Making a will - why it's important

There are lots of good financial reasons for making a will:

• you can decide how your assets are shared out - if you don't make a will, the law says who gets what
• if you aren't married or in a civil partnership (whether or not it's a same sex relationship) your partner will not inherit automatically - you can make sure your partner is provided for
• if you're divorced or if your civil partnership has been dissolved you can decide whether to leave anything to an ex-partner who's living with someone else
• you can make sure you don't pay more Inheritance Tax than necessary

It's easy to put off making a will. But if you die without one your assets may be distributed according to the law rather than your wishes. This could mean that your partner receives less, or that the money goes to family members who may not need it.

Who inherits if you don't have a will?

If you don't have a will there are rules for deciding who inherits your assets, depending on your personal circumstances. The following provisions apply only in England and Wales, the law differs if you die intestate (without a will) in Scotland or Northern Ireland:

If you're married or in a civil partnership and your estate is worth £125,000 or less

Everything goes to your husband, wife or civil partner.

If you're married or in a civil partnership and your estate is worth over £125,000

Your husband, wife or civil partner won't automatically get everything, although they will receive:

• personal items, such as household articles and cars, but nothing used for business purposes
• £125,000 free of tax or £200,000 if there are no children; however this is restricted to £55,000 if you were domiciled (had your permanent home) in the UK and they were not
• a life interest in half of the rest of the estate (on his or her death this will pass to the children or as detailed below)

The rest of the estate will be shared by the following:

• children (or if none, grandchildren) will get an equal share
• if there are no children or grandchildren, surviving parents will get a share
• if there are no children, grandchildren or surviving parents, any brothers and sisters (who shared the same two parents as the deceased) will get a share (or their children if they died while the deceased was still alive)
• if the deceased has none of the above, the husband, wife or registered civil partner will get everything

If you are partners but aren't married or in a civil partnership

If you aren't married or registered civil partners, you won't automatically get a share of your partner's estate if they die without making a will.

If they haven't provided for you in some other way, your only option is to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975. See the section below 'If you feel you've not received reasonable financial provision'.

If there is no surviving spouse/civil partner

The estate is distributed as follows:

• to surviving children in equal shares (or to their children if they died while the deceased was still alive)
• if there are no children, to parents (equally, if both alive)
• if there are no surviving parents, to brothers and sisters (who shared the same two parents as the deceased), or to their children if they died while the deceased was still alive
• if there are no brothers or sisters then to half brothers or sisters (or to their children if they died while the deceased was still alive)
• if none of the above then to grandparents (equally if more than one)
• if there are no grandparents to aunts and uncles (or their children if they died while the deceased was still alive)
• if none of the above, then to half uncles or aunts (or their children if they died while the deceased was still alive)
• to the Crown if there are none of the above

It'll take longer to sort out your affairs if you don't have a will. This could mean extra distress for your relatives and dependants until they can draw money from your estate.

If you feel you've not received reasonable financial provision

If you feel that you have not received reasonable financial provision from the estate, you may be able to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 - applicable in England and Wales. To make a claim you must have a particular type of relationship with the deceased, such as child, spouse, civil partner, dependant or cohabitee.

Bear in mind that if you were living with the deceased as a partner but weren't married or in a civil partnership, you'll need to show that you've been 'maintained either wholly or partly by the deceased' - this can be difficult to prove if you've both contributed to your life together.

You need to make a claim within six months of the date of the Grant of Letters of Administration.

This is quite a complicated area and a claim may not succeed. It's advisable to ask a solicitor's advice. They would charge for this service.

Inheritance Tax and your will

If you leave everything to your husband, wife or civil partner

In this case there usually won't be any Inheritance Tax to pay because a husband, wife or civil partner counts as an 'exempt beneficiary'. But bear in mind that their estate will be worth more when they die, so more Inheritance Tax may have to be paid then.

However, if you are domiciled (have your permanent home) in the UK when you die but your spouse or civil partner isn't you can only leave them £55,000 tax-free.

Other beneficiaries

You can leave up to £300,000 tax-free to anyone in your will, not just your spouse or civil partner (tax year 2007-2008). So you could, for example, give some of your estate to someone else or a family trust. Inheritance Tax is then payable at 40 per cent on any amount you leave above this.

UK Charities

Inheritance Tax isn't payable on any money or assets you leave to a registered UK charity - these transfers are exempt.

Wills, trusts and financial planning

As well as making a will, you can use a family trust to pass on your assets in the way you want to. You can provide in your will for specific assets to pass into a trust or for a trust to start once the estate is finalised. You can also use a trust to look after assets you want to pass on to beneficiaries who can't immediately manage their own affairs (either because of their age or a disability).

You can use different types of family trust depending on what you want to do and the circumstances. Setting up a trust is complicated and you'll need to get specialist advice, so it's normally only worthwhile if you've got a large estate. If you expect the trust to be liable to tax on income or gains you should inform HMRC Trusts as soon as the trust is set up. Also bear in mind that since 22 March 2006, for most types of trust, there will be an immediate Inheritance Tax charge if the transfer takes you above the Inheritance Tax threshold. There will also be Inheritance Tax charges when assets leave the trust. Read our related articles to find out more.

So if you die without a will, the law decides who gets what. I guess, you and your loved ones would not be happy if this happens, would you?