Wills are an important but often overlooked part of estate planning. Rob Martins highlights why clients should be encouraged to put a will in place.
Whether a client is in the accumulation phase of their retirement plan or post-retirement and taking income through an invested means, such as drawdown, being able to effectively manage the client's investments is essential for the advisory firm.
Nobody likes to think about, or plan for, their death. But if you have a client who owns all or part of a business, then it is essential that they make a will.
Without a will, a client's shares could be sold, the business could be broken up or it could fall apart without the correct day-to-day running in place.
This article looks at why a will is needed and the implications if your client does not make one.
Why make a will?
If you die without a will, all your property (both business and non-business assets) will be distributed under the laws of intestacy – and you and your loved ones will have no say as to where your assets end up.
Generally, anyone over 18 and of sound mind can make a will. But there are certain factors that must be followed in order to make it a legal document:
• The will must be signed by the person making it (the testator) and two witnesses
• The witnesses should not be beneficiaries under the will, nor married to, or be civil partners of the beneficiaries
• A will must also appoint an executor, who will carry out the instructions written in the will.
A will should include instructions in relation to money – including pensions, insurance policies and shareholdings – property and personal possessions together with details of executor(s) and beneficiaries.
If a valid will is not made, then anything the client owns will be distributed in accordance with the intestacy rules. Through this method, the first person entitled to receive property is the surviving spouse/civil partner if there is one.
However, they may not inherit the entire estate – that depends on the size of the estate and which blood relatives survive. Any assets held (in joint names, as joint tenants or tenants in common) will automatically be passed directly to the other joint owner(s) upon your death and therefore does not form part of your estate.
If the following circumstances apply to any of your clients, then the intestacy rules will be something you want to avoid:
• Client is living with someone but is not legally married or in a civil partnership, but they wish their partner to inherit some or all of the estate
• Your client is legally married or in a civil partnership and has children, and they wish for the spouse/civil partner to inherit all of the estate (please note that a claim could be made against the estate in this instance)
• There are no living relatives and the client wishes to leave the estate to friends or to a charity (the Crown may take your estate if you die leaving no will and no surviving relatives)
• The client is legally married or in a civil partnership and does not want the spouse/civil partner to inherit anything
• The client is legally married or in a civil partnership but has no children
• The client is legally married/in a civil partnership and has children from a previous relationship, and they wish to ensure their children receive something from the estate
• The client has dependant relatives – for example, children under 18 – elderly relatives or relatives with a disability who have special needs and they want to make sure they are looked after and provided for (if you make a will you can appoint guardians to look after children and set up trusts in your will to provide for dependants)
• The estate is large and may be liable for inheritance tax; and the client may wish to make arrangements for tax planning.
In other words, if you die without a will and do not leave behind a spouse or children, then your estate will be passed to your parents, then brothers and sisters (or their children, if deceased) then grandparents, then aunts and uncles of the whole blood, then aunts and uncles of half-blood, then the Crown.
If you leave behind a spouse or civil partner without children, then your spouse will receive the first £450,000 of your estate.
If there is more left over, your spouse will receive half of the remainder, and your parents will receive the other half. If you have no surviving parents, then your brothers or sisters will receive the half in equal amounts, and so on.
If you leave behind a spouse/civil partner and children, then your spouse will receive the first £250,000 and half of whatever is left over, with the children receiving the other half in equal amounts.
There are several ways to make a will, including writing one yourself on a plain piece of paper, but the most recommended way is to seek professional help.
The professionals can advise on inheritance tax and trusts, and ensure the will is valid. They may also store the original will at no additional cost.
Changing your will
There are only two ways to change a will:
• Making a new will thereby revoking the old one
• Making a codicil – A codicil is a supplement to a will and outlines changes you wish to make. This is executed and signed in the same way as a will. If, however, you have complicated changes to make, then writing a new will altogether is advised.
It is particularly advisable to seek professional help in writing a will if:
• A property is shared with someone who is not a spouse/civil partner
• The client wishes to make provisions for a dependant;
• There are several family members who might seek a claim on the will such as an ex-spouse or children from a previous relationship
• The clients' permanent home is not in the UK
• There is overseas property
• There is a business involved.
If you own part of, or the whole of, a business, then making a will is essential. Suppose you are a majority shareholder but die unexpectedly without a will – your shares, and therefore, majority ownership of the business would be subject to the intestacy rules (as above).
If you are not on speaking terms with the inheritors or they do not understand the affairs of the business, a number of things could go wrong. The shares could be sold, the business could be broken up or it could fall apart without the correct day-to-day running in place.
If shares are split between your spouse and children, this could make things very difficult as the children might not be old enough to make business decisions. A will, therefore, can set out who inherits a business or shares and can ensure the smooth running of a business after death.
When to make a will
It is common to think that a will is not needed if a client is young or does not have much of an estate. But the sooner one is made, the better. If they are married or have children or look after dependents, then it is important to make sure they are properly taken care of when the client is no longer around.
If there is no spouse or dependants, and a will is not made, then assets will be passed directly to parent(s) or siblings. The client may, however, wish that some possessions go to friends instead, for example.
If the client wishes to leave anything to charity, this will need to be stipulated in a will. Funeral arrangements can also be made. In other words, a will can cover almost everything.
So if a client wants to have any say in what happens to their possessions or even themselves after death, then a will is one of the most important documents they can ever have.
Rob Martins is company secretary - senior at Cheesmans Accountants.
More than half of people over the age of 55 see financial security as a top priority in retirement, yet a third allocate more time to buying a new car, research from Legal & General (L&G) has found.
Rebranded from OMW
Think tank report
Number of benefits
Alongside Barrett, Hopkins, Boston and Thorman on 17 October