If you spend your life carefully amassing your wealth to ensure your loved ones have a financially stable future, it would be distressing to think that all your hard-fought gains could be swallowed up by inheritance tax, gambling debts, or a divorce settlement after you have passed away.
However, as Dee Benians, a private client lawyer at Hughes Solicitors in Heathfield, explains, ‘This could be a stark reality, unless you get expert legal advice on how to use your will to protect your fortune and ensure it goes to the beneficiaries of your choice.’
Planning for inheritance tax
Inheritance tax is a one-off tax usually payable when you die on any assets you own worth more than a £325,000 threshold. It is an important source of income for the Government, with the latest figures showing that HMRC pulled in £7.1 billion in inheritance tax receipts last year, up £1 billion from the 2021/22 tax year.
However, although death and taxes come to us all, there are a number of ways to minimise the amount of inheritance tax payable on your estate through your Will.
You can avoid paying inheritance tax altogether by leaving everything you own to your spouse, a charity or a community amateur sports club in your will – in such circumstances no inheritance tax is usually payable, no matter how much you leave although this is subject to any previous lifetime gifts you may have made.
If you leave more than 10 per cent of the net value of your estate to charity, the amount your estate will have to pay in inheritance tax on some assets can be reduced from the usual 40 per cent to 36 per cent.
The importance of a well drafted will
Another concern may be how to protect your assets through your will if you think one of your chosen beneficiaries is at risk, for example:
- If a child is not responsible enough to inherit money outright, such as if they have a gambling or drug problem, and you fear that they would simply squander their inheritance.
- If you think your child’s marriage is in difficulty.
- If you have a blended family and you leave everything to your spouse, your children from a former relationship are at risk of receiving nothing if your spouse chooses not to leave them anything in their own will.
In all these scenarios, a will trust is a useful solution. Run by the trustees of your choosing, a will trust allows you to ring-fence assets for the benefit of a specific beneficiary or set of beneficiaries, but without making them the legal owners.
A discretionary trust, for example, gives your trustees wide legal power to allocate funds to your chosen beneficiaries as they see fit. They could therefore refuse to give large sums to your child if they thought it would be swallowed up by gambling or debts.
A life interest trust, meanwhile, is useful for blended families as it allows your spouse to live in your home and benefit from your assets while they are alive but, when they die the trust property will pass to the beneficiaries of your choice.
How our lawyers can help
Our expert wills & trusts lawyers specialise in all forms of estate planning and can help you draw up your will in a way which addresses any concerns you have.
They will make sure your will is legally valid and less open to legal challenges, that it contains the trusts most suitable to your situation, and we can help you select appropriate trustees, executors and guardians.
This article is for general information purposes only and does not constitute legal or professional advice. Please note that the law may have changed since the date this article was published.