No ring on it? No Problem*
*As long as you have a Will
It is a common held belief that couples who live together for a period of time enjoy the same rights as a married couple when it comes to dealing with their estate after death. I often hear "I don't need a will as everything will go to my partner". Unfortunately, there is no legal recognition of a 'common-law partner' and if you were to die without a Will your estate will be divided according to outdated Intestacy Rules.
So, if unmarried partners cannot inherit under the Law of Intestacy, who can?
- Nieces and Nephews
- Aunts and Uncles
This list is not exhaustive but it gives you an idea of the type of relatives that could inherit your estate without a will. If there are no surviving relatives who can inherit, your estate passes to the Crown.
The question you need to ask yourself is would you be happy for your estate to pass to siblings etc. instead of your partner? If the answer is no then you need to write your Will to make your wishes known.
What if I write my will and then my partner and I get married?
If marriage is a possibility in the future it is advisable to write your Will 'in contemplation of marriage'. This means that if you go on to marry said partner, your Will would not be revoked.
Partners and Inheritance Tax
One benefit enjoyed by married couples is any gift passed via your Will to your spouse is exempt from Inheritance Tax (IHT). This is not a luxury afforded to partners. Depending on the value of your estate this could therefore create an unexpected IHT bill. In addition to spousal exemption, married couples are also able to make use of each other's Nil Rate Band (NRB-tax free allowance). This currently stands at £325,000 per person (excluding the new Residence Nil Rate Band).
John and Jennifer are married with two children. John's estate is worth £325,000 and Jennifer's is worth £325,000 so their combined value is £650,000. Their Wills state that on first death everything passes to the surviving spouse and on second death the estate is shared equally between their two children.
John passes away and his £325,000 passes to Jennifer. As we know this carries spousal exemption and John has not used any of his NRB.
Jennifer dies and the combined estate of £650,000 now passes in equal shares to their children. Children are not exempt beneficiaries for IHT purposes. However, as John and Jennifer were married Jennifer's executors are able to claim John's unused NRB and Jennifer's. This would give an overall NRB for Jennifer of £650,000 meaning there is no IHT to pay as this is the same value as the full estate.
In this next scenario, the estate values are the same however John and Jennifer are co-habiting, unmarried partners.
John passes away and gifts his £325,000 estate to Jennifer. There is no exemption for partners so this gift uses up the whole of Johns NRB.
Jennifer dies and the combined estate of £650,000 now passes in equal shares to their children. However, as John has already used his NRB on first death, Jennifer's executors can only claim her own NRB.
Estate value: £650,000
NRB: - £325,000
Meaning that IHT is payable at 40% of £325,000 which is a staggering £130,000!
Nil Rate Band Discretionary Trust
The above may have come as a shock to you but with the correct estate planning and use of relevant trusts, unmarried partners can make use of each others NBR- which could significantly decrease the IHT bill paid on second death.
For more information on writing your Will or Nil Rate Band Discretionary Trusts call 01642 968707 or fill in your details here. http://www.dswills.uk