WILLS

Does everything pass by my Will?

Not everything passes via our will on death.

When it comes to ‘estate planning’, we need to think beyond just our will. Not everything does (or can) pass by our will. Some assets will ‘do their own thing’ for whatever reason. So, when you do review your will, be sure to also review the following things too – as your will alone might not cover everything off:-

Joint cash assets – for example joint bank accounts
Joint property – held as joint tenants
Nominated assets – such as death in service benefits
Trust assets – from simple life policies written into trust, through to complicated family trusts
Assets abroad – perhaps a holiday home?

What does my will need to include?

Your will should typically include:-

Executor appointment
Trustee appointment (if needed)
Guardian appointment (if needed)
Gift of personal items (chattels – though this is not mandatory)
Cash legacies (fixed cash sums – though this is not mandatory)
Residuary estate (everything else)

But, our residuary estate will not necessarily include everything that we owned during our lifetime, as some assets may pass via other legal routes rather than our will.

Probate & my Will

Your will states who gets what (usually in percentage terms). But, it is the Grant of Probate that allows your executors to ‘realise’ the assets, and then in turn pay out to your beneficiaries. And, it is Probate (not your will) that allows your executors to (for example) close banks accounts, sell houses, etc). And, here is the key to when assets don’t pass via our wills. It is not that the will has failed to list an asset (one would never really expect that). It is that there are legal mechanisms that apply to some assets that mean they will never pass under our will, and the Grant of Probate will never be needed to encash them.

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1) Joint Cash Assets

Joint cash assets pass automatically on death to the surviving owners/account holders. This is because of something called the ‘right of survivorship’. This means that surviving owners take automatically, and irrespective of the terms of any will.

No grant of probate is needed in these circumstances. With the case of (for example) a joint bank account, the surviving owner simply send a copy of the death certificate to the bank in question. The deceased’s name will be removed from the account, and the surviving owner(s) will immediately be the new owners of the whole.

Does my estate pay IHT on Joint cash Assets?

Although joint assets pass automatically and not via our will, they nevertheless are still assessable for IHT purposes. And so, the deceased’s share will need to be declared along with all solely owned assets for IHT purposes. Whether IHT is payable or not depends of course on a number of factors. But, the basic principle is that joint assets (the deceased’s share of at least) are IHT assessable.

2) Joint Property held a Joint Tenants

Just like joint cash assets, property held as joint tenants will pass automatically to the surviving owner(s) by the ‘right of survivorship’. And also like joint cash assets, the grant of probate is not needed – you simply exhibit a copy of the death certificate at the Land Registry.

Again, despite the deceased’s share passing outside of the terms of their will, joint tenancy property is still assessable for Inheritance Tax purposes and needs therefore to be declared for any IHT liability.

Please remember that property held as tenants in common (as opposed to a joint tenancy) is seen as a sole asset and so DOES pass via your will. It is assessed for IHT in the same way, but will pass via your will and not automatically to any joint owners within the tenancy in common.

Assets passing outside of the will don’t need probate, and are often quick to be released.

3) Nominated Assets

The most common form of nominated asset is where you have death in service entitlement with your employment. Invariably, this will form part of your employers pension scheme, and you will be asked to ‘nominate’ a recipient. The payment happens only if you die whilst employed, and is typically a multiple of your salary (3 times or more is quite normal).

Technically, this is often paid out of a discretionary trust that forms part of the pension scheme, and this will have two significant factors impacting your estate.

Firstly, it will be paid direct to any nominated person, and not via your estate/will/executors. Probate is not therefore needed.

Secondly, by being a discretionary payment they will often fall outside of the estate for Inheritance Tax purposes and so can be a very tax friendly part of your estate.

Warning: do make sure that any nomination stays up to date! If your circumstances change (eg you divorce) you may not want a former partner or spouse to benefit and so you must review that nomination and make sure it reflects your current wishes.

4) Trust Assets

Trust assets can be anything from a simple life policy through to complex family trusts holding all manner of assets. They are a legal entity of their own and will invariably therefore define themselves what happens on the death of the person concerned. Because of this, probate is unlikely to be needed (depending on the particular scenario)

This is a potentially complex area with many possible scenarios falling beyond the scope of this particular article. If you are making a will, just be mindful to establish that if you have any interest in any trusts, or you have ‘settled’ assets on trust yourself, they may not pass via the terms of your will.

Inheritance Tax may also be a key feature in this scenario. Indeed, trusts are often used as vehicles to legitimately avoid or mitigate tax on death. Again, this is a complex subject matter and beyond the scope of this article.

5) Assets abroad

Assets held abroad may not pass via your UK will for a couple of obvious reasons:-

UK will (or probate) not recognised within that jurisdiction; and/or
Local laws override wills of any variety (eg the right of survivorship here in the UK)

If you hold assets abroad, and you are reviewing your will, be sure to let your solicitor know that you have assets in other legal jurisdictions. There are other things your solicitor will need to advise you on, for example the possibility of restricting your UK will to UK assets, and having a second will elsewhere. You then need to be careful that you do not cancel or ‘revoke’ one or other will when you make a second will in another legal jurisdiction!

Checklist – assets passing outside of your will

So, hopefully that has helped you understand what assets may fall outside of the scope of your will. And, be sure that you have that covered off when reviewing your will. So to summarise, the things to watch out for that might pass outside of your will are