Inheritance Tax Planning - Shop around before writing a Will

The process of inheritance tax planning can turn out to be costly for many who are unaware of the various elements involved, the Office of Fair Trading warned consumers this week.

While solicitors generally charge up to £200 to write a Will, consumers who then appoint their solicitor as the executor of their estate are often unaware that this carries additional and higher costs.

For the average person, appointing an executor to administer their estate will cost, on average, between £3,000 and £9,000, says the OFT, and of the 43% of people who do appoint their Will Writer as their executor, a quarter claimed they had not been made aware of the likely charges.*

The OFT estimated that by failing to shop around for Will Writing and Executor services costs consumers some £40m per year.

Benefits of a Will

A recent poll for Barnardo's calculated that 58% of UK adults have no Will in place, and this rises to 74% of UK couples.

Writing a Will is a keystone of efficient inheritance planning, and can help you avoid a hefty Inheritance Tax bill for your children, demanding 40% of the value of parts of your wealth and estate. With some basic Inheritance Tax advice from a qualified financial planner, it is often possible to drastically minimise or avoid Inheritance Tax altogether.

Dying with no Will in place is known as 'dying intestate' and leaves the duty of administering your estate, not to your family, but to the State, under the 'rules of intestacy'.

Many people are surprised to hear that their wife or husband may not be entitled to receive everything. Furthermore, an unmarried partner has no automatic right of inheritance whatsoever, unless specific inheritance planning is in place through a Will. In other words, the notion of a 'common law' partner is nothing more than wishful thinking.

With good Inheritance Tax advice and proactive inheritance planning, a Will can not only guarantee that your assets pass to those for whom you intend them, but can also be used for other purposes, e.g. to nominate guardians for your children, should you die before they reach adulthood.

Keeping your Will current

Once you have done your inheritance planning, and have a Will in place, it is crucial to keep it up to date. Barnardo's research found that 80% of those with Wills had not updated them in 10 years. An out of date Will can be as bad as no Will at all.

For instance, if you make a Will but then marry, that Will is no longer valid. If you make a Will leaving your wealth to your spouse, but then divorce or separate, they will still benefit from the Will when you die. If you then remarry, but forget to update your Will, your first spouse will inherit your wealth, leaving your second spouse penniless and possibly homeless as well.

Another interesting point is to use percentages, not finite numbers, when doing your Inheritance planning. If you had a house valued at £200,000 and stated that your family should get £175,000 and the remainder go to your local church, that may be all well and good at that time. If however, by the time you die, the value of your home has risen to £300,000, your family now get 'only' the same £175,000, and the vicar is laughing all the way to the bank.

*OFT survey of 2000 UK adults, February 2010

With thanks to Roisin McDaid