It’s been a bit of a rocky year for investments, with headline-grabbing troughs - and less well-reported rises too. As investments and pension statements and reports drop through our letterbox, many of us will not have made the returns of past years.
If this causes you concern, remember than any short term falls in stocks and pension values are just that - short term. Whilst (at time of writing) last-minute Brexit negotiations may be causing currency fluctuations, the rollout of a COVID-19 vaccine offers a long-term solution to the pandemic and a more stable economy.
Short-term loss may feel painful in the moment, but in the long term, it is usually just another blip on a graph. If you have concerns, your first move should be to book a review. You can talk through your current plan and estate, and then discuss any actions you might want to take with your financial advisor. (Just to say that Panthera Estate Planning does not provide regulated financial advice, so we would introduce you to our sister company Panthera Wealth.)
A steady and considered approach will prevent any rash decisions made in haste, and keep you on track to ensure you have the right amount to maintain your lifestyle in retirement.
Asset values and legacies in your will
In general, rises and falls in the value of your estate won’t affect legacies in your will, if they are allocated proportionally. So, for example, you might choose to leave your five children 10% each of your estate, and your spouse the remaining 50%. Regardless of the actual value of your estate at the time of your death, those proportions remain the same.
As a result:
- If the value of your estate is less than at the time you made your will, beneficiaries may receive less than you intended.
- Conversely, if the value of your estate has risen considerably, and you haven’t revised your will, some beneficiaries may receive a lot more than you originally intended.
You may consider that a percentage allocation is both the fairest and an ideal “Goldilocks” solution - giving each beneficiary a share in your legacy that is not too big, not too small, but just right!
The Inheritance tax threshold
There is another reason to review the value of your estate, in that rising asset values could tip you over the Inheritance tax threshold. The issue here is that the allowances for Inheritance Tax have not risen, so sometimes even a modest rise in value can result in a tax bill. (For more details see our recent article on reducing Inheritance Tax.)
Monetary gifts in your will
Proportions alone won’t guarantee a certain amount, but they are much more flexible than fixed amounts. You can leave a monetary gift for a specific amount in your will to a named beneficiary. However, if there are insufficient funds in the estate to pay this, the estate has to find that money to pay the beneficiary and honour your wishes.
Say you wish to leave a sum to charity, for example. Rather than saying the charity should receive a fixed sum of £x thousand pounds, it may be better to define your gift as a low, single figure percentage of the overall estate value instead. The proportions and therefore value of that percentage will rise and fall with the overall value of the estate, just as it does for other beneficiaries.
Think about your executor
When the ‘estate’ is paying any shortfall, this is actually the responsibility of your executor, as they will administer and run the estate until probate is granted. Being an executor for a will is a big responsibility, and the very last thing you want to do (so to speak) is to add to your executor’s workload by inadvertently increasing their financial burden too. This is because an executor will have to maintain the estate whilst it is in probate.
Here’s an extreme example. If your will leaves a legacy gift of £50,000, but there is only £10,000 in liquid cash and a house, the executor will have to arrange the selling of the house before funds can be paid. If there is £50,000 in cash, they could pay the legacy before having to sell the house. However, this would not leave any money in the estate to pay the bills. So it would be down to the executor to fund or arrange bills to be frozen.
Concerned that your will includes defined monetary gifts?
A will is a living document, and so you can change your will at any time. Indeed, any will should be reviewed, revised and updated regularly, to ensure it reflects your current wishes for your legacy and your family situation. You should review at any major life event, such as the birth of a new grandchild, a new son or daughter in law, or a change in circumstances for you such as selling the family home.
Getting divorced or remarrying?
Your marital status matters too. Any current will you have made becomes automatically invalid if you remarry, but not if you divorce. So, it’s important to change your will after divorce proceedings start if you don’t wish your soon-to-be-ex-spouse inheriting.
Equally, you should consider a pre-nuptial agreement before a second marriage, and create a new will as soon as you are married to protect the interests of your first family children and relatives. You can make a new will before you remarry, but to be valid it must expressly state that it is made ‘in contemplation of marriage’. This means that you expect to be married to a certain person by the time the will is executed, giving you more wriggle time to enjoy the honeymoon!
Review your will with Panthera Estate Planning
You don’t have to be an existing client to benefit from our will writing services. At Panthera Estate Planning, we have years of experience in helping people:
And, of course, we specialise in estate planning so you can live the life you want once you’ve retired. Our sister company Panthera Wealth can also help you with financial advice and asset management services
So, Panthera Estate Planning is a bit of a one-stop shop for ensuring that those short-term falling assets don’t have a long-term effect! Call us to discuss your current situation and concerns in a no-obligation initial consultation. We’re here to help.