A new survey has revealed that 64% of millennials are expecting to inherit assets from their parents, with an average expected inheritance of £233,000. The research, carried out by financial services group Sanlam, suggests that almost a third of millennials are so confident in their inheritance that they are not bothering to save.
If the figures are representative of the UK population, just over 11 million people will be hoping for a windfall on their parents’ death. Sadly, many may be in for a shock.
Joint tenancy is a popular type of home ownership where each party owns 100% indivisible share of the family home. When one dies, the other effectively continues to own 100% of the home.
Many couples hold their property as ‘joint tenants’ but the effect is that on the death of one spouse, the other is left owning the whole value of the home which is exposed to the risk of care fees, creditors etc.
Properties can instead be held as ‘tenants in common’ which allows each owner to leave their share of the property to whomever they choose in their Will. This permits the parties to put in place plans to reduce the risk of lost inheritance.
One of the most common types of Will in the UK is the ‘Mirror Will‘. These are Wills that leave everything to each other, and then to the children. People assume that their estate will benefit their partner for life and then go to their children or grandchildren after that. Unfortunately, there’s no guarantee.
If your partner needs care after your death, the Local Authority will usually perform a means test to see if they can pay for care themselves, and the family home will be included in that. It is likely to take most of the assets you have worked so hard to build up together, down to a lower limit of £14,250 (£17,000 in Scotland). (Note that should one of you need care whilst you are both alive, the family home will not be taken into account when the Local Authority performs a means test, provided the person who doesn’t need care is still living in it.)
Even when the lower limit is reached, many families find themselves paying a contribution to the cost of care, particularly if they wish to specify a particular nursing home. If you leave everything to your partner in a Mirror Will and they then need care, practically the whole value of the family home is at risk.
Even if your partner does not need care, a Mirror Will won’t guarantee that your children or grandchildren will receive any of your assets. In fact, there are many circumstances in which your estate can pass sideways outside of your family.
In a recent survey by Which? Legal, 61% of adults interviewed said they had not made a Will. Under the rules of intestacy, if you die and you and your spouse had children, your spouse will inherit the first £250,000 and half the remainder. This leaves the bulk of the estate exposed to care fees, creditors and other predatory third parties.
If your spouse or civil partner remarries after your death, their Will is no longer valid. If they don’t make a new Will, their estate will pass according to the laws of intestacy. If they die before their new partner (assuming you both had children), their new partner will inherit the first £250,000 of the estate (plus all their personal possessions) and half of the remainder. As a result, the bulk of your hard-earned assets can end up with someone else’s children or grandchildren.
Even if your children successfully inherit a generous pot, this can be lost in a number of ways. For example, you might imagine that on divorce, your child would be entitled to keep anything they inherited from you – but this isn’t the case. The courts look at the needs of both parties and where there isn’t enough money in the pot to provide for both, they have the discretion to use one party’s inheritance to meet those needs – even if it was acquired prior to the marriage.
Alternatively, should your child experience financial problems, their entire inheritance can be lost to creditors. All this is avoidable with careful planning.
April King’s innovative Wills are designed to provide protection for your assets from the above scenarios. Where your property is held as joint tenants, we can sever the tenancy, allowing you and your spouse to deal with your respective shares individually. We can then draft your Will so that your spouse will be able to continue living in the family home after your death and on their death, your children inherit. With this type of planning, your share of the family home is protected, even if your spouse needs care, falls into financial difficulty or remarries.
We can also use trusts in your Will to create protection for your children’s inheritance from divorce, creditors and similar threats. Even if such problems seem unlikely at this stage, it is wise to put in place this type of planning now, to reduce the risk of lost inheritance in the future.
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