Article posted: 14 March 2012
Wills and inheritance are only to be considered when you are old and rich, right?
Let me tell you a story about a friend whose brother died unexpectedly aged 33. James was single; lived alone, had only a small mortgage. He had a good job in IT, a buy to let investment and he sold gadgets on eBay as a side-line. He saved, he enjoyed travelling and a good standard of living.
One Christmas he decided to revisit Thailand with his girlfriend. Disaster struck. James was one of the victims of the 2004 Tsunami, he never returned.
For his family there was the agonising wait to see if he really had perished. Once this was established, they had to deal with his estate. James had not made a will. This meant that everything was frozen until probate was granted.
Then his estate had to be dealt with according to the rules of intestacy. This created a horrible ‘catch 22’ as banks, suppliers and lenders would not talk to the family until probate was granted, and probate could not be granted until full details of finances could be produced!
Furthermore, the total of James’ estate exceeded the inheritance tax ‘nil rate-band’ forcing the sale of his properties to meet the bill when the family would have preferred to take their time over the disposal of his assets.
Fortunately this went well; eventually James’ wealth was probably distributed as he would have wished. His fairly elderly father was retired, but clever and in good health so he was able to negotiate this minefield.
This could have gone better though, here’s how:
1. A will. This is not necessarily a costly exercise and even the simplest will takes away the problems that arise out of intestacy. A will writer will also make sure you think about what you really want and make the will as flexible as possible so that it does not go out of date too easily. Remember that marriage and divorce necessitate a new will.
2. Trusts can be used to ring-fence the proceeds of life assurance policies. If you have dependents then this is something to consider. If you have life assurance and no dependents it is still a way of directing proceeds efficiently.
3. An expression of wish is something you can complete for your pension provider. The pension trustees will usually follow your wishes and direct any benefits where requested.
4. Tax planning becomes more important as your estate grows and you have beneficiaries who you want to help. Being landed with large illiquid assets such as a house, and then having to pay a large tax bill can be tricky. There are many and various ways you can prevent this unhappy state of affairs including ‘gifts’ which can be protected by insurance in trust.
Whatever your wishes, advice is invaluable. So, do you want to leave a legacy or a nightmare when you depart?
Chris Taylor, Independent Financial Adviser and Financial Planner Taylor & Taylor Financial Services Ltd 01204 365165 www.taylortaylor.co.uk