Why it makes sense to check your will

It's not usual for both parents to  be involved in a fatal accident, but it does happen. Picture: Ian Rutherford
It's not usual for both parents to be involved in a fatal accident, but it does happen. Picture: Ian Rutherford
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IT pays to know how your family will fare, says Dianne Paterson.

Although a couple dying together in a common accident is still a relatively rare occurrence, it has been customary, when drafting wills, to take account of such a situation, in the unlikely event of a spouse or partner dying in quick succession. It is therefore still usual, when reviewing wills, to come across “30-day clauses” or “survivorship” clauses in the wills of married couples or civil partners.

These clauses provide that, on the death of the first, their estate only passes to their partner, “if their partner survives them for 30 days”. The reason for including such clauses in the past was to prevent a situation of the estate of the first passing in quick succession through the estate of the other, only to find that the other had already died in that same accident or shortly thereafter.

These clauses were generally seen to have advantages, including the possibility of saving considerable administrative costs as well as inheritance tax. However, since the introduction of “transferable nil rate bands”, any potential inheritance tax advantage with these clauses has disappeared.

A nil rate band is the tax free allowance to which everyone is entitled. At present the nil rate band stands at £325,000, which means everyone is entitled to leave up to £325,000 without paying any tax. In addition, there is no tax payable between married couples and civil partners, whatever the amount (“surviving spouse exemption”).

Previously, if everything passed to the surviving partner, only for them to die in quick succession, it meant the allowance of £325,000 on the first death was not used up (as it has passed to the spouse under “surviving spouse exemption”) and the nil rate band allowance on the second death of £325,000 might not be sufficient to cover the value of the combined estate.

However, as mentioned, since the introduction of the “transferable nil rate band” any possible tax saving have disappeared by allowing any unused allowance on the first death to be claimed on the second death. This means that the allowance on the second death can be doubled to £650,000, which might actually be sufficient to cover the value of the combined estate in some cases. It also means the inclusion of a 30-day clause now in a will could cause problems in certain circumstances, if the estates of the respective spouses are considerably different in value. For example, if a couple were involved in a car accident where the husband died instantly and the wife died a few days later, there could be a problem if the husband owned assets with a value significantly over £325,000 in his own name and the wife owned assets significantly under £325,000.

If there was a 30-day clause in the husband’s will, his estate would not then fall to his wife under “surviving spouse exemption” but to his children, who would be required to pay 40 per cent on all his estate exceeding £325,000.

Whilst the children would not have to pay tax on their mother’s estate on her death a few days later, it being under the £325K nil rate band, they would not have been able to have made use of any the unused relief on her estate to set against the tax payable on the estate of their father.

If there has been no 30-day clause in either will, then the combined estate would have passed to the children on their mother’s death, with an allowance of £650,000 in total, which may well have been sufficient to cover the whole estate.

Such an example might suggest the transferable nil rate band has rendered the 30-day clauses redundant altogether; however, this is not quite the case. If an estate is so small that inheritance tax is not a consideration or so large that both nil rate bands are swallowed up anyway, then 30-day clauses might still have a role to play in certain situations, particularly if, without one, there is a risk that the estate might pass on to unintended beneficiaries, as well as incurring additional administration and expenses.

Just as everyone is different, so too are their needs and wants when it comes to the drafting of their will. There is no such thing as a standard will and it is for this reason that wills should not only be carefully drafted but also, more importantly, frequently reviewed. 

• Dianne Paterson is a partner with Russel + Aitken LLP.

dianne.paterson@russelaitken.com

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