Life can be unpredictable, so putting measures in place to safeguard our future and that of our loved ones is crucial.
Two essential mechanisms for ensuring our wishes are honoured both during our lifetime and after passing are a will and a power of attorney.
An astonishing percentage of UK adults are currently without either, leaving them and their beneficiaries at risk of stressful legal processes and family disputes.
This blog post explores the importance of both wills and power of attorney.
Many UK adults don’t have a will
Remarkably, some 60% of UK adults don’t have a will, including 37% of those aged between 35 and 54.
At 65+, over a third of adults still don’t have a will in place.
The same survey, conducted by Unbiased.co.uk, found that many adults needlessly put off creating a will as ‘they’ll do it when they’re older.’
Millions of adults run the risk of dying intestate, which burdens families and other beneficiaries with additional stress and hassle in addition to the possibility of paying more tax.
Why wills matter
A will is a legal document that clearly articulates your wishes concerning the distribution of your assets after your death.
If you pass away without a will – known as dying intestate – your estate is divided according to statutory regulations, which may not align with your desires or the needs of your loved ones.
Having a will in place can make a significant difference to inheritance tax (IHT), which currently stands at 40% for estates valued over £325,000 (or £500,000 if you qualify for the residence nil-rate band). However, carefully planning and structuring your will can reduce this tax burden, thereby maximising the wealth you pass onto your beneficiaries.
Beyond asset distribution and tax, having a will can spare your beneficiaries unnecessary complexity and stress when administering your estate. This is especially useful if you have a non-traditional family structure or if your estate consists of business assets.
In the absence of a will, your wealth may not reach the intended beneficiaries, and family disagreements over distribution can lead to protracted legal disputes.
Even for those who don’t anticipate having enough assets to pass on to warrant a will for tax purposes, they vastly simplify the inheritance process.
Power of attorney: your safety net
While a will outlines what happens after your death, a power of attorney safeguards your interests during your lifetime.
Essentially, a power of attorney is a legal document allowing you to appoint a trusted individual to make decisions on your behalf should you become incapable due to illness or incapacitation.
Stats regarding power of attorney are worse than wills, with an estimated 77% of UK adults not having one in place.
There are two types: health and welfare power of attorney, which covers decisions about your medical treatment and daily care, and property and financial affairs power of attorney, which involves managing your money and assets.
Here’s a brief synopsis of each:
- Property and financial affairs: Allows you to appoint an individual to make decisions about your property and finances in case you lose mental capacity. This includes managing bank accounts, paying bills, collecting benefits or selling your home.
- Health and welfare: This allows you to appoint someone to make decisions about your health and care, but it can only be used once you have lost mental capacity. This includes daily routine decisions (like eating and dressing) and medical care decisions (like life-sustaining treatment).
Without a power of attorney, your family could face a long, potentially expensive court process to gain the authority to handle your affairs.
Moreover, your wishes regarding your care and assets may not be fulfilled if you’re unable to express them personally.
Inheritance tax, intestacy, and stress
Being without a will
Without a will, assets are divided according to intestacy laws, not the deceased’s wishes.
This could create conflict among survivors who might disagree on the fairness of asset distribution.
This is true even regardless of any tax implications – so it’s unwise to write off creating a will just because you anticipate having fewer assets than the IHT threshold of £325,000.
Inheritance tax troubles
Unprepared heirs might face a hefty IHT bill, adding a financial strain to the emotional impacts of bereavement.
Prudent planning, such as annual gift allowances or trusts, can help lessen this burden. Without a will and proper estate planning, these options may go overlooked, leading to heavier taxation.
Power of attorney predicaments
Without a power of attorney, loved ones could struggle with tough decisions about your care and finances if you become incapacitated.
They may need to apply for a costly, time-consuming deputyship order. Moreover, they’ll have to make crucial decisions without clear guidance, potentially causing guilt, stress, and family disputes.
Make your wishes known
In the end, the risks of being without either a will or power of attorney are too great to neglect, even for those that perceive them to be unnecessary.
With a will and power of attorney, you retain control over your assets and your care, reduce the potential for familial conflict, and minimise your tax liability.
These documents aren’t just paperwork – they’re expressions of your wishes and a safeguard for your peace of mind and the well-being of your loved ones.