Caroline’s family have recently announced that some of her £827,000.00 estate, will be donated to charity. Caroline’s mother, Christine, said: ‘we will use the money wisely to help good causes that Caroline was passionate about’.
As Caroline had not made a Will before her death, she is deemed to die intestate which means that her estate will pass according to the Intestacy Rules which are set out in the law. These rules can be arbitrary. Under the rules, we understand that Caroline’s estate will pass to her parents equally. Whilst Christine has said that they will use the money to benefit charity, there is no obligation for them to do so.
Why is having an up to date Will important?
This unfortunate situation demonstrates just how important it is to ensure that your affairs are in order and that you have an up to date Will setting out your wishes. The intestacy rules are fixed and, in most cases, are unlikely to meet the deceased’s wishes. Caroline may well have wished to benefit her parents, but she also had a partner and a twin sister who will receive nothing. This may, or may not have been, what she really would have wanted. She may also have wanted to benefit the charities directly and take advantage of inheritance tax relief which we come onto below.
The fact that certain family members are excluded under the intestacy rules can also cause problems. Just as is the case with a Will, certain people can make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 if reasonable financial provision has not been made for them. This is something that you can discuss with your legal adviser when making a Will.
The Estate and Inheritance Tax
Caroline’s estate is estimated to be worth £2 million before debts and inheritance tax liability. Once this has been taken into consideration, it dramatically reduces to just over £827,000.00.
The standard Inheritance Tax rate is 40% but this is subject to potential reliefs and exemptions which will depend on the types of assets owned and who they pass to. Inheritance tax is payable within six months after death and before any application for a grant of probate or letters of administration.
With Caroline’s estate, there appears to be a large Inheritance Tax liability. Caroline’s mother has indicated that a proportion of the estate will be paid to charities. Charities are exempt beneficiaries for the purposes of Inheritance Tax and so if Caroline had prepared a Will to this effect then any gifts left to charity, would be exempt, and would reduce the Inheritance Tax liability.
However, all is not lost! Inheritance Tax savings could still be made. It is possible to vary the distributions to dilute the amount of Inheritance Tax payable. It may be that Caroline’s parents choose to alter their inheritance to pass some of the funds to charitable causes. This can be done using a Deed of Variation. This must be done within two years of death. This is a complicated area of law and so it is important to seek specialist advice.
So, what lessons can we learn?
- Ensure you have an up to date Will setting out how you would like your assets to be distributed upon your death.
- If you do not have a Will and die, you will be deemed to die intestate and, your estate will be distributed, in accordance with the intestacy rules. These can be arbitrary, and you may not end up benefiting who you would like.
- It is important to consider potential inheritance tax liability as part of your estate planning so that you can plan for the future.
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If you would like to speak to a member of the team to discuss updating or amending your Will, please contact our dedicated Wills, Trusts and Probate team by calling 01379 652141 or by emailing email@example.com
If you feel you have been unfairly been left out of a loved ones Will and would like to discuss your options, please contact our Contested Probate Solicitors by emailing firstname.lastname@example.org or calling 01503 598000.
*The information provided in this article is designed to provide useful information on the subject, not to provide specific legal advice.