A will is often viewed as a document that clients put in place for the future and then pay little further attention to. In practice, it can be one of the most important documents in a client's wider estate and succession planning. Whilst many clients have a will, it may need to be updated from time to time to reflect changing circumstances.
Not all wills are the same
A straightforward will may be entirely appropriate for many clients. However, where there are complex family arrangements, substantial assets, business interests, or concerns about future succession planning, a more sophisticated will may be worth considering.
Trust wills are commonly used to provide greater flexibility and protection. However, not all trust wills use the same kind of trust. It is important the correct type of trust is identified. For example, a discretionary trust will creates ultimate flexibility. Rather than distributing assets outright on death, assets can be held and managed by trustees who can take account of the circumstances existing at the time. A separate letter of wishes provides guidance to trustees and can be updated as circumstances change without the need to rewrite the will itself. This flexibility can be particularly valuable as family circumstances, tax rules and asset holdings evolve over time.
Tax considerations
Clients' estates are becoming increasingly diverse. A modern estate may include investment portfolios, business interests, agricultural assets, family companies, overseas property, digital assets and trust interests. Not only are their assets more diverse, but there are many blended families and cohabitating couples electing to remain unmarried. Different assets and family structures often raise different succession and tax issues.
A well-drafted will can help maximise available tax reliefs, exemptions and allowances while ensuring assets pass to the intended beneficiaries in the most efficient manner. Poor drafting can result in unnecessary tax liabilities or missed planning opportunities that cannot always be corrected after death.
For example, the Residence Nil Rate Band (RNRB) needs to be considered carefully where clients are unmarried, have children from previous relationships, or hold assets in more complex structures. In these situations, legal advice can help avoid unintended consequences and preserve valuable tax reliefs such as the RNRB where it would be lost if the property was left in liferent to a cohabitant.
Recent changes affecting business property relief and agricultural property relief also highlight the importance of regular reviews to ensure the clients will can adapt to changes.
Asset protection and family succession
Leaving assets outright to beneficiaries is often appropriate. However, there are many situations where clients may wish to build in an element of protection.
Trust structures can be particularly useful where beneficiaries are young, vulnerable, financially inexperienced, have disabilities, or may require assistance managing wealth. Rather than receiving assets outright, beneficiaries can benefit from assets managed by the trustees for their benefit.
Asset protection can also be an important consideration for clients seeking to preserve family wealth. Many clients are concerned that inherited assets could become exposed to claims arising from divorce, relationship breakdown, bankruptcy or other financial difficulties affecting a beneficiary.
Where appropriate, trust arrangements can provide an additional layer of protection while still allowing beneficiaries to benefit from the assets. This can be particularly attractive for clients who wish to ensure that family wealth remains available for children, grandchildren and future generations, rather than passing outside the family.
Similar considerations often arise in second marriages, blended families and between cohabiting partners, where a client may wish to provide for a spouse or partner whilst preserving capital for children from an earlier relationship.
Trusts are not suitable for every client, but can offer a combination of flexibility, control and protection that outright inheritance cannot.
Key triggers for a review
The following events should prompt review of whether a client's existing will remains appropriate:
- Marriage, divorce or separation;
- Entering into a cohabiting relationship;
- The birth of children or grandchildren;
- Vulnerable beneficiaries or concerns about wealth staying in the family;
- Bereavement;
- Retirement;
- The acquisition or disposal of significant assets;
- Starting, selling or inheriting a business; and
- Changes in legislation.
The takeaway
Having a will is important, but having the right will is key. A will should form part of a client's wider succession and wealth planning strategy, rather than being treated as a one-off exercise.
By recognising the triggers where a review would be beneficial and encouraging clients to seek legal advice when circumstances change, advisers can help ensure that their clients' wishes are carried out, tax planning opportunities are not missed, and family wealth is protected for future generations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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