Estate planning can be a sensitive and complex subject. For some people, confronting what will happen after they die is too difficult. Others think that they’ve already done everything they need to and can stand down.
It’s an area in which myths and misconceptions are plentiful, and it’s easy to accept something as true when it isn’t.
Estate planning is a fundamental part of your overarching financial strategy. It means you have control over your legacy – both during your lifetime and after you die. That might be how your assets will be distributed, managing the potential size of the Inheritance Tax (IHT) liability, and ensuring your loved ones are looked after.
Dying without a will can lead to prolonged probate and family disputes
If you die without leaving a will, you’ve died “intestate”, and your money might not be distributed in the way you’d have chosen. This could cause extra problems for your family, like delays and even disputes.
As this is not a state of affairs anyone would like to see unfold, here are five of the most common estate planning myths, the truth behind them, and how you could approach your estate planning instead.
1. Only very wealthy people need to leave a will
Your estate includes your property and other assets, such as investments, savings, and personal belongings. Even if you think they aren’t worth much, setting out your wishes in a will ensures they will be distributed as you intend.
However, your will goes beyond allocating your assets. You can include details of your chosen guardians for children or other dependants and make provision for your pets. Plus, if you want to leave money to charity, this can also be included in your will.
2. My assets will automatically go to my loved ones anyway
This is a very common misconception which can cause a lot of heartache. If you die without a will, the rules of intestacy are applied.
In England and Wales, spouses and civil partners can inherit, as can children. In Scotland, the rules are slightly different. The surviving spouse or civil partner has what are known as “prior rights” over cash, property, and household effects. “Legal rights” then provide for the surviving spouse or civil partner, and children. The remainder of the estate is the “free estate”.
However, unmarried partners and stepchildren won’t be able to inherit. In the eyes of the law, there’s no such thing as a “common law” spouse.
Even if you live together, have been with your partner for years, and have children together, these rules still apply. So, it makes sense to set everything out clearly in a will to ensure your loved ones are looked after.
3. Having a will means my family can avoid probate
While having a will gives you control over how your estate is distributed, your executors may still need to apply for a grant of probate to release your assets. According to Co-op Legal Services, around half of estates need to apply for probate after someone dies.
The criteria for probate can vary, as financial institutions often have their own rules over how much money they can release.
4. I’ve written a will, so I don’t need to do any further estate planning
Your will deals with your assets as they are at the time of writing, as well as making provision for any children, dependants, and pets. However, as with all aspects of financial planning, it’s a good idea to regularly review your will to accommodate changes.
For example, you may have bought additional property or increased your assets, and may wish to change how these are distributed.
If you get married or remarried, in England and Wales this automatically invalidates any previous will. This prioritises your new spouse (through intestacy rules), so you may want to take this into account if you have children from a different relationship. In Scotland, getting married won’t invalidate your existing will.
Divorce does not revoke an existing will, but it will change the status of your ex-partner, meaning they will not inherit.
In short, life changes, and you need to make sure your will changes accordingly.
5. Estate planning is for elderly people
This is absolutely not the case. As soon as you have a property, assets, children, or pets, you need to start planning. Not only will this make sure your estate is dealt with in line with your wishes, but it means you can start taking steps to minimise your IHT liability.
Get in touch
These misconceptions are perfectly understandable, given the complexity of estate planning rules. We’re always happy to clarify or explain anything. If you’d like to talk to us about any aspect of estate planning or IHT, please get in touch by emailing enquiries@gag-ltd.com or calling 0131 363 0090.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning or will writing.