Why writing a will is top priority in inheritance planning

Assets passing to one’s parents under the intestacy rules are likely to be inefficient in terms of IHT planning. This is because the assets would be chargeable to IHT in the child’s estate and then again as part of the parent’s estate.

The parent has the option of varying their inheritance to avoid this double taxation of the same assets, but they must do so within two years of their child’s death. Perhaps more saliently, the parent must also have the mental capacity to make the variation. 

A bereaved spouse or civil partner is in a far stronger position under the intestacy rules compared to a long-term partner. This is particularly true where the couple does not have any children, in which case the surviving spouse or civil partner inherits everything in their deceased partner’s estate.

As well as reflecting the likely intentions of the deceased, the estate would also benefit from the spousal exemption, meaning there would be no IHT to pay.

Dividing the estate

The position is complicated where children are part of the picture. Where a married couple have children together, the value of the estate that passes to the spouse or civil partner and to the children depends on the value of the deceased’s estate.

The rules provide that the first £270,000 of the estate passes to the spouse, as do the deceased’s personal possessions – such as paintings or jewellery. The balance of the estate, including the deceased’s share of a property, is divided as to 50 per cent to the spouse and the remaining 50 per cent divided equally between the couple’s children.

There are two consequences to this division of assets that could prove problematic.

Once an individual reaches 18 they are absolutely entitled to their inheritance and can dispose of this as they please. 

The first, and more obvious, is that it may not be prudent for children to inherit a potentially sizeable amount of money, or a share in a valuable asset.

Many testators stipulate in their will that their children should inherit funds having reached an age that they consider appropriate. The intestacy rules state that once an individual reaches 18 they are absolutely entitled to their inheritance and can dispose of this as they please. 

For an example of the above, let's consider a married individual with children who had no will and held a half share in a property worth £2.5mn as tenants in common, as well as a portfolio of shares in their own name worth £500,000.