March is Free Wills month, an initiative backed by charities that offer free will services to those aged over 55. In light of COVID-19 creating a spike in the number of people writing wills, Emma Watson, Head of Financial Planning at Rathbone Investment Management has shared the below tips on what to consider when it comes to sorting your financial affairs and writing your will.
The Covid-19 pandemic has forced many people to come to terms with their own mortality, which has created a spike in the number of people writing wills. In fact, Which? the research found the number of people making wills during the first lockdown surged with a 682% increase in April compared to the previous year.
Writing a will, though it may seem uncomfortable to do so, is one of the most important things you can do for yourself and your family. Not only does it mean keeping your financial affairs in order and having some sort of control over your finances, but it can also legally protect and support loved ones.
Your Will will also need updating — particularly after life events like divorces, weddings, and births of children and grandchildren. It’s important to review your will regularly to make sure that it matches your current wishes. Especially when looking to financially gift to loved ones, thinking ahead can help you and your family save money by reducing their inheritance tax bill.
Research from Rathbone Investment Management has found that:
- 44% of investors have made a will in order to reduce their inheritance tax bill
- Over half (55%) of parents plan to financially gift to their children and/or grandchildren in the coming years
- Meanwhile, 28% of individuals have made a financial gift in order to reduce their inheritance bill
Emma Watson, Head of Financial Planning at Rathbone Investment Management comments: “It’s hard to imagine let alone plan for a future that you’re not in but spending time now considering what you would want for your family can save a great deal of heartache for them in the future. Of course, this sort of preparation does nothing to protect you against the worst happening but it can make sure that if disaster strikes your family, they don’t have legal and financial troubles at a time when they will be least able to deal with them.
“Below I’ve shared some tips on what to consider when it comes to sorting your financial affairs and writing your will.”
Think of your dependants
If you have children or step-children, writing a will is one of the most important things you can do to protect them financially and make sure they’re cared for. It’s important not only to consider how your estate is divided up but also who you would entrust to care for your children (under the age of 18) if you and your partner were to pass away suddenly. It’s a huge decision to make, so make sure you speak to those who you’d want to appoint as guardians first, but if this isn’t in a legally binding document then the decision could be left to the courts, which may not reflect your wishes.
Protect your partner
Fewer people are getting married, with ONS finding that cohabiting couple families are the fastest-growing family type. Sadly, the law hasn’t caught up with this fact, meaning that unmarried couples are largely unprotected if one should die. Unlike for married couples or those in a civil partnership, there is no legal right to property not jointly owned. If you have children together then this could mean that your partner risks not being able to stay in the family home or have enough money to bring up your children. To make sure they are protected, it’s crucial that you have a will in place expressing your wishes regarding children and assets.
Put assets in a trust
Putting assets, such as cash, property, or investments, into a trust can mean they’re no longer part of your estate for inheritance tax purposes. However, the rules around trusts are complicated and have changed over the years; for example, you could be taxed as you pay in or take money out, so make sure to seek advice if you’re considering this option.
Gift to charity
Anything left to charity is free of inheritance tax, so it’s worth considering as a way to reducing your bill, while also benefiting a good cause. Additionally, if 10% of your net estate is left to charity the rate of inheritance tax applicable on death is reduced to 36% from 40%, meaning the taxman would take a smaller cut of your estate.
Keep below the inheritance tax threshold
The nil-rate band, which is not technically an exemption, means that the first £325,000 of chargeable transfers are taxed at nil per cent, so are effectively tax-free. Anything over the £325,000 limit can incur inheritance tax, which is 40%. However, if you leave everything over this limit to your spouse, civil partner, or a charity, then you can save on any potential IHT bill.