Don’t just leave financial problems when you die. An interesting article from Steve Sims, freelance journalist and author of The Dummies Guide to Property taxationMake Text Bigger
In these times of austerity, many people are looking at ways to save money but one expense that is well worth the bother is making a will.
Simply, if you don’t have a will when you die, you risk everything you have worked so hard for throughout your life not benefitting those you want to see looked after financially.
Having no will when you die is called ‘intestacy’ and the state follows strict rules to divide your assets.
The rules follow an ‘if…then…else if…’ structure that depends on if you are married, have children and the value of your assets, including your home and investment property.
These rules may see family you never intended to gain a financial benefit picking up a share of your assets while those you wanted to have them go without.
Worse still, if you live with a partner as if you were married, this partner has no automatic rights to inherit your property. Often the options are financial hardship or paying out expensive legal costs to claim a share of your estate.
Other complications follow if you are divorced and have children – not only do under 18s need financial security but also someone has to look after them. A will is one way of ensuring your children are brought up in a loving and caring environment.
This is not always easy to sort out when one or other of the former married couple have new partners on the scene.
Marrying again voids a will, so if you think you have covered all the bases years ago, but have divorced and married a new partner, you will have to start planning from scratch.
Writing a will can also provide your family with inheritance tax (IHT) benefits.
Passing assets between spouses or civil partners on the death of the first partner generally does not incur tax – but good estate planning involving a will and possibly a trust can cut the tax children, grandchildren or other loved ones pay on the death of the second partner.
This all involves some arithmetic based on IHT bandings.
A couple has a £325,000 nil-rate tax allowance to transfer when the first partner dies and then the second can pass on an estate valued at £625,000 without the beneficiaries paying IHT.
The problem then becomes IHT is payable at 40% on the balance of the estate.
With many modest property portfolios adding up to £1 million plus without including the family home, property investors and their loved one should plan how to handle the tax issues sooner rather than later
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