What should advisers know about inheritance tax, wills and probate in the light of Ilott?
The distribution of wealth upon death is an emotional and difficult process.
It is important for your clients to carefully plan for how they wish their money to be divided upon their death and seeking financial advice is the best place to start.
There are a number of factors people need to take into account when planning how they will allocate their wealth on death.
Tool 1: Wills
One of the best known tools for inheritance planning is a will. A will gives clients the ability to control who they leave their assets to. In a will a client can state their wishes in terms of who gets what and when.
Plus, a will is not just for planning how assets are bequeathed it also allows people to state who they wish to be a guardian to any of their minor children and articulate any sentimental wishes or legacies.
The majority of people are aware of the need to set up a will. Old Mutual Wealth and Atomik Research recently surveyed 1009 UK residents aged 45 and over with at least £50,000 in wealth.
Some 72 per cent of them already having a will in place, and we also found the older part of the population are even more prepared as 92 per cent of people aged 75 and over have a will
However, the research also revealed a substantial proportion of those people believe their will needs to be updated, as 21 per cent of the 72 per cent say their will has become out of date.
Things change as life progresses and people need to be aware of how these changes will alter their inheritance planning. Will reviews should be made a priority after life events such as birth, marriage or divorce.
It also good practice to review wills when tax changes occur. For example, the recent introduction of the residence nil rate band could change how a will is structured.
The so-called ‘family home allowance", is worth £100,000 per person this tax year when passing on a main residence* (although it will be tapered away for estates worth more than £2m).
The new allowance simply will enable homeowners to pass more of their wealth to their direct descendants, provided the property has been used as a main residence.
It is essential when executing a will that the formalities to creating the will are adhered to. Some examples are that a client must have the legal capacity to make a will, have two witnesses present when signing the will.
Don’t forget the cost of probate
When planning how you will leave your estate it is important to take costs into account. This includes probate fees. Probate is the process where by a will is ‘proved’ in a court and accepted as a valid document that is the true last testament of the deceased.