New Reforms Highlight the Importance of Wills

Children with wealthy parents who die without making a will could lose out under proposed changes to inheritance laws contained in recent draft legislation. If there are no children, then the spouse could take the entire estate.

Other relatives, such as siblings, parents and cousins would also no longer automatically inherit under the government’s plans to reform intestacy laws. There are new proposals too which would give unmarried partners the right to inherit for the first time, potentially after a two year relationship.

As only around three in ten people make a will, most people will welcome the idea of simplifying the current inheritance laws, with the law recognising the position of a spouse or long-term unmarried partner. However, with more than four out of ten marriages ending in divorce, the new rules may not reflect the wishes of people married for the second or third time, perhaps with children from more than one relationship. With a second marriage, whilst a couple generally wish to provide financially for each other, they may also wish to include their children from a first marriage as beneficiaries of their estate.

These reforms highlight the importance of making a will to ensure your assets pass to your chosen beneficiaries on death. As the cornerstone of any estate planning, a will can also help protect assets by setting up a trust as well as forming part of an inheritance tax mitigation strategy and facilitate charitable giving. Estate planning requires a consistent approach between your financial planner and solicitor to ensure all these areas are covered. In our firm, membership of SIFA (Solicitors for Impartial Financial Advice) provides a clear framework for this teamwork.

Inheritance tax planning is the key consideration besides ensuring wealth passes to the correct beneficiaries. Since outright lifetime gifts to children are often not desirable or practical, many people seek alternative ways to minimise inheritance tax. This may include putting assets in trust for the ultimate benefit of children, whilst reserving some access to either capital or income. In this way, a parent can continue to manage the money, make decisions about when and who benefits, as well as ensuring it remains beyond the grasp of a child’s ex-spouse if a marriage fails or safe from a child’s creditor.

For most types of Inheritance tax planning, including trusts, it takes seven years to achieve the full tax saving. Sometimes, it may be impractical to plan over seven years or a client may prefer to undertake Inheritance tax planning without using a trust. Accordingly, it is possible to achieve Inheritance tax savings over just two years by taking advantage of Business Property Relief or Agricultural Property Relief. Both these reliefs require expert advice, but can result in significant tax savings as part of an estate planning strategy.

[Matthew Clark, Western Morning News, 25 April 2013]

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