Wills, Gifts & Generational Money

Estate planning is consistently deferred. The combination of mortality, family complexity, and legal unfamiliarity makes it a topic people intend to address at some point. For most, that point arrives later than it should — or not at all. The consequences of dying without a will, or without having addressed basic estate planning, fall on the people you care most about at a moment when they're least equipped to handle them.

The mechanics covered here are not complex. Acting on them requires a few hours and, for most people, modest professional costs. The protection they provide is significant.

Dying without a will

If you die without a valid will, the intestacy rules determine what happens to your estate. These rules follow a fixed hierarchy of relatives and may produce an outcome that bears no resemblance to your actual wishes. For married couples, the rules may mean a surviving spouse receives less than expected if there are children. For unmarried partners, the outcome can be particularly stark: a cohabiting partner has no automatic right to inherit anything, regardless of the length or nature of the relationship.

A will costs relatively little to have drawn up by a solicitor and provides complete clarity about your intentions. It also allows you to appoint executors you trust, specify guardians for minor children, and make provisions for people or causes important to you that the intestacy rules would not recognise.

Inheritance tax

Inheritance tax (IHT) is charged at 40% on the value of an estate above the nil-rate band, currently £325,000. A residence nil-rate band of up to £175,000 applies additionally when a family home is left to direct descendants, bringing the total potential threshold to £500,000 per person. Married couples and civil partners can combine their allowances, creating a potential threshold of up to £1 million.

Lifetime gifting

Giving money away during your lifetime is one of the most straightforward ways to reduce a potential inheritance tax liability, provided you survive long enough after making the gift. The main rules:

• Gifts of any amount become fully exempt from IHT if you survive seven years after making them — the so-called seven-year rule.
• The annual exemption allows you to give away up to £3,000 per tax year without any IHT implications, regardless of survival. Any unused exemption from the previous year can be carried forward once.
• Small gifts of up to £250 per person can be made to any number of individuals each tax year free of IHT.
• Wedding gifts are exempt up to set limits: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
• Regular gifts made out of surplus income — not capital — can be exempt if they form part of a normal pattern of expenditure and don't reduce your standard of living.

Pensions and inheritance

Pension funds are currently outside your estate for inheritance tax purposes, making them a valuable asset to pass on. Ensuring your pension provider holds an up-to-date expression of wishes — naming who you'd like to benefit — is important, as pension funds do not pass under your will. Proposed changes to pension IHT treatment have been announced for April 2027 and are worth monitoring if pension assets are a significant part of your estate.

Lasting power of attorney

A lasting power of attorney (LPA) allows a person you designate to manage your financial affairs or make healthcare decisions on your behalf if you lose mental capacity. Without one, your family may need to apply to the Court of Protection to gain equivalent authority, which is considerably more expensive and time-consuming. Setting up an LPA while you have full capacity is straightforward and relatively inexpensive. Leaving it until capacity is already in question may make it too late.