From the Sunday Herald, 3 April 2005.
You can’t take it with you…
And you certainly don’t want the government to get your money when you die. Nic Cicutti looks at the importance of making and updating a will.
Almost three quarters of adults in Scotland have no will or, if they have one, it has not been reviewed after a change in their life circumstances, such as divorce or a new child being born, according to a new survey this week.
On their death, their entire estate – such as the family home, jewellery, even cash – could be shared by people whom they would never willingly leave a slice of their assets to. Potentially unwanted inheritors include former spouses, distant relatives and even, at times, the state.
The poll, by Edinburgh-based insurer Standard Life, shines a spotlight on one of the least-understood areas of financial planning.
In recent years, much attention has focused on the need to make a will in order to avoid inheritance tax, or IHT. This is levied at 40% on all assets worth over £275,000 after the estate has been settled and outstanding debts paid.
Soaring property prices in recent years mean increasing numbers of families are likely to come under the IHT net at some future stage. However, many people still believe that even this eventuality does not affect them.
Standard Life’s survey found that up to 24% of people see a will as irrelevant to their personal circumstances, while 6% feel it is not necessary because they do not have substantial assets to dispose of after their death.
The findings chime with a separate survey by Barclays in March: more than half those polled had no idea what the IHT limit was – and a further quarter who claimed they knew actually gave the wrong answer.
Steven Ingledew, director of Barclays Financial Planning, says: “Unfortunately, the term inheritance tax still suffers from the misleading image that it is a minority tax on the rich and as such many people remain unaware it could impact on them and their families.”
But even in cases where a will had previously been drawn up at some stage, Standard Life found many individuals had since bought a home, taken out new life insurance, got married or split up from their partner. In each of these cases, not reviewing a will could have dramatic consequences on who receives any money in the event of a person’s death.
Mick James, a manager at Standard Life’s protection division, gives some examples: “Many people may not realise that their life assurance policies may form part of their estate on their death. Without a will, they could find other unexpected people benefit from their financial planning at the expense of their loved ones.
“Few people are aware that if they die intestate, and have no surviving family members, the Crown will receive the whole of their estate.”
The lack of understanding of who might inherit assets after one’s death is common, according to Norman Geddes, of Frazer Coogans Solicitors, in Ayr: “We often get people who simply assume that in the event of their death the surviving partner is automatically the inheritor. In fact, it is not always that simple.”
Geddes says: “If it’s a standard husband and wife situation, with children, there’s not a major problem because the law will make provision for the immediate family. The real difference arrives where you have an unmarried couple who may have lived together for many years, as is increasingly common. Here, the estate does not automatically revert to the surviving partner and they may end up with nothing.”
Other problem areas include previously divorced couples, who may have children from previous marriages. “Take a man with two children from a former marriage, who then has a child with a new partner but does not marry a second time.
“Not only will the money not go to the partner, it goes down to the children, including the two who may be resident with the former wife.” In effect, the divorced spouse gets control of a sizeable part of the estate even if that was not deceased’s original intention.
In Scotland, assets are distinguished as being either “heritable”, which includes land or buildings, or “moveable”, for example money, or shares. If you make a will, the heritable part of the estate can be left to whomever you want.
But the spouse and children are entitled to a fixed share of the estate known as “legal rights”. If there is a will, the surviving spouse is entitled to one half of the so-called “movable estate” if there are no children and one-third if there are children.
The children are entitled to one half of the movable estate if there is no surviving spouse and one third if there is. Moreover, if you marry, a prior will remains effective. However, if a child is subsequently born and no provision has been made for him or her, the will is presumed to be revoked completely if the child concerned brings a claim.
Norman Geddes says writing a will is very simple: “If they are reasonably straightforward it does not cost very much: for a husband and wife and two kids not more than £50 plus VAT. If you are buying a property at the same time, some solicitors will throw in a will for free if you make a donation to charity.
“For more complex cases, it might come to £200, or a few hundred pounds if there is an element of tax planning.”