Wills and Trusts

Someone once said that there is nothing worse than dying without a Will (intestate). Well, I disagree. I think that dying with a Will that was made 15 years ago and that has not been reviewed is much, much worse.

This is the problem, you see. Wills don't go out of date. Once made, they just sit there waiting for you to die, unless you revoke them by destroying them, making a new one or getting married.

So do you need to make a Will? Well, do you? Are you one of those that think everything would go to your spouse? (It might -- but only if your total estate is less than £200,000 and you have no children -- £125,000 if there are children -- or is all held as joint property).

Or do you think that you don't own anything? (Really? No car, jewellery, house, life insurance, death in service benefit...?)

Or perhaps you are married with kids, mortgaged up to the hilt, and really have very few assets that could be disposed of by a Will. (Right, what about your kids? Who would look after them if you and your spouse were killed in a common accident? You can appoint guardians in a Will.)

Incidentally, certain conditions might allow you to get what used to be known as Legal Aid for the preparation of a Will (for instance if you are a single parent who wishes to appoint a guardian).

Basic rule no. 1. If you have something to leave, then make a Will. It is the only way of guaranteeing that your property goes where you want it to go. And please, please, PLEASE don't go and get one of these pre-printed jobbies from a stationer for £3.50 just to save a few quid. It is a false economy to try and skimp on costs when it comes to making a Will. Professional Wills cost about £50-£70 for a single and £95-£150 for husband and wife mirror wills, depending on where you go. Bearing in mind the duty of care owed to you by the draftsman and the amount of work involved, this represents probably the best value for money you can get from any legal service. The costs involved in sorting out badly worded or incorrect home-made Wills after your death could run into four figures. This is a perfect example of when being Foolish means NOT doing it yourself. And make sure you use a STEP member, because that will guarantee that your work is being carried out by someone with the level of expertise required.

In the previous article I mentioned tax efficient Wills for Mr and Mrs Bloggs. Space forbids me from elaborating further or going into too much detail about other types of Will, but I would like to highlight a few possible loopholes and problems you should consider.

1. Appointing executors. These are the people who have to sort everything out on your demise. There is a common misconception that you cannot be an executor and a beneficiary. Of course you can! This is the most common type of Will in the world ("I give my entire estate to my wife and appoint her sole executor"). However, you cannot be a beneficiary (or the spouse of a beneficiary) and a witness to the Will. This would invalidate the gift, but not the Will. Appointing independent professionals is a good idea if you think there may be problems. Otherwise close family (preferably those of your own age or younger, for obvious reasons) will be fine. Personal experience shows that the appointment of friends is not always a good idea -- for some reason there always seem to be problems.
   
   
2. Making gifts. Please bear in mind that you are making the Will now, but you may well live for many, many years. Therefore try not to be too specific. Don't, for instance, give all the money in a certain account to a beneficiary. When you die, the account may not exist, or may have far less or far more in it than you intend the beneficiary to receive. Far better to leave a round amount or a percentage.
   
   
3. At what age do you want your children or grandchildren to receive their legacy? If no age is specified, the Law says they can give a valid receipt at 18 -- they can't have it beforehand. But would you want your kids to inherit a large sum of money at 18? Would they be mature enough to handle it? How long do you think it would last?
   
   
4. Do you want to place assets in Trust? Aaah, Trusts. These can be highly complex beasts. There are Discretionary Trusts, Life Interest Trusts, Will Trusts, Bare Trusts, Accumulation and Maintenance Trusts, Secret Trusts... such a subject is far too vast for me to attempt to do justice to here. However, for a Trust to be effective, it has to have 3 qualities, known as the "three certainties". It must a) have a subject, b) be clear that it is a Trust, and c) be possible to list the beneficiaries exactly. A simple Trust in a Will may be to give a freehold property (the subject) to any grandchildren (the beneficiaries), that survive the deceased and who also attain the age of 25, subject to the children of the deceased having the use and benefit of the house for their lifetime (this is the bit that creates the Trust).

Trusts of this nature are adequate for most people. A nil-rate band Discretionary Trust in a Will for married couples is pretty tax-efficient, but the Trust wording runs to several pages and is very complex. Different Trusts have different purposes and different tax advantages so if you think Trusts are for you then you must take professional advice, especially following the changes regarding tax rules for trusts announced in the 2006 Budget.