Often clients will tell me that they don’t need a Will because everything will just go to their spouse and their children. Leaving the spouse issue aside for a moment (and by the way, if you’re not married or in a civil partnership, your surviving partner has no automatic right to inherit) my first question is to ask if they have any children. Whatever the answer, I always ask them if they’re sure. A look of surprise ensues, sometimes followed by an awkward shuffle from Mr Client, and then a look that needs no words but interprets into something like, “Of course I know how many children I’ve got you fool!”
I continue by asking a hypothetical question of, were they to die would they leave everything to their children? Acknowledging the nods to affirm, I then ask whether they would divide their estates equally between their children? Again, a nod in the affirmative.
Once I have these two answers, I proceed to draw a little family tree type picture listing all their children. Let’s assume an estate of £1m and 3 children (that they’re aware of).
In the example I add in the unthinkable that both parents die together, so I can use their combined nil rate bands of £325,000 each in today’s money, giving me a total combined nil rate band available of £650,000. That’s the amount they can pass to their little (or maybe not so little) ones without them having to pay inheritance tax.
Deducting the combined nil rate bands of £650,000 from the total estate value of £1m, I have a remaining £350,000 left to be divided between ‘all the children’. What happens next gets the same response of ‘shock horror’ every time.
The picture looks something like this:
Child 1 £70,000
Child 2 £70,000
Child 3 £70,000
Child 4 £140,000
“Hang on” says the client, “that doesn’t add up, and I told you we only have 3 children, who gets that £140,000?”
The 4th child is of course HMRC, or the tax man as we’ve fondly come to know him, and the £140,000 represents 40% of anything that is above the available combined nil rate bands. When clients look at that picture it suddenly dawns on them that not only is the sum due to the tax man much bigger than they had imagined, but quite often it’s a darn sight more than their children get above the nil rate band.
The above example is on an estate of £1m, relatively small in today’s world, especially for anyone living in the south. Triple that amount and now the tax man gets his hands on figures over 30% more than the children would get in total!
Go home, count your children, add one more, and then get your Will sorted.
This information provided in this article is not intended to constitute legal advice and each relationship breakdown requires careful consideration in our view by a fully qualified Solicitor before decisions are made and before you embark on a certain course of action.
Penn Chambers Solicitors
0207 183 1485