Martin Lewis, Editor of Money Saving comments on Wills and saving money on inheritance tax.

What'd happen to your kids if you died?  

Nearly one child in 20 loses a parent before finishing education. It's important to consider the financial impact on them. Life insurance can be cheap, and ensure you've an up-to-date will.

Dealing with inheritance tax is one of the biggest single MoneySaving things you can do, as some simple actions can save you £100,000s. Yet sadly many people ignore it; either not wanting to consider the future or simply unable to broach it with relatives for fear of embarrassment or seeming grasping.

It's time we ended that. As Ben Franklin said, the only things that are certain in life are death and taxes, and this touches on both of them. So, whether you stand to inherit or leave the money, it's time to sit down and tackle these issues with your family as a grown up. Don’t try and couch it in soft terms, the easiest way is to be matter-of-fact and go for it head on.

Inheritance Tax is clearly a huge area of MoneySaving; after all you don’t want to be super-savvy all your life just to have most of what you’ve saved go to the taxman. If that’s what you’re worried about, there’s a couple of extra things you should think about:

  • Make a will.

This is actually a really sensible step for anyone thinking about the perils of Inheritance Tax, and what happens to your money once you’ve gone.

  • Get advice.

While I normally tell people to try and do things themselves as it's much cheaper, if you have sizeable assets Inheritance Tax is one of the few occasions I think paying for good professional legal or tax advice is well worth the money – a few hundred quid to save £100,000s.

Do you need a will?

Die will-less and your affairs can be in limbo for years. Yet many either don't want to think about it or are worried about the cost. You must be aware it could leave behind big problems, possibly as severe as being unable to pay the bills as the bank's locked off the money. So...

Whatever your age, if you've assets eg, a house, savings, or a business, and people or others you'd like to look after, consider making a will.

While thinking, talking & planning for death may feel uncomfortable, you need to consider how much worse the situation would be if you died or became incapacitated - through illness, accident, old age or emergency - without sorting it.

There are many specific reasons to write a will including:


  • Children: If you have children or step-children under 18, you should choose who will look after them and ensure there are funds to help.
  • Unmarried couples: The law doesn't really recognise this, so without a will don't expect anything to go to your partner.
  • Divorced: You may want to update your will to include what happens to your assets if a previous partner remarries.
  • Pets: Decide what should happen to family pets.
  • Specific funeral plans: If you know what you want your funeral to be like, you can detail it so that your family doesn't have to make the decisions.
  • Property: ‘Joint tenant' mortgages automatically pass to the other owner but if you've a ‘Tenants in common' mortgage it's important to say what happens to your share of the house. If you own a property overseas, inheritance laws may be different to the UK.
  • Change in circumstances: Update your will when you marry, divorce or have kids.
  • Small business: It's possible with sole directors, that if you die without executors no one can make decisions to authorise payments (including to staff), so your business could collapse.

What does a will do?

It has three main functions…

  • To name your executors

These are the people who'll look after the financial process when you die. Try to choose a responsible and trusted friend or relative, who can think clearly in a troubled time. Alternatively some name a bank or solicitor, though they often charge monstrous fees (and can add themselves automatically), so ensure you only allow this if you've chosen it for yourself.

They're also the people who will sort out any finances – such as paying off the mortgage and/or other debts out of the estate  One useful tip we've seen recently is to even include internet passwords in a will so that your executor has access to all of your online accounts.

  •  To distribute your estate

This is where you work out who you want your estate to go to. That means everything you own at the point you die, including property, businesses, car, savings, investments, pension fund, life insurance, expensive jewellery, pets and more.

Be aware though you can't force people to take what you leave them. Whether it's a sofa, or house in negative equity, they don't have to take it.

  • To mitigate inheritance tax

If you die intestate (without a will) there are strict laws about to whom and how your estate is distributed . This causes two problems – first the money may not go where you want – and secondly it's likely to be inefficient for inheritance tax purposes.

The law says you pay 40% of any assets worth over £325,000 that you leave, so those with valuable houses or larger estates could pay a fortune. Yet there are many legal ways to plan to reduce this.

It's not just when you die that having a will can come in useful. Everyone should consider having a will to say who should look after their finances if they become unable to do it themselves; due to dementia, mental illness or being in an accident. Or if you know that's coming, appoint what's called a lasting power of attorney.

If you've no living will or lasting power of attorney, and this happens to you, the responsibility for looking after your estate passes to the government.

If you've nothing in place, your family will need to apply for a court order, which can take years to process, to get back in control of your estate.

More info about this on the Public Guardian website.

The above are extracts from Martin Lewis’ website Money Saving expert. Com 23rd May 2012