Why Should You Make a Will?
A majority of British adults still have not written a will. This is a worrying statistic, as a will is one of the most vital documents that you will write (or have written) during your life, and will determine, to a great extent, how your affairs pan out after death.
Asset DistributionTo begin with, writing a will has a large number of practical implications that will apply to everybody. Perhaps the most fundamental of these is that it grants you the ability to stipulate exactly how your assets should be distributed following your death. This is known as the Distribution Of The Estate. As a result of this ability, you can ensure that you make sufficient financial provision for any dependants you might have.
This is, of course, particularly important if you are the main breadwinner in your household. The ability to guide the process of asset distribution is also vital if you wish to leave gifts to any charities, or similar organisations. These are known as 'legacies'’, and must be detailed in your will if they are to have any legal basis.
Another vitally important reason for making a will applies only to those who have children. If you are a parent of younger children, then you will almost certainly wish to be able to decide who should be entrusted with the care of those children if you (and your spouse, if applicable) should die. A will allows you to nominate such a guardian.
Taxation of a WillFrom a taxation point of view, writing a will is the first step towards minimising your liabilities. Every inheritance guide begins by asking the reader whether they have made a will, and this is not without good reason. In the first instance, the planning that will go into the will is likely to give you a better idea of your total assets. It is recommended that you begin by making a table of all of your taxable assets (see our article Making Your Own Will in this section), including their individual values. To start with, this will show you whether your estate will exceed the Nil-Rate Band, and will thus be liable to Inheritance Tax.
If this is the case, then a will allows you to construct various legal and financial devices for minimising this liability. Of course, the first of these is simply the act of passing on your assets to a spouse or civil partner, as any transfers between these two parties are exempt. However, this is often not the most tax efficient method as it only makes use of the first deceased’s non-taxable allowance.
Instead, it is generally advisable to look into establishing a trust. This means that, on your death, any assets placed in trust will pass in title to your children. However, the terms of the trust will stipulate that the benefit derived from these assets should be available to your spouse until their death; for example, if the assets included the family home, then your spouse would still be permitted to live in it. This means that you will be reducing the size of your own estate (to below the Nil-Rate Band, if possible), and thus mitigating your tax liabilities.
Trusts are generally established in a will, and then enacted on the death of the testator. As can be seen, therefore, the simple act of writing a will can provide enormous financial and practical benefits.