Putting your affairs in order during your lifetime can give you and your loved ones peace of mind and help ensure your wishes are carried out after you die, according to MoneyWeek.
Writing a will allows you to declare officially what should happen after you die, including how money, property and belongings should be divided, who should inherit parts of your estate and whether any money should go to charity. Without a will, possessions could be split in ways you may not have wanted and the inheritance process could be more difficult. A will can also detail who should look after children under 18, who should be the executor and other wishes. While a solicitor is not required, professional advice is recommended if the will is not straightforward. Wills should be reviewed every few years and after major life events such as marriage or divorce.
Pension wealth cannot be left in a will. Who inherits a pension is decided by who is nominated in an expression of wish or nomination of beneficiary form given to pension providers. Inheritance can be set up under direction, where the nomination is final, or under discretion, where a scheme administrator uses the form as guidance but can overrule it. Most pension schemes are under discretion, according to the government. Clare Moffat, pensions and tax expert at Royal London, said that while giving this power to somebody else can be daunting, it can be a sensible decision. She said scheme administrators investigate to find out where money should go if a form is unclear or very old. It is important to update pension inheritance forms regularly.
For annuities, inheritance rules should be checked. Some provide lump sums or continue for beneficiaries, while others stop payments immediately. A joint life annuity continues payments to a surviving partner, though rules on the exact amount differ, whereas a single life annuity is not inherited by a beneficiary.
In the UK, an estate is only liable to inheritance tax if it is worth more than £325,000 and is left to someone other than a spouse. If a home is left to children or grandchildren, the threshold increases to £500,000. Anything above the threshold is taxed at 40%, or 36% if 10% or more of the net value of the estate is left to charity in a will. Olly Cheng, financial planning divisional lead at wealth manager Rathbones, said the biggest misconception is that complex structures like trusts are needed, but for most people it can be simple, and gifting money to children is usually the best thing to do. The seven year rule means gifts given during your lifetime are not subject to inheritance tax if you live for seven years after giving them, and there are annual gifting allowances.