold each each year yearto tofund fundthe thecost costofof residential care.AAcarefully carefullydrafted drafted residential care. will provide that thataashare shareofofthe the Will can provide family home home passes passesinto intoaatrust truston on death, which firstfirst death, which maymay givegive the the survivor aa right rightto tooccupy. occupy. With care, suchwill trust will ensure The trust ensure that thethat the capital be preserved capital will will be preserved fromand instead to the nursing passes home fees andintended instead beneficiaries. A trust of this type passes to the intended beneficiaries. can be drafted flexibly todrafted allow the A trust of this type can be survivor ‘down-size’ or move flexibly totoallow the survivor to property. ‘down-size’ or move property. Trusts canprotect protectassets assetsshould should Trusts can future generations generationssuffer sufferfinancial financial or matrimonial matrimonialdifficulties, difficulties,ororthe the beneficiaries are not mature and responsible enough to own large www.step.org sums of money. Themature trustees will beneficiaries are not and be able to take each to beneficiary’s responsible enough own large personal circumstances into will be sums of money. The trustees account. able to take each beneficiary’s personal circumstances into account. There may be ongoing IHT charges and this will to beIHT weighed-up There may behave ongoing charges with the will benefit protection. and this haveoftoasset be weighed up with the benefit of asset protection. Reducing the tax burden Trusts maythe have Reducing tax long-term burden tax advantages in cases where tax capital Trusts may have long-term appreciation anticipated to advantages iniscases where capital outstrip future increases oftothe nilappreciation is anticipated rate band. Trusts can also outstrip future increases ofbe theused nil to benefit generations by rate band.future Trusts can also be used potentially by-passing children to benefit future generations by to benefit grandchildren. potentially by-passing children to benefit grandchildren. Businesses Businesses Your will can also also direct directyour your Your Will business (suchas asshares sharesin a business interests (such in a family company) or a farm family company) or a farm to those to those intended, a son or who intended, e.g. a sone.g. or daughter daughter hasbusiness. come into has come who into the Anthe business. important relief importantAn IHT relief canIHT apply to can apply to these interests giving these interests giving discounts of discounts 100complete per cent (i.e. either 100 of pereither cent (i.e. complete exemption) or 50With per your cent. exemption) or 50 per cent. With house or other nonhouseyour or other non-business assets business assets youaway can give assets you can give assets without away without anthey IHTare charge paying an IHTpaying charge if if‘potentially they are ‘potentially exempt(PETs). exempt transfers’ transfers’ main point of The main (PETs). point ofThe interest here is that interest here PETs have to be PETs have to is bethat given away seven given away seven years before your years before your death. death. With inmost mostcases, it With business business assets, in cases, is only necessary for the is onlyitnecessary for the individual individual to have owned these to have owned these business assets business assetsinfor two years, in for two years, contrast with the contrast withfor the seven years for seven years other ‘potentially other ‘potentially transfers’. exempt transfers’.exempt Therefore, why Therefore, why pay substantial pay a substantial taxabill when this tax when this can becareful reduced canbill be reduced through through drafting in and a will? drafting careful in a Will? Business Business andinterests agricultural interests agricultural can often be can often dealt with through a dealt withbe through a discretionary discretionary willmay trust, which may Will trust, which offer offer additional tax savings. additional tax saving. 06 07 www.step.org Great care careneeds needsto tobe betaken takenwhere where you plan plan on ongiving givingaway awayan anasset asset with the the intention intentionof ofretaining retainingsome some sort of of benefit benefitfrom fromitit(i.e. (i.e.giving giving away a painting, painting,but butleaving leavingitit hanging in in your yourhouse) house)asasthis this may give rise to income tax implications may give rise to income tax under the pre-owned implications under theasset pre-owned legislation. asset legislation. It is of ofvital vitalimportance importancethat thattrusts trusts are drafted draftedand andimplemented implementedby bya aproperly properly qualified professional, qualified professional – as trusts were properly who quitethat likely is anot member of set up–and administered cannot be STEP as trusts, which were challenged. properly set up and administered, can be challenged. Other considerations considerations Many people own owntheir theirhouse houseasas ‘joint tenants’. tenants’. This Thisisisone oneofoftwo two ways in which which you youcan canown ownyour your house. You Youcould couldown ownititasasa a‘tenant ‘tenant in common’. To Toown ownyour yourhome homeoror other asset as as ‘joint ‘jointtenants’ tenants’can canbebe an because the the aninflexible inflexible method because surviving co-owner co-owner automatically automatically takes the whole. whole. Therefore, aa co-owner co-ownercannot, cannot, during lifetime lifetime or orby byWill, will,give givethese these assets to any any other otherbeneficiaries, beneficiaries,for for example to children. their children. The example to his The solution solution hold asin ‘tenants in is to holdisasto‘Tenants Common’ common’ and, if the holdingasisjoint and if the holding is already already joint tenants, it can by easily tenants itascan easily be severed a be severedsimple by a relatively simple relatively procedure. procedure. The dyingintestate intestate The consequence of dying (i.e. will) (i.e.without without having having made a Will) can complicatedand and can prove both complicated expensive. stressfultime timefor for expensive. At a stressful your friendssuch suchworry, your family and friends worry, complications and expense complications and expense can can be avoided through making a be avoided through making a correct correct will. Will. Remember two-year Remember also also that in aatwo year period following the death, period following the death, the the terms a will be varied terms of aof Will can can be varied or or disclaimed appropriate disclaimed byby an an appropriate document by the the document entered entered into by persons may, persons involved. involved. This may, however, prevented by bychanges changes however, be prevented in inthe the law. Even have already alreadymade madea Even if you have aWill willititisisimportant important keep this toto keep this under regularintervals intervals(at under review at regular (at least every years). world least every fivefive years). TheThe world does stilland andin inparticular particular does not stand still your circumstancesand and your family circumstances relevant laws will willchange. change. relevant taxation laws Making not be beexpensive. Making aa will Will need not expensive. Mostand solicitors and STEP Most solicitors STEP Members members charge a reasonable charge a reasonable fee for a fee for astraightforward straightforwardWill. will.Where Where the the Will will achieves valuable tax savings achieves valuable tax savings this this normally be reflected the willwill normally be reflected in theinfee fee, the savings might be vast. but but the savings might be vast. www.step.org What is STEP? The Society of Trust and Estate Practitioners (STEP) is the worldwide professional body for practitioners in the fields of trusts and estates, executorship and related issues. STEP aims to promote the highest professional standards through education and training leading to widely recognised and respected professional qualifications. STEP also works to demonstrate the value of good stewardship and planning across future generations to governments, professionals, financial institutions and the public. For further details of our Members practising in your area, contact the STEP office at: Artillery House (South), 11-19 Artillery Row, London, SW1P 1RT Or visit: www.step.org/stepmembersearch © STEP 2012 STEP internationally has more than 17,500 members, and more than 4,000 students worldwide are currently studying for STEP qualifications. This leaflet and the companion leaflets ‘Why make a will?’, ‘Why make a trust?’ and ‘What to do when someone dies’, as well as other informational leaflets produced by STEP, are available to view and order at www.step.org/leaflets These brochures apply to England and Wales only. Different laws apply in Scotland and Northern Ireland. Telephone: +44 (0)20 7340 0500 Facsimile: +44 (0)20 7340 0501 Email: step@step.org Website: www.step.org A company limited by guarantee and incorporated in England and Wales under the Companies Act 1985. Registered number 2632423. Registered Office Artillery House (South), 11-19 Artillery Row, London, SW1P 1RT United Kingdom