An overwhelming majority of people in the United Kingdom haven’t taken the time to sit down and create a will. According to research from Investec Wealth & Investment, nearly two-thirds of people in the UK don’t have a will and of those that have, almost one-third are out of date.
“It’s a cliché but I never cease to be amazed by how many people don’t get around to doing a will – even people with quite complex lives and sophisticated assets drag their heels about this,” says Julian Washington, head of intermediary relationship management for RBC Wealth Management International.
“The crux of it is the death rate is still 100 percent.”
Although many people would rather not think about death, dying intestate – that is, without a will – could leave your loved ones in difficulty.
“Sooner or later our affairs, our property and everything we own is going to have to be dealt with [when we are no longer around],” says Washington. “And that will happen in one of two ways: either you make a will and plan who inherits in an orderly way or you don’t and the law will decide for you.”
The benefits of drafting a will
“The obvious and most important reason to draft a will is to have control over who inherits your property,” says Washington.
If you don’t make a will at all, the inheritance issue -- as well as the separate question of who will be responsible for winding up your affairs -- is dealt with by the blunt instrument of the law, he adds.
According to intestacy rules in the UK, if you’re married and don’t have children, all assets will go to your surviving spouse upon your death if a written will is not in existence.
“If you’re married, and there are children, the complexity starts immediately because your surviving spouse gets only a fixed amount outright, which is a fairly limited sum of £250,000,” says Washington. “If you compare that to real estate prices in the UK, in London in particular, that £250,000 allowance may not even cover the home that you live in.”
Beyond that, the widow or widower is entitled to half of everything and the children inherit the other half.
“The tax system here, and in many other countries, recognizes marriage and it gives all sorts of tax exemptions,” says Washington. While the amount given to a spouse will generally not be taxable, the amount given to your children is taxable. With a will, you can direct all your assets to the surviving spouse in a more tax-advantaged way.
But the benefits aren’t just limited to taxes, says Roberta Ruddy, director of RBC Wealth Management’s International Wealth Solutions in New York, noting many of the same benefits apply regardless of which side of the Atlantic a client is on.
She says it helps when making a will to look past the fact that it can be an unpleasant thing and focus on the opportunity that comes with taking some time to review your assets.
“It [gives you] a handle on the assets that you have, how they’re currently titled, how you want to leave your legacy, how you want to deal with issues around transferring wealth to children and to charities,” says Ruddy.
Guarding your children
In the event that both partners die simultaneously, a will can offer guidance on who should take over guardianship of the children if they are still minors.
“That’s a really important thing and something people struggle with because it’s not an easy decision,” says Washington. “People don’t like thinking about it but it’s much better to have thought about it and planned for it rather than leave that as a major loose end.”
Of course wills can also determine the children’s inheritances.
“Children become adults legally at age 18 in the UK. Are you happy for your kids to be inheriting large amounts of money as young as 18 or would you rather delay it until they’re more mature?” asks Washington.
“Some wealthy families with complex assets would be concerned that 18 is too young, so again, if you’re making a will you have the option to plan and decide what the correct age is and set up a trust to manage that sort of inheritance and take account of the tax consequences of the different options.”
Building a trust
The most straightforward wills include simple gifts which take effect on the person’s death. It’s also possible to create on-going trusts by will, which can be used to manage longer-term gifts.
Your trustees can be entrusted with the funds until the children reach a certain age, Washington says. The trustee will also have powers to make payments along the way. For example, if the children need a capital sum to help with university fees or to buy their first home.
Flexibility is key here. It is important to choose the trustees wisely and ensure they have sufficient powers to respond to changing circumstances as the children grow up – rather than being too prescriptive because no one can predict the future.
Of course, trusts aren’t just limited to individual inheritances; they can also be used to carry on longer-term philanthropic goals.
“Some people want to set aside parts of their inheritance for their favourite causes – [This can be] a simple immediate cash gift to a charity, or a range of charities,” Washington says.
In some cases, for bigger and wealthier families, it can involve the endowing of a new charity or foundation to carry on the family name and its philanthropic work.
“Some of the great philanthropists throughout history have done that,” Washington adds.
It’s also worth noting wills can be used to record any specific requests for your funeral.
“Many people will have specific religious requirements for their funeral, different religious traditions, different rituals and timing,” Washington says. “My advice is always record these in the will, but also to let your nearest and dearest know about those requests as well.”
Washington notes sometimes those wishes can get overlooked in the immediate emotional upheaval of a bereavement and so it’s wise not to rely on the will alone as the sole record of these instructions.
Peace of mind
The peace of mind that comes with drafting a will shouldn’t be overlooked as well.
“People don’t like thinking about all the negative aspects of wills because, obviously, it’s an intrinsically macabre subject,” says Washington. “But you can do some good by supporting your favourite charities and make sure your family is well provided for and your affairs are looked after.”
Having a will can often be an important component of a complete and comprehensive estate plan, says Ruddy. While other planning techniques and structures are often used, a written will may ensure any inadvertent planning gaps will be addressed.
“I think it’s a good base, catch-all to the extent that if you don’t have it covered elsewhere, you can always fall back to the will to pick up anything that hasn’t been addressed in other planning documents,” says Ruddy.
But while enjoying the peace of mind, don’t forget to review your will every few years after significant life events.
The law intervenes to change an individual’s will in certain circumstances, says Washington, pointing out a will is automatically revoked when you get married.
“If you’re married, you’ve made a will but then gotten divorced, it’s not an automatic revocation,” he says.
In that case the will is interpreted as if your former spouse had been removed from the document.
“So peace of mind, yes, but this isn't a one-time task, you need to return to it from time to time.”