Brodies’ recently expanded personal and family law team in Aberdeen proposes an alternative New Year’s resolution – a review of important areas of your life that need to be kept fit for purpose to protect your assets and family relationships.
Most New Year’s resolutions tend to focus on changing some perceived or real bad habit. I would like to suggest an alternative for 2016: “This year, I will get my house in order.”
This isn’t about addressing a bad habit, nor indeed embarking on a much-needed New Year tidy-up after the Hogmanay festivities. It’s about reviewing your assets and making sure that your wealth is protected for you and those who you wish to pass it on to.
All of us could benefit from thinking about what we might do to ensure that our personal assets are adequately sheltered from the various, and sometimes unexpected, events that life throws at us. Some of these, such as death, are inevitable, while others, such as divorce, may or may not happen.
The stress test, though, is what if these events were to happen in the short term? Would your assets be protected and would they pass on to those whom you would want them to go to? And would your preferred heirs’ interests be diminished or extinguished by unwanted claims from other people, now or at some point in the future?
Inevitably, planning of this nature involves some potentially difficult considerations relating to personal matters that many of us would rather not confront. Of course, the emphasis also changes as the years pass. Planning as a young adult involves very different considerations to those when entering into a relationship, raising a family or when we are about to, or have already, retired.
In this and two further articles we will consider a number of matters that could be part of your New Year’s resolution and look at the relevance of these for us at different stages of life.
Let’s start, as it were, at the end. Benjamin Franklin’s observation that “in this world nothing can be said to be certain, except death and taxes”, is an important reminder of our mortality and also the impact that taxation can have on those assets that we pass on to our family or other chosen heirs. While we are generally unable to predict when death will occur, we really do need to think, from a legal perspective, about preparing for when it does.
Despite the fact that an estimated 60% of us do not have a will, it is one of the main tools by which you can determine what happens to your assets in the event of your death. The basic components of a will are:
The appointment of executors who will deal with the administration of your estate – usually spouses/partners, adult children, close family or friends, business associates or professional advisers. In most cases this role is purely administrative, however, in the case of more complex wills the executors may need to take more fundamental decisions.
Provisions regarding “who gets what?” This sometimes includes leaving cash legacies or bequests of certain items to specific people, and always involves stipulations regarding how the “residue” of your estate should be apportioned. The residue is everything left after legacies, bequests, paying off any debts, meeting funeral and administration expenses, and paying any inheritance tax applicable on death.
Protective provisions, where required, such as stipulating that a young person will inherit their interest in the estate at a specific age, rather than the default age of 16. The point is to prevent the risk that a young adult has access “too much, too soon”. Until they reach the chosen age the assets are looked after by the executors.
Appointment of guardians in respect of the upbringing of any children who are not yet adults.
For many people a will alone may not be enough to ensure that all of the assets pass to the chosen heirs. This is because there are a number of assets or interests that become payable on death but do not “flow” through a will. The main examples of these are:
Houses that are owned by more than one person with a “survivorship” provision in the title deed. This means that on the death of one of the owners their share passes to the survivor(s). Although less common, many of these survivorship provisions still exist.
Interests in certain types of pensions that are dealt with at the discretion of pension scheme trustees. In this case it is important to tell the trustees of the pension scheme how you wish any remaining pension funds on your death to be dealt with. A number of recent pension changes providing for much greater flexibility make it even more important to keep your pension provisions under review.
“Death in service” benefits, commonly calculated as a multiple of salary. These are normally paid at the discretion of trustees but it should be possible to nominate the intended recipients.
Life assurance. It is possible to inform the trustees of the relevant life assurance policy trust who you wish to receive the proceeds in the event of death.
For young adults, perhaps not yet in a serious relationship or with children, there is often a view that a will is not really a requirement. However, where a person dies in Scotland without a will, the law of intestacy dictates that where there is no surviving spouse or civil partner, half of the deceased’s estate will pass to their parents and half to their brothers and sisters.
Having a will allows you to stipulate who you would like the beneficiaries to be and also makes the executry administration process less costly. Once in relationships or with children, getting a will is even more important. This is because the law of intestacy is less likely to get the balance right between a surviving spouse or partner, the children and others.
The moral of the story here is “take control”. Get a will and don’t forget about all those assets or interests that pass outside it.
Mark Stewart is a partner in the personal and family team at Brodies LLP. For more information, contact him on 01224 392282 or at mark.stewart@brodies.com