Importance of planning your Will

By 17th October 2016 Estate Planning No Comments

So you have a Will, but how effective is the planning behind it?

The importance of having a valid Will cannot be emphasised enough. Understandably, when it comes to making a Will, we would all hope to cover every eventuality, to ensure that our assets, possessions and everything we have worked hard for, go to the exact people we wish.

Sometimes, however, it is simply not possible to cover every eventuality and trying to do so can prove to be detrimental. The next most important element, on top of having a valid Will, is that the document itself deals with the distribution of your estate sensibly and that there is careful planning behind the content in your Will. Where an estate is large, you should always take into account the issue of inheritance tax, as there may be instances where despite applying exemptions, there will still be a liability.

For example,

Mrs X has an estate worth £1.3 million. It consists of 2 properties, various bank accounts and various shares and investments.

Mrs X has a full nil rate band of £325,000 and there is a full transferable nil rate band available from her pre-deceased husband. After deducting the £650,000 nil rate band, this means that there is still £650,000 liable to inheritance tax at 40%, meaning that the inheritance tax bill will be roughly £260,000.

The problem is that Mrs X had wanted to ensure that all of her assets and possessions would go to specific people under her Will, and had therefore made specific gifts of both her properties and each of her bank accounts tax free, leaving only a few small shareholdings and some small investments to residue.

As there are not sufficient liquid assets available to settle the inheritance bill, as everything has been specifically gifted under the Will, assets such as property will have to be sold.

Unfortunately, this means that although a specified beneficiary will still receive the remainder of the proceeds from the property sale after settling the inheritance tax bill; ultimately they will not receive the property itself as Mrs X had intended in her Will.

Pecuniary and specific gifts in a Will always take precedent before the estate residue, however, by not effectively planning, such as in the above example, this can put assets at risk. The inheritance tax liability must be settled regardless of whether specific gifts are to be gifted tax free.

Having a Will is important, but the next most important thing is the planning that you put in behind it. Failure to effectively and properly plan how your estate is to be distributed when you die can be as detrimental as not having a Will at all.

 

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