Where there's a will there's a way
Once there was an old lady - let's call her Jane - who died at the age of 84. She left an estate worth £200,000, including her home, a bungalow. She was an only child, had never married, had no children, and her parents were long gone.
So, who did she leave her money to? No-one knows for sure because, like so many of us, she never made a will. After she died, some yellowing will forms were discovered in a drawer in her desk. She had perhaps meant to make one, but never got around to it.
It took two years and a large chunk of her estate to track down her relatives. Jane, it turned out, once had plenty of aunts and uncles - nine on one side and four on the other, the eldest of whom had been born in 1850.
The tragedy was that when she was a child, her parents had taken in an orphan and raised him as their son - to all intents and purposes he was Jane's brother. But he was never formally adopted, so received nothing when she died.
This is a true story, and one that serves to show that if you do not make a will there is a real danger that your assets will not go to the people you would wish to benefit.
Make a will...or the taxman benefits
Worse, if the value of your estate exceeds the inheritance tax allowance (IHT) and you die without a will that includes provision to mitigate this, 40% of everything over and above that goes straight to the taxman. The IHT allowance now stands at £312,000 per person for the 2008-9 tax year, but rising to £624,000 for married couples (including widows and widowers) and civil partnerships, and £350,000 for individuals by 2010.
Despite many compelling reasons to make a will, a staggering 70% of people still die without leaving one. The main reasons are a dislike of addressing our own mortality and the fact that we can always put it off for another day. "Men in particular have a fear that if they make a will it will somehow tempt fate," says Julie Francis, founder of solicitors Francis & Co, in Ewhurst, Surrey.
Others think that everything will go to their spouse anyway, so don't see the point. However, the rules of intestacy - those which apply if you haven't got a will - are not that straightforward. If you die intestate, only the first £125,000 of your estate plus furniture and other possessions goes to your spouse. The rest is divided into two parts. Half is held in trust for children until they are 18, while income from the second half goes to the spouse for their lifetime, after which it goes to the children.
If you die intestate and do not have children, the first £200,000 plus furniture and other belongings goes to your spouse. Half of the rest also goes to your spouse, with the other half going to your parents. But there is usually little point in leaving assets to parents, who will later leave it to their other children, as this means paying two lots of inheritance tax.
If your parents are dead, this portion of your assets is divided between your siblings, or if they are dead their children. If there are no siblings, then it goes to other relatives including grandparents, uncles and aunts, or if they are dead their children, and so on.
If you die intestate and have no surviving spouse, your assets are distributed in the following order of priority: Your children; your parents; your brothers and sisters, or if they are dead their children; your half brothers and half sisters, or if they are dead, their children; your grandparents; your uncles and aunts, or if they are dead, their children; any half brothers and sisters of your parents, or if they are dead, their children; and, finally, the Crown, the Duchy of Lancaster and the Duchy of Cornwall, all three of whom are most certainly not in need of your assets.
Bear in mind, though, that from 1 February 2008, new intestate legislation comes into force, which will see the amount of money increase to £250,000 (for couples with children) or £450,000.
'Common law': Common mistake
It's important to note that partners to whom you are not married do not feature on the above list at all.
"Cohabiting has become the norm," says Julie Francis. "If a partner dies intestate, the other one has to make a claim against the estate through the courts or they could lose the house. This problem is building up because people believe in the concept of the 'common law' spouse, although there is actually no such thing." The only way to avoid these problems is to make a will.
Another benefit of writing a will for parents is that it gives you the opportunity to appoint a guardian for your children in the unfortunate event that both you and your other half die.
The vast majority of people will be better off going to see a solicitor when it comes to making a will. Using a will writing service or a DIY will kit is cheaper, but homemade wills can turn into the stuff of nightmares. A solicitor will make very sure that there are no errors that could invalidate a will.
Francis says: "Very often the witnessing is incorrect - only one witness is used or beneficiaries act as witnesses. Sometimes the pages are damaged or badly creased. All these things can invalidate the will."
Seek professional help
A solicitor can also help with the more complex issues of making a will, such as providing for children from a previous relationship or mitigating inheritance tax, something the layman cannot possibly know enough about to get right.
Solicitors can also help with trust issues. For example, putting money into trust for children or grandchildren.
A solicitor will also help reduce the likelihood of your will being challenged. Many people do not realise that spouses, former spouses, children and other dependents can make a claim against your estate within six months of probate if you leave them out of your will. Your solicitor will go through your circumstances with you and advise you.
A will doesn't have to cost a fortune. Clarkson, Wright & Jakes charges £150 plus VAT for a simple will for a single person. "Mirror" wills for a couple will cost between £200 and £250 plus VAT. If you want inheritance tax advice, a pair of wills will set you back around £600 plus VAT. Francis & Co charges £370 plus VAT for a pair of mirror wills no matter how complicated. Choose a solicitor specialising in will-making and probate - they will probably be a member of the Society of Trust and Estate Practitioners.
Once you have made your will, you should review it from time-to-time, particularly when your circumstances change. Marriage - for example - always revokes previous wills. "I would say you should review your will every four to five years," says Wilson. "One of my clients does it every World Cup, which is about right."
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
The process of applying for the right to deal with a deceased person’s estate. If a person has left a will, they will usually have appointed a will executor. The executor then has to apply for a ‘grant of probate’ from the probate registry, which is a legal document that confirms the executor has the authority to deal with the affairs of the deceased. If a person dies without making a will, intestacy law applies (see intestate).
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
If you die without making a will, your estate will be divided up and distributed according to a set of complicated procedures laid down by the law as set out in the Administration of Estates Act 1925. The more complicated your life, the more complicated the intestacy laws after your death. Given that 60% of registered deaths last year were intestate, according to Title Research, the only way to ensure your estate is divided according to your wishes is to make a will.