Will case study

Greg and Jane have lived together for 24 years and aren’t married.  Having a ‘wedding day’ was never a priority for them and they believe that they are effectively married, having three children, a mortgage and 24 years of living together.

They are both 45 and both have successful careers, which keep them busy. They plan to retire when they reach 65.

Their combined current estate value is approximately £600,000, comprising their equity in their home and savings and they don’t think they need to worry about Inheritance Tax.  They own their home on a ‘joint tenancy’ basis.

They also both have life insurance policies that pay out considerable sums and they tend to forget about those life assurance benefit values when they think about their net wealth.

Both Greg and Jane want to make sure that their wealth passes to their children equally but they are concerned that, if they die unexpectedly, their children are still too young to receive their inheritance outright.  What should they do?

We think that Greg and Jane need to think about these 3 things:

1. Making a comprehensive retirement and inheritance tax plan

A retirement plan will help them understand how to maintain their desired standard of living through their retirement.

This plan would also give them a good understanding of their inheritance tax position.

Though their current estate value appears to be comfortably within their combined allowance for IHT, their life policies may significantly affect this position.  Also, we need to consider how their current assets are divided between them.  In both cases, we can help them to alleviate any liability to Inheritance Tax.  Visit our page here (http://parsonagefinancial.co.uk/what-we-do/protecting-you-and-yours/trusts-and-life-assurance/ to see how a trust can help with their life assurance policies.

2 Making a Will

We explain to Greg and Jane that they need a Will, even though they live together.

If one of them dies without having made a Will, there are predetermined and inflexible legal rules to divide up their wealth.  The rules are called Intestacy rules.  The survivor will get the house, but won’t automatically get everything else.

Our properly prepared Wills avoid the complications of the Intestacy Rules.  Neither Greg nor Jane want to leave the survivor with the task of going through the intestacy rules at an awful time.  Nor do they want to leave the survivor with the big shock that the survivor doesn’t inherit everything.

The Will also gives them the chance to set out what is important and how the family should be cared for and to put in place a trust to protect the children until they can make great decisions with their inheritance.

3 Making a Lasting Power of Attorney

Greg and Jane need to consider what will happen should one of them lose their capacity to manage their own personal and financial affairs.  Unfortunately, this is a lot more likely to happen to them, than one of them dying.

If one of them loses capacity, the other cannot step in to help them manage by withdrawing money or signing for them.  No-one has automatic authority to look after an incapacitated person’s affairs.

Without a properly prepared Lasting Power of Attorney, the authority to control a person’s property and financial affairs can only be granted by the Court of Protection.  An application to the Court often takes in excess of 10 months and can cost more than 5 times the cost of a Lasting Power of Attorney.

We explain to Greg and Jane what will happen if they do not take any action.  If one of them dies without a Will, the rules of intestacy mean that

  • The surviving partner has no right to inherit, beyond the jointly owned house because they aren’t married
  • Their estate would be shared equally between the children,
  • The children could have a substantial tax bill which would substantially erode their inheritance
  • They may be forced to sell the family home to cover costs
  • The deceased’s brothers, sisters, parents, even aunties, uncles and cousins could have a stronger claim on the estate than the surviving partner.

If either Greg or Jane become unable to manage their own affairs

  • With no right to manage each other’s affairs, there would be a lengthy and costly appeal to the courts.  Other family members might also step in and feel they should control the affairs instead.

The good news is that Greg and Jane can easily meet their objectives with Will planning and financial planning.  Here you see what we changed, with planning:

Now, if either Greg or Jane dies or they both die

  • Their children avoid a substantial tax bill, so their family home is protected
  • Guardians will have been appointed for their children
  • The distribution of their estate will be clear
  • Executors – of Greg and Jane’s choosing will manage the distribution of the estate

If either Greg or Jane become unable to manage their affairs

  • The lasting power of attorney clarifies the position, allowing the other to take up the responsibility

By undertaking a holistic financial review Greg and Jane can

  • Make the most of their earnings
  • Ensure they can maintain a reasonable standard of living in retirement
  • Make sure their children are protected from inheritance tax