The Main Problems with Having a Basic Will
This blog explains all the problems involved in having a basic Will. If done properly, and you choose the right people, then the correct people will get the correct assets. However, there is no protection for the assets and this poses a big problem. If you pass the money directly through your Will from your estate to your beneficiaries, then they will have full ownership. This is fine for people with assets under £100,000. However, if you own over £100,000 (and particularly for people with assets over £1.5 million) then only having a basic Will is not a sensible strategy.
Problems with a Basic Will
There are six main problems associated with a basic Will:
- Divorce – you lose potentially half of your money.
- Bankruptcy – Your money could go to direct creditors if one of your children or your spouse becomes bankrupt.
- Remarriage – This can disinherit your grandchildren if your child’s spouse remarries.
- Children/grandchildren inherit too early – the premature death of your children can leave large amounts to 18-year-old grandchildren, which can be dangerous.
- 64% tax – The same money can be taxed twice if going to a grandchild.
How can you avoid these problems?
To avoid these problems, instead of setting up a basic Will, you should set up a Will with an embedded Lifetime Trust. The number of childrenyou have determines the number of trusts you need (for tax and flexibility purposes). This means that each child should have their own Trust to manage independently.
It is important that you don’t just adjust old Wills. You should also use the same set of lawyers to set up your Trusts and provide legal advice to reduce any confusion. Don't get hung up on saving, as this isn't worthwhile in the long run.
When you die, all of your assets get given to the Trusts that you have set up. Assets are then loaned out to the beneficiaries by the trustees for added protection. A separate agreement is drawn up that classes the money as an interest-free loan, repayable on demand for the rest of their lives. It is only repayable should the trustees demand it – for example in the event of a divorce. There is also a possible tax saving for some people with large estates where their house value exceeds £650,000.
Basic Wills only direct the assets to the people that you want them to go to. If they are made correctly, with the proper clauses, then they work. However, if your assets are likely to exceed £100,000, then you should consider Wills with embedded Trusts. Even if there is no inheritance tax saving, they still provide protection.
Like all matters related to Estate Planning and inheritance tax, experienced advice is essential.
Call us if you require any help.