Wills and Lasting Power of Attorney – Wills & Intestacy Tax Factsheet

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Why Make a Will?

Making a Will allows you to make clear what your wishes are in terms of your money, property and personal possessions when you die. It should set out how you wish your estate to be dividend and who you wish to benefit from it.

If you have children under the age of 18, you can also use your Will to state who should look after them in the event of your death and they should be provided for financially.

It is advisable to seek legal advice when making a Will, particularly if your circumstances are not straight forward, for instance if you have a family business, foreign property or children from a previous marriage.

We have a number of strong legal contacts who could assist if you think it might be the right time to make a new Will or review your existing arrangements.

If you die without a Will, your estate may not be shared in the way that you wish. Intestacy rules dictate how assets are split and may not be in line with your own wishes.

The Rules of Intestacy

If a person dies without making a Will, their estate will be shared in accordance with the rules of intestacy.

Under the rules of intestacy only surviving spouses/civil partners and some close relatives can inherit from the deceased’s estate. Where a person dies intestate, the estate is split as follows:

Spouses and Civil Partners

Married partners or civil partners inherit under the rules of intestacy. Divorced spouses or civil partners who are legally separated will not inherit nor will any cohabiting partner who was not married or in a civil partnership with the deceased at the date of their death.

If there are no surviving children, grandchildren or great-grandchildren, the spouse will inherit all the whole of the deceased’s estate and personal belongings.

Where there are surviving children, grandchildren or great-grandchildren, the surviving partner will inherit:

  • All the personal belongings of the deceased
  • The first £250,000 of the estate
  • Half of the remainder of the estate

Jointly owned property

A couple may own their own home together, whether they inherit the property automatically on their partner’s death depends on how they own the property jointly i.e. are they tenants in common or joint tenants.

If the partners were joint tenants at the date of date of death, the surviving partner automatically inherits the deceased partner’s share of the property.

Where the partners were tenants in common, however, there is no automatic inheritance.

Any joint bank accounts are automatically inherited by the surviving spouse or civil partner.

Example:

Sarah and Pete are married and own a house together as beneficial joint tenants. They have two children Grace and Louise.

Pete dies suddenly without a Will and leaving his house worth £400,000 and £300,000 of investments.

As Sarah was a joint tenant she automatically inherits Pete’s share of the property. She also gets the first£250,000 of investments.

If Pete had owned the house outright, Sarah would have been entitled to the first £250,000. She would then get half of the remaining £450,000 and the rest would go to Grace and Louise.

Close Relatives

Children

If there are no surviving spouses or civil partners, the children of the intestate person will inherit the estate in equal share. This applies to biological children from different relationships and adopted children but does not include step-children.

If there is a surviving partner, a child only inherits half of the estate value over £250,000, so for any estate worth less than this, they won’t inherit anything at all.

If children inherit under the age of 18, they won’t receive the assets immediately, instead they will be held in Trust until they are adults.

Other relatives

If a person dies and leaves no surviving children, the inheritance will pass to the great-grandchildren of the deceased, again in equal share.

Other relatives may inherit if the person who died leaves no surviving partner, children or grandchildren. The order of priority is:

  • Brothers and sisters
  • Nieces and nephews
  • Grandparents
  • Uncles and aunts
  • Cousins
  • Half-aunts, uncles and cousins

If there are no surviving relatives the estate passes to the Crown, it cannot be inherited by close friends, carers or charities without a Will specifically acknowledging such arrangements.

Varying a Will

A Deed of Variation allows a beneficiary to pass on their entitlement as per the deceased’s Will (or via the intestacy rules if there is no Will), to someone else.

The use of a Deed of Variation means the beneficiary can redirect their entitlement to a third party without suffering any tax consequences. The variation of terms is written back into the Will such that it is as if the new gift was made by the deceased on death. The IHT and CGT implications are based on the same notion that the gift was made by the deceased through their Will (or via alteration of the Intestacy rules).

There are many reasons why a variation might be made, for instance to provide for someone who was excluded in the Will, to pass assets to the next generation or to increase the tax-efficiency of the legacies bequeathed.

There are many strict condition that need to be adhered to in order to vary a Will and a claim must be made within two years of the donor’s death. For more advice specific to your own circumstances, contact one of our team.

Lasting Power of Attorney

A lasting power of attorney (LPA) is a legal document that allows someone to appoint one or more persons to make decisions on their behalf.

There are two types of LPAs:

  • Health and welfare – this covers matters such as where you should live, who you should have contact with, medical care and decisions about life-treatment.
  • Property and finance – this deals with matters regarding buying and selling property, investment decisions, paying bills etc.

An individual can have an LPA for one or both of the above LPAs and it may be that different people are best placed to act as attorneys in each matter.

It is important that someone making a lasting power of attorney is over 18 and has the mental capacity to make the decision.

It is also advisable for a solicitor to draw up the relevant documentation as there is standard wording that must be used. An LPA can be amended at any time as long as you still have mental capacity.

This factsheet is based on law and HMRC practice at July 2018.

For more information contact Richard Major on 0113 396 0115 or 07782 274 754 or email richard@dswprivateclient.com.

Wills & Intestacy

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