The ongoing turmoil in stock markets, coupled with the slump in property markets, could have serious ramifications for assets - be it money or property - that you plan to leave to your nearest and dearest. If you already have a will, now might be an opportune time to make sure it is still a true reflection of your wishes. If you don't have one, you should have one drawn up.
Beware the top heavy legacy
Kent law firm Gullands Solicitors warns that investors who have made Wills but haven't recently reviewed them may find that legacies and gifts included when the economy was more buoyant might now leave little available for family and friends.
"There are a couple of reasons that this tends to happen. Firstly, the fall in property and share prices may mean that the estate isn't as large as when the Will was drawn up. In addition, if the Will leaves specified amounts rather than percentages of the total estate, this also can result in too small a pot remaining," explains Alex Astley, partner at Gullands Solicitors.
Another issue that can arise is when an individual has tried to balance entitlements between beneficiaries by, for example, leaving a property to one person and money to another. If the aim was to give equal amounts, you might find that the money is no longer in line with the value of the property.
Your estate planning can also be impacted later down the line, should you need to go into nursing or a care home, and have to sell your property to pay for the fees. This may mean that there is a much smaller pot from which to make the legacy payments.
Mr Astley explains: "If, for example, an individual has sold their home for £200,000 to pay for care fees and lives for a number of years, the local authority will pay for all the fees once that person has just £14,250 left in savings. If they had made a Wll and intended to leave £10,000 to charity and the rest to their family and hadn't adjusted the Will, the family would only receive £4,250, which may not be what the deceased had intended."
Mr Astley's advice is to review your Will, at least every five years or so. It is also advisable to update your Will after any major change in your life - such as a separation, marriage or divorce, having a child or moving house.
Warnings over a hike in the rate of inflation in the UK is another reason to review your Will or at least introduce some flexibility into your estate planning. Inflation might mean cash legacies specified shrink dramatically. Flexibility is also important should you wish at a later stage to include new individuals or charities in your testament.
Mr Astley says one way of avoiding issues such as changes in the value of a cash or assets is to leave legacies as a percentage of the total estate or perhaps wording the document in such a way as to allow for the situation where the payment of nursing home fees has reduced the estate below a certain figure. "A will should be very flexible and should be an accurate reflection of your final wishes," he adds.
Reasons to have a will
According to figures, more than half the UK adult population has not yet drawn up a will. Other findings suggest that planning a summer holiday is deemed more important that getting your estate planning in order. If you haven't drawn up a will yet, you should do so. It is a relatively simple and painless process. Besides the fact that when someone passes away without leaving a will, dealing with their estate can be extra complicated and take a long time (months or even years in some very complex cases), there are a number of other reasons to get your estate planning in order.
If you die intestate (without making a will or without making a valid will) the rules of intestacy dictate who will benefit from your estate. As HM Revenue & Customs (HMRC) rules currently stand the surviving spouse or civil partner receives the chattels (personal property such as household goods), a statutory legacy of £250,000 (£125,000 if the death was before 1 February 2009) and a life interest in half of the residue (part of an estate that is left after the payment of debts, funeral expenses and inheritance tax). The children receive the other half of the residue in equal shares. If the estate is less than £250,000 (£125,000 if the death was before 1 February 2009), the deceased's surviving spouse or civil partner will receive the whole of the estate.
The rules of intestacy can also trigger an avoidable tax liability. The new chancellor's decision in the June budget to freeze the nil-rate inheritance tax (IHT) band at £325,000 until tax year 2014-15 means IHT mitigation will become an increasingly important consideration for most families. And a vital part of drawing up your will will be to put plans in place to reduce an IHT liability on your estate.