In the UK almost 30 million people do not have a will and make the common assumption that when they die all of their possessions and wealth will automatically pass to their partner. In light of the rising number of unmarried cohabiting couples and the complexity of modern family relationships, we should all be making a new year’s resolution to make a valid will, writes Amanda Simmonds, director of DWF’s private client team in Leeds. Here, she discusses how wealth managers can advise their clients on the benefits of creating a will as part of the estate planning process.

As the law currently stands, when a person dies without a valid will, their estate is dealt with under the intestacy rules, which supply a rigid method of distribution for the individual’s estate and do not take into account personal wishes. As trusted advisors, wealth managers can help individuals to plan their estate carefully, ensuring that it is distributed according to their wishes and avoiding inheritance tax wherever possible. The creation of a will should be central to the estate planning process and, once discussed thoroughly with the client, legal advice should be sought.

The intricacies of intestacy

In order to understand how beneficial a will can be for the client, the wealth manager must be fully aware of the consequences for the estate where the intestacy rules come into force.

· Clients who are married with no children

When a client dies without a will, leaving a spouse but no children, their spouse takes possession of all of their belongings, along with a legacy of up to £450,000. They will also take a half share of the estate’s balance that remains outright. The remaining half will be divided between the client’s parents, or if orphaned, between their siblings. If the client leaves no surviving parents or siblings, their share of the estate will pass to the client’s grandparents, then uncles and aunts. If they leave no surviving family the estate will go to the Crown.

· Clients who are married with children

In this instance the surviving spouse receives a reduced share, taking possession of the deceased’s belongings and up to a £250,000 legacy. The balance of the client’s estate is then divided in half, with the children receiving the first half (divided equally between them), as they turn 18. The capital of the remaining half is kept on trust for the children, until their second parent’s death. Whilst this half is held on trust, the surviving spouse will receive the interest generated until their death. Once they die, the children receive the capital immediately, provided they have reached their eighteenth birthdays.

· Unmarried clients

While the intestacy rules may follow quite closely the wishes of a married client, those who are not may be surprised to learn that their property will not automatically pass to their partner. In fact, unless the assets in question are owned as joint tenants, the surviving partner will not inherit them under intestacy as they are not related by blood or marriage.

If they wished to bring a claim for any of the estate not owned as joint tenants, they would have to do so under the Inheritance (Provision for Family and Dependants) Act 1975. This can be an expensive and lengthy process. Any award is purely at the discretion of the court, and will only provide for the maintenance of the partner. Furthermore, such a claim would be against those who have inherited under intestacy, reducing their share, which could lead to arguments between the surviving partner and the deceased’s family at a very difficult time.

Protecting the family home

You may have noticed that no mention has yet been made of the client’s family home. Again, the circumstances are substantially different depending on whether the client is married or simply cohabiting or partnered.

Where the client is married, if they hold the house as joint tenants with their spouse, the client’s half will pass automatically to their spouse on death, and will not count towards the deceased’s assets or the spouse’s entitlement under intestacy. If, however, the client is the sole owner of the property, or they reside as tenants in common, the deceased’s share of the house will not pass to the surviving spouse automatically. In order for the spouse to remain in residence, they will need to buy their deceased spouse’s share of the home back from the estate using any money from the legacy they have received.

If the client is unmarried, unless they hold their house as a joint tenant with their partner, the surviving partner will not inherit the property under intestacy. In order to lay any claim to the property they will need to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 as before.

Gaining control

So the only way that a client can guarantee full control over the distribution of their assets after their death is through the creation of a valid will. It is only where a valid will exists that the rules of intestacy do not apply, allowing the deceased to nominate beneficiaries and the conditions of their inheritance.

· Trusts

When discussing the drawing up of a will with your client you may wish to advise them on the creation of trusts. This can be particularly useful, for example, where children are to inherit, as the client may see the statutory inheritance age of 18 as too young to manage the money that has been entrusted to them. Setting up a trust allows the testator to appoint trustees to manage the funds or property until the conditions of inheritance have been met.

Many different types of trust can be set up, depending upon the level of control that the client wishes to exert, from simple trusts to discretionary trusts, which lay down specific criteria which the trustees must adhere to when distributing funds from the trust.

· Inheritance tax

Inheritance tax will be due where an estate exceeds the inheritance tax threshold, which is currently set at £325,000 (for 2011-2012).

Under a will or the intestacy rules, where the whole estate passes to the deceased’s spouse, they will benefit from the inheritance tax spouse exemption. As such the deceased’s threshold allowance of £325,000 can be added to that of the surviving partner on their death, freeing the estate of inheritance tax up to £650,000. However, for unmarried clients, the partner will not receive the benefit of the transferable allowance.

As a valid will prevents the intestacy rules from applying, it can be written in a way that will reduce the inheritance tax payable. Where a will leaves the entire estate to the spouse, it will pass free of inheritance tax. If, however, the will leaves assets to various beneficiaries, the £325,000 threshold will be allocated accordingly, ignoring any assets left to the spouse as these are free of inheritance tax.

As part of the role of the executors of the surviving spouse, they can apply for the balance of the remaining transferable allowance to be transferred to the surviving spouse, when they die.

Reviewing is vital

Once the estate has been planned, and a valid will has been written and executed, it is important that the wealth manager ensures the will is reviewed frequently – every three to five years is advisable. It is also important that reviews are made when there are changes to the familial circumstances, such as the birth of a new child, marriage or divorce, or if there are significant changes to the financial situation that a client finds themselves in. Whenever reviews are made it is important that legal advice is sought in order to ensure that any changes are drafted in an effective and binding manner.

DWF is a UK-based law firm with offices in Birmingham, Leeds, Liverpool, London, Manchester, Newcastle and Preston, and which also has relationships with law firms globally. It provides services to businesses and private clients with teams specialising in corporate, banking and finance, litigation, real estate, employment and pension, insurance and private client law.