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On Tuesday I did a presentation in London at The Hub Kings Cross, an open office space designed for small businesses and start-ups.
My talk focussed on why is important to have a Will in general, but paticularly why it’s so important for people that run, or have an interest in, a company.
The presentation itself is here, and feel free to ask any questions!
Many people think that because they don’t own a lot of property they don’t need a Will because people presume that if there isn’t a lot to pass to others that when they die then it’s not that hard to sort out. But it is not as simple as that. Most people don’t realise the landmine field that can apply when they die intestate.
And why should they? It’s not something that people think about all that much, and don’t tend to think about until they get a bit older anyway, but these are just some of the reasons why you should make a will. I have left out some of the more complicated ones that don’t apply so much, such as Inheritance Tax, complicated trust property and larger business issues, and set out the most common reasons that people should have a will.
You should also make a will for the simple reason that if Executors are appointed the process is made so much easier for your family. Assests can be dealt with simply and not be subject to freezing by the Courts, and with a lot less red tape.
You should have a Will if any of the following apply:
If you have children: In order to choose who will look after them and ensure there are funds in place to keep them. Children under the age of 18 cannot inherit money or property so anything they inherit (if anything, without a Will intestacy applies, and depending on the size of your estate your children may not benefit at all.) It is also important to specify Guardianship, who will look after the children, especially if you are no longer in a relationship with the children’s other parent.
Unmarried couples: Whilst there are plans to change this, currently the law doesn’t really recognise un-married, or un-civil partnered, couples as having legal rights over the other’s property, even if you have been together for a significant amount of time. Joint property will pass to the other party, but even then there can be problems.
Another major problem is that if one party dies intestate their assets can be frozen. These funds can be frozen for years whilst the estate is administered which can lead to huge financial problems for the surviving party (e.g. if the deceased was contributing to or paying the mortgage from an account held in their name only). Even joint accounts can be frozen when the estate is in administration.
If the house was in the sole name of the deceased the surviving partner will receive no interest in it unless they can prove legal rights that have established over time (by way of a “resulting trust” or a “constructive trust”).
I cannot stress enough how important it is for unmarried couples to make a will as most people do not realise that a long term partner does not automatically benefit from their partner’s Will.
If you are divorced: Your previous Will will still remain valid, but any reference to your former spouse will be omitted (and treated as if they died on the date of the marriage dissolution). However, there are still some cases where gifts to others are dependent on the gift to the spouse (e.g. a gift to be held on trust by the spouse for an infant) which may or may not remain valid dependent on the way the rest of the Will is drafted.
So if you are divorced it is essential to renew your Will to ensure that gifts to anyone who is not your former spouse still stand.
Pets: Whilst it is not possible to leave money to a pet itself it is possible to leave money in trust to ensure that a beloved animal is cared for. In most cases people can be sure their family will look after animals, but for extra peace of mind it is possible to make provision for your pets.
Friends: If you have friends you wish to inherit anything you have to specify them. You may have told them your whole life “when I die you can have my x, y and z” but that is not legally binding.
Specific funeral plans: If you know what you want your funeral to be like, you can detail it so that your family doesn’t have to make the decisions.
If you own property: ‘Joint tenant’ mortgages automatically pass to the other owner (but note that assets can be frozen and transfer of ownership can be very complicated)
If you’ve a ‘Tenants in common’ mortgage it’s important to say what happens to your share of the house. If you die intestate and you are not married to your co-habitee there can be all sorts of problems if the deceased’s family want to take possession of the deceased’s share ~ which could mean applications to the Court for sale if the surviving partner cannot afford to buy them out.
If you own a property overseas, inheritance laws may be different to theUKand it is essential to make provision for any foreign property in a Will.
If you run a small business: It’s possible with sole directors, that if you die without executors and trustees no one can make decisions on how to run the business and to authorise payments. Assets can be frozen and your business could collapse.
One of the most frequently asked questions we get when dealing with Wills and Estate Planning is how to go about transferring a house to another family member, usually children whilst still alive. So the family member legally owns it but they continue to live there.
This blog post addresses why this can be a bad idea.
The process itself is very simple, and basically involves filling in some forms and submitting them to the Land Registry.
But the legal implications are far from simple, and can lead to a lot of pot holes that can cause all sorts of difficulties.
Why transfer your home in the first place?
There are many reasons why someone would wish to transfer their property including the security of knowing the house is with the person you wish to leave it to and Inheritance Tax issues, but the overwhelming reason is to try and avoid paying care home costs.
In England and Wales you will only be required to pay for care home costs if your capital is over £23,000 (England) or £22,000 (Wales) This capital includes any equity in your home. This area is complicated, and very long winded, and if you are thinking of doing this you do need to get in depth advice which take into account all of your personal circumstances, such as the fact the Council will not count your home into your capital if your spouse or civil partner is still living there. The Council also has numerous schemes and calculations to work out the payments ~ for more information see:
What can go wrong?
Once you have made the decision to transfer the house to someone else it belongs to them. They can do whatever they like with it, including sell it, and, importantly, it becomes part of their assets. This has various implications.
First is the incident that inspired me to write this post. Divorce. A client came to see us last week with marital problems. Some years ago his mother transferred the house to him, and now he wanted to transfer it back.
If you own a property it will be counted as part of the assets that are taken into account in a matrimonial settlement. So if you transfer your property to your children and one of them gets divorced there will be a lot of problems. The house may have to be sold, even, if the divorcee child cannot afford to buy out any part of the value that is awarded to their former spouse.
Divorce can be unexpected, and at the time of the transfer there may be no marital difficulties in the family whatsoever. But they can, and do, happen and you need to be very careful when transferring property because of this reason.
Second is bankruptcy. Again, this is often unexpected and can occur after years of earning a very good living, as the recent financial downturn has shown. If the house is transferred to a bankrupt, either in full or in part, their share can be taken into account by the Liquidators as part of the bankruptcy. This can lead to similar problems that can lead to the house having to be sold.
This is just a brief overview of potential problems that can arise. If transferring a house it is vital to seek legal advice that will fully explain to you to all the potential downfalls and implications that people don’t consider or realise the full weight of.
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One in three people in the UK die without leaving a Will (“Intestate”)
If you die Intestate there are set Intestacy Rules which apply, and these dictate what happens to your property, and this may not always result in your property being distributed in the way that you want.
The Intestacy rules work like this:
If you are unmarried:
* Property is distributed equally between your children
* If you have no children property is given equally between your parents
* If neither parent is alive property is given equally to your siblings “of the whole blood” i.e. where both parents are the same. If you don’t have whole siblings, but do have half siblings, they will benefit equally.
* If you don’t have any half siblings, your grandparents benefit equally
* If you have no grandparents aunts and uncles of the whole blood benefit equally, and thereafter, any half aunts and uncles (i.e. half siblings of your parent)
* If you have none of these relatives your estate will pass to the Crown.
As you can see, the crucial point of this chain of Succession is that no provision is made for an unmarried partner. You could have been with your partner for years, but if you die without a Will they will not inherit anything. If you owned property, such as a house, together, or had a shared bank account, they will inherit that because it’s joint property, but any savings, ISAs, property and personal effects will fall into the Estate and will be distributed according to the Intestacy Rules.
This is why it is so important to make a Will if you are unmarried but have a long term partner. It is possible for them to apply to the Court for relief, but this is an expensive, drawn out and complicated procedure, and leaving a Will protects against this.
If you are married or in a Civil Partnership:
* The first £250,000 and personal effects (“chattels”) goes to your Spouse or Civil Partner
* If it is worth more and you have any children (from this marriage or a previous one), your spouse will still inherit the first £250,000.
The rest of the Estate will be split in half and the Spouse/Civil partner will hold a “life interest” (explained below) in one half and the rest is split between the children equally. After their death the property subject to the life interest is split between the children.
* If there are no children your Spouse/Civil Partner will get the first £450,000 and half the remainder. Your parents will share the rest. If your parents have died, any brothers, sisters, nephews and nieces will share the rest. If there are none your spouse inherits everything
Again, this might not be what you wish to happen to your Estate. You may wish for your Spouse or Civil Partner to inherit everything, or you may wish to leave property or a gift to a close friend or a non-immediate relative such as a niece or nephew, or leave a donation to charity.
A “life interest” can also be very complicated to administer, requires Trustees to be appointed, and the spouse may have very little say in what is done with the property to be held on Trust. life interest in half of the remaining estate. If you are entitled to the life interest, you cannot get rid of or spend that part of the estate. You can, however, have the benefit of it during your lifetime, such an any interest received through investment.
Eg: Oscar is married to Constance. They have two children, Cyril and Vyvyan. Oscar died without leaving a will. His estate is worth £450,000. After Constance inherits the first £250,000, and all of the personal effects of Oscar, the Estate is worth £200,000. This is split into two halves. Cyril and Vyvyan split one half i.e. £50,000 each.
Constance will have a life interest in this £100,000. She cannot spend the £100,000 capital itself. It should be invested and she is entitled to the interest from this during her lifetime. On her death, the £100,000 is split between the children equally
There are also complications if there is physical property such as a house, but no liquid assets, meaning property has to be sold to pay off the various shares and you may not wish this to happen.
Making a Will ensures that all of your affairs are in order, and there are no complications after your death.