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Wills for unmarried couples
If you are in a relationship and are not married then if a partner dies the survivor would not receive any automatic provision from the deceased’s estate.
Assets held in joint names will pass automatically to the survivor, therefore if an unmarried couple has purchased a property as joint tenants, or if they have a joint bank account, those assets will pass to the survivor. However, any assets held in an individual’s sole name will not pass to a surviving partner under the Intestacy Provisions.
It is clearly important therefore to prepare a Will making sure that you provide for your partner in such circumstances. However, the Inheritance Tax regime may make you wish to consider whether preparing a simple Will, leaving everything directly to your partner outright, is the right thing to do.
If an unmarried couple have assets in each individual name in excess of £325,000, then on the first death there will be Inheritance Tax to pay, on anything over the Inheritance Tax threshold of £325,000. On the second death there will still only be one Nil-Rate Band allowance of £325,000 available, with a further Inheritance Tax liability arising at that time. This could lead to paying Inheritance Tax twice on the same assets.
For many, this double liability to Inheritance Tax may appear to be unfair, but I think it is unlikely that the government will rush to make any changes to this. It can, however, prompt some people into getting married, even at the last minute!
If you are not going to get married, so that the estate will qualify for the spouse exemption, then what might you do? One way in which the double tax liability might be avoided is for a Will to be prepared leaving assets to a Discretionary Trust. The surviving partner could be one of the Trustees and would certainly be one of the beneficiaries. However, whilst the assets remain within the Discretionary Trust they would not form part of the estate for the survivor and give rise to a second Inheritance Tax liability on the second death.
This may or may not appeal to some people, because there would be no certainty that the survivor would be guaranteed to receive the same level of benefit or freedom that they would if everything passed to them directly under the terms of a Will. However, for others, it will be a case of looking at the potential impact of Inheritance Tax and making a conscious decision that action should be taken to protect the estate from the impact of Inheritance Tax, even if there are extra complexities that arise.
If this is something you wish to discuss in more detail please feel free to get in touch with Richard Horwood.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.