Private Client Director Karen Anderson runs through the life events that should lead you to review your Will, and considers the tax implications.
If you have got round to making a Will, well done! However, when was the last time you looked at it and checked if it still meets your current wishes? Not only might your intentions change over time, tax laws can change to. Clauses that you have in your Will may have been tax efficient at the time your Will was drafted, but changes in tax legislation can have implications when it comes to executing your Will.
Wills should be reviewed periodically. They are not like insurance, where you may want to shop around and change things every year. You should be reviewing your Will if there are changes in your personal circumstances, and every few years, to check that they still work from a tax perspective. For example, the occasion of your marriage can invalidate a previous Will. And while divorce does not in itself invalidate a previously made Will, if your Will leaves assets to ‘your spouse’, then these will no longer go to your ex, as they are no longer ‘your spouse’. This may be a good thing, but you need to make sure you consider who your assets will go to instead.
The current Government has already announced changes to some of the IHT reliefs (BPR and APR), so who is to say what will happen in the coming years to IHT? It is therefore important to ensure that any Estate planning you undertake, and the terms of your Will, keep abreast of any changes.
Let’s consider the following life events, and why you should review your Will:
Having children (or grandchildren)
- If you have a Will that leaves everything to your spouse, is that now the best option? Could there be a benefit to passing some assets directly to your children, or down a further generation to your grandchildren? Doing so may well save IHT in the longer term. However, if you do that, what will your spouse be left with if you die first? If you include a Trust in your Will, giving your significant other a life interest, you will be able to then leave your assets to future generations once they pass.
New partner/spouse
- As well as the fact that marriage can invalidate a previously made Will, there are the questions around whether to get married, if you are not currently married or in a civil partnership. Do you know the extent of the additional IHT exposure to your estate if you are not married and cannot therefore benefit from the spouse exemption, on assets transferred to your partner on the first death? It may be time to find out if the cost of the wedding will be less than the potential IHT saving if you are married.
Acquiring a property
- Your home is often the most valuable asset in your estate when you die. If you have recently acquired a property, who will this be left to when you die? If you own the property with another person as joint tenants, it will automatically pass to the other person on your death, under the survivorship rules. What if you and your partner have previous relationships, and children by those relationships, and you want to leave your share of the property to your children when you die? In that instance you should consider owning the property as tenants in common. That will enable you to state in your Will who you want to inherit your share of the property. You can then look at including a trust, whereby your partner can remain in the property if you pre-decease them, but on their death, your share passes to your nominated beneficiaries (i.e. your children). Should your surviving spouse remarry, this will then prevent the possibility of your former home ending up passing to the new spouse’s beneficiaries if they survive your spouse.
Moving abroad
- Will leaving the UK have an impact on your IHT position? If you are classified as a long-term resident of the UK, you will be liable to UK IHT on your worldwide assets. An individual will be classed as a long-term resident if they have been resident in the UK for at least 10 out of the previous 20 tax years. Will you be liable to estate taxes in the country you have moved to, and if so, is there double tax relief available?
Lifetime giving
- if you have given away assets in your lifetime, do they still retain any exposure to IHT? Do you, or your beneficiaries, need to keep monies aside for a possible future IHT liability. If one beneficiary has received lifetime gifts, you may want to consider adjusting your Will so that things are levelled up on your death.
Legislative changes
- Following Brexit, there are tax implications from the process of updating UK legislation from the previous EU legislation. One of those implications is that EU and EEA charities no longer qualify for UK tax relief, meaning that if your Will leaves a legacy to a charity that is outside of the UK, it is likely it will no longer qualify for the IHT relief you anticipated when making your Will.
Making changes to your Will: Codicils explained
Making a codicil can be an option for minor changes to a Will, rather than making a new Will from scratch. It is often used for changes such as adding or removing a beneficiary, updating contact information, or clarifying a provision. The codicil has to clearly state that it is amending the existing Will, reference the original Will by date and clearly state the changes that you want to make, referencing the relevant section of the original Will.
A codicil has to be signed and witnessed in the same way as the original Will and stored alongside the original Will. We would therefore recommend consulting with a solicitor when creating a codicil, to ensure it is legally valid, so as to avoid issues when you pass, on administering your assets as you had wanted.
How we can help with Estate and IHT Planning
We can assist you with Estate planning, whether that be providing you with advice on the current exposure of your Estate to IHT or suggesting ways to mitigate that either through lifetime giving or on death. We can also assist those who may be Personal Representatives of an Estate. It is possible to make a deed of variation within two years of a person’s death, to vary the terms of the Will. One reason to do that may be to reduce the IHT payable, or to take advantage of tax reliefs available.
We can also work with your solicitor, who can deal with the writing of your Will, once you have looked at the tax position and decided what is being left to whom.
