In spite of the best endeavours of the legal profession, as well as frequent blandishments in the press, a surprising proportion of people still die without having made a will.
Some people, no doubt, think that provided there is no liability for Inheritance Tax (IHT) there is no need to leave a will, on the assumption that everything will pass to their spouse or civil partner.
This is not the case, however, when the personal assets are substantial. The spouse or civil partner is entitled to the ‘chattels’ (the things that are moveable, such as personal effects, cars and so on) and receives the first £125,000 of the estate. In addition, they receive one half of the balance of the estate, in trust, for life with the other half passing to the children. If the children are under eighteen years old, their share is held in trust until they are eighteen; if they are eighteen or older it is due to them absolutely.
This can create significant problems. Consider what would happen if a husband were to die intestate leaving an estate with an agreed value for IHT of £200,000 and £20,000 worth of chattels. There would be no IHT on the estate, but the widow would receive only the chattels, plus £125,000 plus a half of the balance of £75,000. This would leave £37,500 to be divided amongst the children. Suppose, however, the £200,000 were represented by £10,000 in cash with the balance being the family home, owned in the late husband’s name. To stay in the family home, the widow may need to seek a mortgage – unhappy news indeed to break to a bereaved spouse. The alternative may be to sell the family home.
Different rules apply if there are no children. Also, when a couple live together but are not married or in a civil partnership, the surviving partner has few rights. In Scotland, there are different rules again and the provisions for spouses are slightly more generous than in England.
Largely due to the rapid price increases of houses over the last decade, proposals have been made to increase the above limits applying to intestate estates. However, even if these proposals go through, it is still sensible to make a will as this is the only way that any specific bequests can be made certain and that Inheritance Tax planning can best be carried out.
The laws relating to intestate estates outside the UK can be very different indeed and some countries stipulate that assets must be distributed in a certain way. If you own property abroad, it is very important to consider the inheritance (and Inheritance Tax) implications.