Without a Will (or where the Will is not valid), the assets in your Estate will be distributed in accordance with the Intestacy Rules – please see here for our visual guide to this here. These rules are designed to ensure that members of your immediate family are taken care of. However, they ignore unmarried partners and other non-family members. For that reason, these rules may not take care of everyone you would have wanted to look after. In addition, the rules are not necessarily designed to provide maximum tax efficiency. This could leave some loved ones with less that you would have wanted, or with them having to pay a higher inheritance tax (IHT) bill than was necessary. IHT is a very expensive tax and where assets are not covered by the nil rate band or other reliefs, 40% tax will need to be paid. With sensible planning before your write your Will, this could be reduced significantly, whilst ensuring your wishes are carried out. The effect of intestacy varies depending on your circumstances.
If you are married
If you are married and have no children, your surviving spouse will inherit everything. This will not lead to an immediate IHT liability but sadly will not provide anything for anyone else in your family, and could waste some valuable reliefs, for example Business Property Relief. If you also have children, providing your Estate is worth more than £270,000, the children will inherit a share too. If your estate is large, this could lead to an IHT bill which might otherwise have been avoided by having some simple planning in place. More worryingly, if your children are minors, the assets will be held on Trust, but only until they reach 18. After that, they will be absolutely entitled to those assets and that may not be desirable from an asset protection point of view.
If you are not married
If you are not married, any surviving partner you leave behind is entitled to nothing – even if you have lived together for many years. The concept of “common law marriage” s does not exist for inheritance purposes. Without a Will, they get nothing, although they will automatically inherit any property that you own as joint tenants (but not as tenants in common) or joint bank accounts.
If you have children, the children will inherit everything (on trust until 18, as above) but no other family members (or your partner) is provided for.
If you do not have children, your assets pass may back up the generations before passing down – i.e. if your parents survive you, they would inherit ahead of any of your siblings or other family members. From a tax planning perspective, this could be a disaster, and possibly lead to a much larger IHT bill for the family in the long term (although there are provisions for Quick Succession Relief (QSR) where someone does not survive at least 5 years from the date of an inheritance).
If you have NO surviving family members, your Estate could ultimately pass to the Crown.
Administering the estate
Without a Will, there is no Executor so no one who can take a Grant of Probate. Instead, someone will be appointed as the Administrator instead. Who can do that follows the same set of rules – put simply if someone can inherit under intestacy, they will be able to Administer the Estate.
Intestacy rules are not designed to make the most of valuable tax reliefs or to take into account your specific circumstances and family set up. By doing nothing, you lose the opportunity to make the plans that will benefit your loved ones. Even where there is a Will, if this has not been revisited recently, it is possible that valuable opportunities will be missed. With some basic tax planning, it may be possible to save significant amounts of tax and ensure that your Estate maximises its use of reliefs such as Interspousal Relief, the Residential Nil Rate Band, Business Property Relief (BPR) and the IHT rate reductions associated with charitable giving. You may also be able to consider more complex lifetime planning, perhaps using trusts, to save IHT not only on your Estate but on those of future generations.
While it is possible to vary an intestacy in a similar way to varying a Will post death, it is more complicated (and expensive) and virtually impossible to do this where minor children are involved, even if it is just to ensure that they are protected beyond 18. The rules also do not take into consideration the complicated family set ups, which are quite common today. Therefore, considering the options and making your intentions clear in your Will at the outset is vital, avoiding additional stress for those you leave behind.
How can Gravita help?
There is lots to consider when it comes to IHT planning and drafting a Will, but simple steps taken now could ultimately give your family more flexibility in future and potentially save on an expected IHT bill.
Gravita’s Private Client Tax team have a wealth of experience in helping clients to plan for this and to make things a little easier for those left behind, working with solicitors across London, and the rest of the UK, to make sure your Will is structured to achieve that. We can also act as Professional Executors to ease the administrative burden on those left behind. If you would like to speak to someone to discuss the contents of this article, then please contact a member of the Gravita private client team for further information. We would be happy to discuss the tax and practical consequences of your existing Will, and to help you to understand what tax planning you could do before writing a new one.