The importance of wills
The simple process that can save loved ones a fortune
If motivation to write an article is needed, meeting people that have made huge, but easily avoidable payments to HMRC provides it.
The subject of wills can be awkward personally as imagining life after our death is difficult for some. Within the financial services industry, it is often considered ‘boring’ and bypassed in pursuit of bigger-ticket items. Statistics show that one in two adults in the UK does not have a will so it could be fair to assume the numbers for British expatriates are similar.
Crucially, wills are not costly for individuals (depending on the complexity of circumstances). If they are it is because people generally don’t believe there will be complexities, and are often surprised when the response to their request for ‘just a basic will’, is much less straightforward than they had expected. Ultimately, whatever the cost is, it us usually relative to wealth and well worth it.
There are only a few things more cost-effective than a will, or more comforting to know it’s been taken care of.
So why doesn't everybody that needs one, have one? Apart from not being perceived as urgent or something to do tomorrow, is it because wills are seldom lucrative enough, and therefore not important enough for some advisers to take responsibility for?
People tend to know what they are worth financially, but a lot less are 100% certain what their tax liabilities would be in case of their untimely demise. This can easily result in the biggest-ticket possible becoming payable by loved ones, and a disappointing legacy left behind.
Tax law is complex and sometimes unfathomable, and certainly unrelenting if we get it wrong. As your estate will most likely encompass everything you own, it will also include the most expensive things such as properties, investments, personal collections. It is therefore often easy for the wealthy to get into the millions meaning potentially life-changing tax bills and possible heartbreak for the beneficiaries.
If you die without a will in place, properties you ownare distributed by court-appointed administrators in accordance with statutory rules for 'intestate succession.' They will be apportioned among your surviving spouse, children, and very likely among other relatives under the law that your jurisdiction, or the jurisdiction where a property is situated specifies. You won’t get the opportunity to give property to non-relatives, or exclude any relatives. In addition, if you have no loved ones your property will go to the state instead of friends, acquaintances or charities of your choice.
That’s just the financial side and the tip of the iceberg. You can leave specific items to specific people or exclude them. Appoint Guardians to ensure your children are cared for if no parental rights remain after your death. Property owners should clarify joint tenancies or tenancies in common? If you're worried about becoming vulnerable during old age or illness - Lasting Power of Attorney or Last Will? The options can be mind boggling.
Seemingly straight forward historical cases have revealed requirements that would have never emerged had a wills expert not been introduced. Subsequently, pitfalls were anticipated meaning immense inconvenience and loss of capital avoided. As one client explained, “watching HMRC take years of hard work from the [deceased’s] estate that was ear-marked for us would have be as painful as the tax bill itself. Not to mention the stress, time and expense of tribunals and other associated legal costs.”
Does this all seems too obvious? If so, a couple of examples follow that show that anyone can get caught out.
1. Comedian Rik Mayall failed to have a valid will in place when he died unexpectedly in June 2014 raising inheritance tax (IHT) issues on his £1.2m estate. When a married parent dies without a will, a portion of their assets goes directly to their children, but if the gift exceeds the ‘nil rate band’ (currently £325,000 per person) 40% IHT will apply.
Rules for ‘intestacy’ changed in October 2014 so dying ‘intestate’ with children before then, his wife would receive £250,000 of his assets with the remaining assets being equally divided between his wife and children. Of those remaining assets, she has only a life interest in the 50% after £250,000 meaning that she would have had to keep that amount in her estate until she died to pass on to the children. Furthermore, it would have been taxed for IHT again on her estate if above the prevailing nil rate band. Therefore, his children's share was worth more than £325,000 and taxable on his death.
Had a will been written stating all funds went to his wife, no tax would be payable on his death. His wife could have then combined Rik’s ‘nil rate band’ with hers creating a total allowance, including the transferable amount of £650,000. Future IHT bills on her death could then have been navigated around by ‘gifting’ assets to the children whilst it being likely she would survive another seven years.
2. In a more recent case, JP Morgan are currently contesting the jury’s verdict to award $8 billion to the family of Max Hopper, a former American Airlines executive and pioneer of a reservation system for the airline who died in 2010 without a will in place. Surprisingly, one might think that as owner of a $19 million estate, he might have taken time to make a will, but sadly Mr. Hopper died unexpectedly.
As none of us (usually) know the date we are going to die, we don't have time to wait to get our affairs in order so it’s imperative to get this crucial, but cost-effective part of lives addressed professionally.
It takes very little time to arrange, it doesn’t cost much and if it does, your loved ones will enjoy the benefits in the future. The peace of mind it brings provides the most value, of course.
If you would like to know more about wills and just how easy it can be to arrange one, please get in touch and we’ll be happy to help.
Paradoxically, the family could actually benefit enormously from Mr. Hopper dying intestate, but only after a long and painful 7 year battle with one of the world’s largest investment banks. While $8 billion over 7 years represents a good hourly rate for the Hopper family, the case could have very easily gone against them and had it done so, we expect JP Morgan’s legal team does not come cheap.