Making a will is just one of those many jobs you know you must do but just never get round to. In this article we attempt to explain the importance of making a will and the issues you need to have regard to.
A Will allows you to dispose of all assets owned personally on the date of your death, and helps avoid the often unfortunate consequences of intestacy. Intestacy is the situation where you die without having made a will and your estate is distributed in accordance with the statutory intestacy rules which may not reflect your wishes.
Some Wills are deliberately drafted to dispose of limited assets – e.g. "all my assets in the UK but not my property in Spain". A Will has no effect prior to death and can be changed at any time as long as you are mentally capable. A new Will normally revokes an earlier one. Marriage or civil partnership automatically revokes a Will, but divorce only revokes clauses which benefited your former spouse or partner.
A Will can also play an important part in avoiding Inheritance tax (IHT), as well as controlling your assets by creating trusts for family members.
IHT is charged on assets transferred during lifetime or on death by Will or intestacy. As a general rule the first £325,000 (2010/11) of a person’s estate is subject to IHT at 0% and the balance at 40%. The “transferable nil rate band” introduced in 2007 allows married couples or civil partners to avoid IHT on assets up to £650,000 (2010/11) but over that level complex planning is needed to mitigate IHT, and to take maximum advantage of the reliefs for agricultural or business assets.
As a general rule real property (houses and land) will be taxed, and succession to it will often follow, the law of the country in which it is located. It is usual to make separate Wills in non-UK countries where land is owned, to simplify probate and make it easier to comply with the "forced heirship" rules found in many countries which can override a UK Will.
Moveable assets such as furniture, works of art, cash and jewellery may be taxed on the basis of physical location. However, on death without a Will, the distribution of them is more likely to be in accordance with the succession laws of the country of domicile than the country in which they are located. IHT will apply to moveables in the UK, but distribution may follow the succession laws of the home state.
Non-physical assets such as bank balances, securities and insurance or pension funds tend to be taxed according to the registered office of the business which holds or issued them. That is not always easy to ascertain. For example, a security purchased in the UK may be administered in Dublin but comprise shares in a BVI company. Holding non-UK registered shares may give a satisfactory IHT result, but cause access problems for your executors.
Here at Stone King we make a careful initial analysis of the ownership and location of family assets, the way they are held, and the IHT and succession rules which may apply when an unexpected death occurs. We can advise on conflict of laws, as well as disputes over the validity of Wills, protecting assets from divorce, and minimising tax. We will help you make well informed decisions about asset protection, and make appropriate Wills or set up Trusts.
Matthew Braithwaite, Associate
Stone King LLP
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