Inheritance tax UK: ‘The job is only half done’ through Wills – what else do estates need?

BUSINESS

Inheritance tax (IHT) is levied on the estate of someone who has died and is passing on their assets, so long as the total estate value is over £325,000. Where IHT is due, it is usually charged at 40 percent but it can be managed and even reduced through the effective use of Wills and other paperwork.

However, new research from Hargreaves Lansdown (HL) found many families are ill-prepared for inheritance issues and this may harm recipients down the line.

According to HL’s analysis:

  • Only two in five people are certain their parents have a will (42 percent).
  • Just one in five (17 percent) say their parents have a lasting power of attorney in place.
  • Fewer than one in ten think their parents (nine percent) have a register of assets (details of accounts, investments, pensions and insurance policies) to make it easier for those they leave behind to untangle their finances.
  • One in five people say their parents definitely haven’t drawn up any documents relating to their death.
  • A third of people who know their parents have a will, don’t know where to find it.

Sarah Coles, a personal finance analyst at HL, commented on these findings and warned action should be taken sooner rather than later.

She said: “Only a small minority of parents are prepared for the worst, and have all the right paperwork in place to make life a little easier for their family after they’ve gone.

“We owe it to our families to spare them the agony of wondering what we would have wanted, and get the paperwork done so they don’t end up inheriting a headache.

“When someone dies, among all the sadness and grief is the constant agony of whether you did the right thing for your loved one, and what they would have wanted.

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“It can spread to every aspect of their life and death, and if they don’t make sensible preparations, this can include their finances.

“If your parents have written a will, they’re already in the minority of the most organised. It makes a huge difference, not only because it divides their estate exactly as they want, but also because whoever is left distributing the estate knows they’ll be carrying out their loved one’s wishes.

“However, once you’ve drawn up a will, the job is only half done, because there are other vital documents to consider, from a lasting power of attorney to a letter of wishes explaining your will or passing on a lasting message – and a register of assets which reduces the seemingly endless admin that comes with tying up an estate.

“A fifth of people say their parents haven’t made any preparations – leaving them with a potential nightmare after their death. And one in four have no idea where they stand.

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“You may need to see a lawyer about making a will and a lasting power of attorney, but you can do some of these things today – without any cost.

“HL has produced an asset register to make it more straightforward to put one together. You just fill out the relevant sections and save it on your computer, or print it out and keep it with your other important documents.

“You should also talk it through with your family, so they’re clear about everything in it, and know where to find everything.”

Sarah went on to break down what the risks are of not having one’s estate planning in check.

Not making a will – the risks

Sarah detailed: “If you die without a will (dying intestate) your estate is divided according to official rules, which may not match your wishes. If you’re not married to your partner, for example, they may inherit nothing.

“If you have family members who expect to inherit and are excluded by the rules – or people who expect something specific they’re not entitled to under intestacy laws – it can cause real distress.

“You could lose the opportunity to name a guardian to look after any children under the age of 18. It also means you may lose the chance to consider inheritance tax.

“Part of making a will involves naming an executor to handle the admin after your death. Without one, someone will need to apply to become an administrator, which can mean delays and extra costs.”

Not making a lasting power of attorney or assets register – the risks

Sarah continued: “If you lose the ability to make your own decisions, an LPA means you can nominate someone you trust to make them for you. It’s important to have two – one for health decisions and one for your finances.

“If you don’t have an LPA in place, someone will have to be appointed as a deputy instead, which can take much longer and cost more – which can cause major issues if they need to pay for care.

“If you have to appoint a deputy, a court will decide the limit of their powers. There are also annual fees, and the deputy is supervised by the Court of Protection, so they usually have to produce an annual report detailing any decisions, along with income and expenses.

“Without a register, it will be up to your loved ones to trawl through all your affairs and try to work out what you have – and where. It can be an onerous burden at a time when they’re going through so much.

“Your loved ones could overlook assets when your estate is going through probate – or miss debts that have to be repaid. They could also be unaware of life cover due to be paid out.

“Drawing up a register is a brilliant opportunity to take stock. You can consolidate savings, investments and some pensions (as long as you don’t give up any valuable benefits). This not only makes it far easier for your loved ones after your death, but can make it much more straightforward to manage for the rest of your life too.”

Not having a letter of wishes – the risks

Sarah concluded by examining a little known difference that could catch people off-guard: “If you put personal details in a will instead of the letter of wishes, it will be published as part of the probate process.

“If, for example, you have added information about why someone is excluded from the will, it could inflame the situation even more if they read it.

“By putting these reasons in a letter of wishes, it helps make it clear that nobody has been omitted by accident. It could also come in very handy if there are any disputes about the will. Otherwise, it can be harder to prove it wasn’t a mistake.

“If you put details of personal belongings in the will, it makes it much more expensive to change your mind, because you need to rewrite the will with a solicitor. If you do it in a letter of wishes you can simply rewrite it yourself. It’s also an opportunity to leave a message for your loved ones.”

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