A will ensures that your assets are distributed according to your wishes after death. Even people who do not necessarily consider themselves wealthy can have substantial assets within their estate.
If you fail to make a will or if your will is invalid, you will be considered to have died 'intestate'. Consequently, the assets you leave behind will be distributed according to the statutory intestacy rules which are rigid, may not fit with your intentions and are unlikely to be tax efficient.
If you choose to write a will, it is important that it satisfies all the relevant legal requirements in order to ensure that your wishes are carried out after your death. The consequences of an invalid or nonexistent will that results in intestacy can be problematic for those left behind.
Intestacy - Who Becomes the Beneficiary?
If a person dies intestate, property will be entrusted to surviving relatives, commonly the spouse and children. However, if there is no surviving spouse or children, the property will be divided among wider relatives such as grandparents, brothers or sisters. If there are no surviving relatives, the assets revert to the Crown.
Not only do the intestacy rules dictate who the property goes to, but also the proportion each beneficiary receives. Thus an estate worth under £250,000 would see the surviving spouse receive the entire share.
Estates valued up to £500,000 would be split equally between the spouse and children, though the children's share would be comprised of £125,000, which would become available at the age of 18, and £125,000, which the spouse would have a life interest in, so would only pass to the children once the surviving spouse also died.
For property worth £1,000,000, the surviving spouse would receive £250,000 and the children £750,000 in two equal sums (as described for estates worth £500,000).
Practical Problems with Intestacy
The inflexibility of the intestacy rules means that the only beneficiaries will be the spouse and children, assuming they survive the deceased. No gift can be given to wider relatives or charitable organisations where someone dies intestate, regardless of the size of the estate left.
Additionally, the prescribed manner of distribution often fails to account for the circumstances of the parties involved. For example, a spouse may wish to remain in the matrimonial house, rather than sell the property, which can cause further complications. Problems can also arise in situations of second marriages, or the re-marriage of a surviving spouse.
The automatic nature in which intestacy rules are applied make any tax planning provisions impossible. The current Inheritance Tax Threshold is £325,000, and anything over this will be subject to a 40% tax deduction. However, if you have a valid will in place, you can make tax efficient distributions.
The best way to avoid intestacy issues is to ensure you have a correctly drafted will.
The intestacy rules provide a broad generalised insurance on distributing property, but they are rigid and fail to cater for varying situations. As a result, if you do leave behind intestate property, it is likely to be distributed in manner you did not intend.