Make writing your will your top 2014 New Year resolution

As much as we might not want to think about it, we are all going to die one day. Most of us know that we should write a will, but most of us never get round to it. Do you fall into this category? If the answer is ‘yes’, as the New Year approaches make writing your will your top 2014 resolution.

Writing a will gives you peace of mind that your wishes will be respected after you die and, by making those wishes clear, you can save your loved ones any additional stress at what is likely to be a very difficult time. Not writing your will could have serious consequences for those you leave behind. If you die without getting your financial affairs in order, your money, personal belongings and even your home could go to the person you least want to have them, and your loved ones could lose out.

Get your financial 
affairs in order

  • Specify exactly how you want to divide up your assets, including any property, savings, business interests, personal effects and even pets – known in legal terms as your ‘estate’
  • Appoint a guardian to care for your children as well as making specific financial provisions to help them do so (otherwise, it will be up to the courts to decide who looks after any children under 18 who are left without a parent)
  • Use your will to save tax and potentially reduce or eliminate the amount of inheritance tax that may need to be paid on your estate
Protect your assets for future generations and give yourself peace of mind that your affairs are in order

How will your estate 
be shared out?
In England or Wales (some areas of the law and legal procedures are different in Scotland), if you die without a valid will, laws known as the Rules of Intestacy will determine how your estate is shared out. Importantly, only spouses or registered civil partners and certain blood relatives can inherit under these rules – unmarried partners who are not in a civil partnership cannot benefit, nor can relations by marriage or close friends, even if there are no qualifying blood relatives (in which case your estate will pass to the Crown).

A difficult financial position
Not having a will can mean lengthy delays in distributing your assets, in some cases years, which could leave your nearest and dearest in a difficult financial position, depending on your situation.

Family lives are often now more complicated, with more couples divorcing and second marriages and second families on the rise. In such cases, it is even more important to have a suitable will in place.

It is also essential you remember to review your will, especially when life changes occur. 
Life events such as a second marriage will revoke any previous wills, and a divorce will cancel any benefit to a former spouse, unless the will specifically states that divorce should 
not affect the entitlement.

Reduce a potential tax burden
Currently, if you leave behind an estate worth more than £325,000 (2013/14 tax year), inheritance tax (IHT) is levied at 40 per cent on anything above this threshold. If this is likely to apply to you, writing a will could help you reduce the potential tax burden on your beneficiaries.

It makes sense for a married couple to write their wills in conjunction with each other as, usually, the IHT is only an issue on the second death. Careful planning on the first death can, however, sometimes reduce the total eventual tax liability

This is because bequests between spouses are exempt from IHT and so it is easily possible to avoid any tax liability at that stage. The issue is delayed rather than avoided altogether, so the will of the first to die should be written with that in mind.

Also exempt are gifts to charities. Any money you leave to charity is not taxed, and if you leave more than 10 per cent of your estate to charity, any IHT payable on the remainder will be charged at a reduced rate of 36 per cent.

The Financial Conduct Authority does not regulate Taxation & Trust advice or Will Writing.

Choosing the retirement option that’s right for you

Your retirement should be something to look forward to, not worry about how to make ends meet. Whatever you want to do, understanding how to build up enough retirement savings and how pensions work should help you achieve your goals.

Your accumulated pension pot will have been hard-earned over years of work. It is only right you eventually have the freedom to choose how and when you access your money during your retirement.

At the moment, people don’t have total flexibility when accessing their defined contribution pension during their retirement – they are charged 55% tax if they withdraw the whole pot. But from April 2015, people aged 55 and over will only pay their marginal rate of income tax on anything they withdraw from their defined contribution pension – either 0%, 20%, 40% or 45%.

How the current system works
Under the current system, there is some flexibility for those with small and very large pots, but around three quarters of those retiring each year purchase an annuity.

Current pension pot options
Currently, you can take up to 25% of your pension pot tax-free. With the remaining amount, you have these options:

If you are aged 60 and over and have overall pension savings of less than £18k, you can take them all in one lump sum – this is ‘trivial commutation’

A ‘capped drawdown’ pension allows you to take income from your pension, but there is a maximum amount you can withdraw each year (120% of an equivalent annuity)

With ‘flexible drawdown’, there’s no limit on the amount you can draw from your pot each year, but you must have a guaranteed income of more than £20k per year in retirement

Buy an annuity – an insurance product where a fixed sum of money is paid to someone each year, typically for the rest of their life

If you withdraw all your money, you are charged 55% in tax. Regardless of your total pension wealth, if you are aged 60 or over, you can take any pot worth less than £2k as a lump sum, as this classifies as a ‘small pot’.

Proposed changes
Commencing 6 April 2015, from age 55, whatever the size of a person’s defined contribution pension pot, the proposal is that you will be able to take it how you want, subject to your marginal rate of income tax in that year. As previously, 25% of your pension pot will remain tax-free.

There will be more flexibility. However, for those people who continue to want the security of an annuity, they will be able to purchase one, and those who want greater control over their finances can drawdown their pension as they see fit. People who want to keep their pension invested and drawdown from it over time will be able to do so.

To help people make the decision that best suits their needs, everyone with a defined contribution pension will be offered face-to-face guidance on the range of options available to them at retirement.

Interim changes
There have been a number of interim changes that took effect from 27 March 2014, prior to proposed changes that commence from next April.

These include:

The amount of overall pension wealth you can take as a lump sum has been increased from £18k to £30k. In addition, the amount of guaranteed income needed in retirement to access flexible drawdown has been reduced from £20k per year to £12k per year

The maximum amount you can take out each year from a capped drawdown arrangement has been increased from 120% to 150% of an equivalent annuity

The size of a small pension pot that you can take as a lump sum, regardless of your total pension wealth, increases from £2k to £10k

The number of personal pension pots you can take as a lump sum under the small pot rules increases from two to three

Who benefits?
The interim changes will mean around 400,000 more people (according to the Government) will have the option to access their savings more flexibly in the financial year 2014/15.

From April 2015, the 320,000 people who retire each year with defined contribution pensions will have complete choice over how they access their pension.

‘Save smart’

We’re becoming increasingly good when it comes to cost cutting, according to the latest findings of an annual online survey from long-term savings and investment specialist Standard Life by YouGov PLC.

Today, more than 9 out of 10 of us (92%) actively manage our costs to make our money go further. There has been a strong growth in the number of people reviewing phone tariffs, internet tariffs and utility providers, and these days more people are looking online to find the best deals.

Controlling costs
More young people in particular have taken steps to actively control their costs in the past year. 42% more under-25s are regularly reviewing their phone and internet tariffs to save money, and 33% more are making sure they pay off their credit cards each month.
Meanwhile, 21% more people aged 55 and over report that they set themselves a weekly or monthly budget. However, as a nation, the number of people budgeting has declined by 5% this year.

Potential for higher returns
While most Britons are busy cost-cutting – buying things second hand, reviewing insurance premiums, budgeting and ensuring they get the best deals all round – those who are ‘saving smart’ by using an Individual Savings Account (ISA), either a Cash ISA (41%) or a Stocks & Shares ISA (11%), remain in the minority. Even fewer say they plan to actively save in a Cash ISA (38%) or a Stocks & Shares ISA (9%) this tax year.

From July this year, you will be able to save up to £15,000 in the New ISA, and you will also be able to transfer ISA savings freely between cash or stocks and shares. Therefore, rather than putting all of our money away in a savings account, you now have a chance to save smart with even more of your money. The higher ISA limit also increases the opportunity you have to invest in stocks and shares tax-efficiently, with the potential for higher returns than if you keep everything in cash.

Helping you ‘save smart’:
1. Use as much of your ISA allowance as possible each tax year. Between 6 April and 1 July, there are temporary limits of £5,940 for Cash and £11,880 for Stocks & Shares ISAs. After this, the new ISA (NISA) rules apply and you will have the chance of greater tax-efficient growth over the longer term by being able to invest £15,000 each tax year.

2. Always hold some money in cash to cover your outgoings (such as your rent, mortgage, food and utilities) in case of emergencies, before looking to invest for the longer term. But make sure you are getting the best interest rate on your cash by looking at both savings accounts and Cash ISAs.

3. If you are dipping your toe in the stock market for the first time, you should obtain professional advice when it comes to choosing funds for a Stocks & Shares ISA.

4. The important thing is to think about how much risk you are willing to take. You may also want to consider ‘risk-managed funds’, which have been growing in popularity with some investors. They provide you with a diversified portfolio that is managed for you, with the aim of providing the best possible return, in line with your chosen level of risk.

Tax rules and legislation can change and the information given here is based on our understanding of law and current HM Revenue & Customs practice. The value of an investment can fall or rise, so you may not receive back the amount you invested.

All figures, unless otherwise stated, are from YouGov Plc. Total sample size for the 2014 survey was 2,591 adults, 2009 adults in 2013 and 2,004 adults in 2012. Fieldwork was undertaken between 5–7 March 2014, 25–28 January 2013 and 23–27 February 2012. The surveys were carried out online. The figures have been weighted and are representative of all GB adults (aged 18+)