Five myths about inheritance
Many people believe that rules around who inherits what are simple, but unless you’ve made a will you may be surprised at who is entitled to your assets after you’ve gone.
Here are five of the biggest myths about who is entitled to your money if you die without a will.
Everything goes to the ‘next of kin’
If you die without a will, many people believe that all your money goes to your “next of kin”, or closest living blood relative.
However, the inheritance rules mean that the actual outcome will be more complex in most cases. If you die without a will, a larger estate is likely to be split up between surviving relatives.
If your estate, which includes your home as well as your possessions, is worth less than £270,000, the entire estate goes to the ‘next of kin’. If you are married, this usually refers to your husband or wife and if you are in a civil partnership it refers to your civil partner. If there is no surviving partner, the children will inherit, and if not the closest blood relative.
If your estate is worth more than £270,000 and there is a spouse or civil partner, they inherit the first £270,000 and all the personal belongings and property. They inherit half of the remaining estate, with the remainder split between any children.1
The rules in Scotland are different to those in England but no less complex, and similarly may end up with your spouse receiving less than expected.
Wherever you live, having a will ensures your money is divided up in accordance with your wishes.
Common law partners will inherit your assets
Many people believe that if they have lived together for a long time but have not formalised this arrangement through a marriage or civil partnership, they still have a right to inherit because they have a ‘common law’ partnership which is recognised by the government.2
However, no matter how long you have lived together, this arrangement has no recognition in law. Even if you have a child together, this does not formalise your partnership.
If your partner dies without a will and you have not formalised this arrangement, you risk your estate going to a different ‘next of kin’. In some cases, this may be your children, but if there are no children it could be another relative such as your partner’s brother, or even a previous partner if your partner had previously married and separated but not formally divorced.
This means it is particularly important to make a will if you aren’t married.
Everything goes to the Crown if you die without a will
Some people think that if you die without a will, everything you own becomes crown property. It is very rare that this is the case, however, as there is usually a surviving relative who will inherit the estate, even if they are distantly related.
If no surviving relative can be found, however, the estate does pass to the crown as ‘bona vacantia’ (Latin for ownerless property). It is then administered by the Treasury solicitor.
If someone who does not have a surviving relative dies without a will and the estate does go to the Crown, those who might have been expected to benefit from the estate can apply for a grant from it. There are details on how to do this on the Government website.
Some examples of those who might expect to benefit include someone who cared for the deceased unpaid before they died, or a cohabiting partner who was not married to them.
You can’t change someone’s will after death
You might be able to set out your wishes in your will, but that does not necessarily mean that it cannot be changed.
Beneficiaries to a will can use what is known as a ‘Deed of Variation’ to change what the will decrees. There are many reasons why they might do this. For example, an extra grandchild might have been born after the will was made and the will could be varied to include this.
Deeds of variation can also be used to reduce inheritance tax – for example funds can be directed to a spouse so that they are tax exempt or can be passed down to a grandchild rather than a child if a beneficiary wants the money to go to their descendant without it becoming part of the beneficiary’s own assets before it is passed on. This can avoid triggering IHT on the gift if the original beneficiary dies less than seven years after the gift is given.
You could also make a deed of variation to leave money to charity to reduce an inheritance tax exemption.
For a deed of variation to be made, it must be agreed by all beneficiaries that could negatively benefit from the change and agreed by the executor of the will. It can be made before or after probate.
For more information on what to do and the tax implications, see the government website here, or talk to your financial adviser.
Not having a will won’t make a difference
Many people think their affairs are so simple that not having a will won’t change anything.
However, this is rarely the case. As shown above, the rules around who will inherit if there is no will are complex and your wishes may not be upheld. In addition, a will allows you to name guardians for your children if anything was to happen to you, as well as to take steps that may minimise inheritance tax for your family by leaving money in a tax efficient way.
Making a will is an important way to protect your family if the worst was to happen. Once you’ve made it, ensure it is correctly witnessed and stored and tell family members where it can be found, so that there are no potential complications for them in future.
Speak to a financial adviser today about getting your will and other affairs in order.
Tuesday 20 June 2023