141- Legal Must Haves Part 1: Why You Need A Will

In this episode, Benjamin shares the importance of having a Will when it comes to your financial plan. 

You've spent years carefully building your wealth and creating a solid financial plan, but without a Will, it can all be undone extremely quickly on your passing. Wills can help avoid costly tax mistakes and legal costs in the future.

In next week's episode, Benjamin will cover off the importance of a Power of Attorney (POA) arrangements. 

Nail these things down, money nerds, and then focus on what really matters in life. 

Join Benjamin Mitchell (themoneyscot), serial hater of financial jargon, as he helps make your finances clearer and ensures you never make another financial mistake.

Getting on top of your personal finances doesn't need to be complicated or scary. Arm yourself with the only knowledge you need to transform yourself from money novice to money nerd! 

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Disclaimer - please note that nothing in this podcast can be relied upon as financial advice and the content is provided purely for information and guidance purposes. Please seek independent, regulated financial advice relevant to your situation.

Transcript

SPEAKER_00 0:10

Hello, money nerds, and welcome to this episode 141 of Heads Up on Money, and we're talking this week about some of the legal risks in place with your financial plans, and primarily in this first episode, I'm going to cover the importance of why you should have a will. I'll go into it in a bit more depth in a moment, but as a quick call-out for me to say as always, if you are enjoying Heads Up on Money, if you are enjoying my ramblings every personal finance Friday, then please do like and subscribe to the show. It really helps to get the podcast up the podcast charts and gets money knowledge to more people. Thank you very much from me. Any time you take to do this is hugely appreciated, money nerds. So anyway, we're into the 26-27 tax year. Everything is touch wood, still okay. It's been a bit of a tumultuous time globally regarding trade wars and potential World War III. We're all seeing the negative headlines. And of course, we know by now money nerds, when it comes to your financial plan, the portfolios that you should have are based on long-term projections, not short-termism, which is all that share prices are in the short term, is the reactive to market news. And of course, the prices of securities are highly volatile in times like these when there's lots of noise circulating in markets. Markets don't like uncertainty. And of course, neither do we as irrational human beings, but of course, we can remember that we are playing the long-term game when it comes to our financial plans. So as much as you can, money nerds, bury your head in the sand. I know it is difficult, and when times have been, let's say, choppy, not only from a portfolio stance, but from a life stance, let's be honest, things are a bit crazy at the moment. You just have to tune it out as much as possible. So in this week's episode, I'm kind of kind of taking a side step into a more legal matter. Now, I am not a solicitor, I am not regulated, and indeed do not have the level of expertise to do a very deep dive on these topics. However, the importance of having a will is something I come across so often in my clients' financial plans, and it is miraculous how few of us actually do have a will in place. Even speaking with solicitors that I know in my network, it's it's so surprising how how few of them actually have this in place with their own planning. Now, as I said, it's a legal matter. Whether you have a will or do not have a will, anything that I provide you with today that perhaps spurs you to taking on some action or reaching out to redraft your will, whatever it might be, you do need to speak to a qualified solicitor to do this. Of course, wills can be created yourself, but it's highly advantageous and recommended to do it legally through a professional to make sure your wishes are known. So, welcome back to Heads Up on Money. Now, today, as I've said, we're going to talk on the importance of having a will, and it's something that's pushed to the bottom of our to-do lists. It's it's it's as I said, miraculous how many people I speak to who maybe have done lots of good financial planning foundations, they're investing correctly, they're allocating a good amount of their surplus income every month to investing, they're investing in a tax-efficient manner, utilising tax wrappers where possible, they're reclaiming pension tax relief, they're doing all of the great fancy stuff, but they do not have the foundations in place. Now, the acronym I've used previously on the podcast is BED, in that you need to have basically paid off your bad debts, have a good emergency plan in place, and have disaster planning in place as well, and that links into protection plans so that if the worst should happen, your financial plan remains on track. Now, this is where I would say a will comes in because it's the boring stuff, it's not very exciting, it's also not really nice stuff to think about because when you're drafting a will, you are very much bringing your eventual demise into the forefront of your mind. It's not particularly pleasant to do, and I I speak from experience on that money nerds, but it's absolutely critical. Absolutely critical. It should be a priority way ahead of anything like investment planning or tax planning, because as I'll talk about a little bit in this episode, is without a will, many of your tax planning, in particular inheritance tax planning, can be muddied, it can even be ineffective. So getting a will in place is really, really at the outset of the priorities in your financial plan. You need to have a will and you need to have a power of attorney arrangement in place. Regardless of who you are, I'm gonna be a bit candid here and apply a generalist statement, but everyone should have a will and everyone should have a power of attorney in place. I truly, truly believe that. Regardless of your age, regardless of your complexity of your financial and legal affairs, having these legal documents nailed down in accordance with your wishes is super, super important. Now, so as to not overwhelm you, money nerds, I'm going to cover off the latter subject, power of attorney, in next Friday's episode. But today I just want to focus on the importance of having a will. Now, at its core, what exactly is a will? Well, it's about control at the end of the day. It allows you to clearly set out who should receive your assets when you're no longer here. Also, who should be the person or persons responsible for administering those assets? So dealing with your estate on your passing and effectively carrying out the logistics of it all, that is probably what you've heard referred to as an executor. And if relevant, who should look after your children? You know, what happens to them if you're no longer here? Do you want to get your wishes noted down in regards to that? So will is not just necessarily looked at through a financial lens, it's also just through life and what you'd like to happen when you're no longer here. You can have a whole multitude of things in your will. What exactly you'd want to happen to your children if you're no longer here? What about your pets? Are there any certain things you'd like to pass to certain family members, certain friends who might appreciate those items? You can get into the real minutiae with your will, and it's not just about setting up legal and tax affairs in the most efficient way. Obviously, from a financial planning standpoint, having a will ensures that everything you've worked so hard to build actually goes where you intend it to. Now it's one of the key ways in which you can ultimately protect your wealth and also, more importantly, reduce potential stress for your loved ones at an already difficult time. The way I say it to my clients and any new people coming to work with me is just think of it this way: you spend many years carefully managing your finances. You, as I said, invest in the best manner, you pay attention to the costs you're paying to investment managers, you invest tax efficiently where possible to keep more of your returns in your own pocket. Well, a will is the final piece of that puzzle, and it makes sure that your money and your assets are passed on in an efficient manner and in accordance with your wishes when you're no longer here. Now I think one of the main reasons why most people do not get a will in place, or what I typically see maybe if I go through a few reasons here, is one, it's it's really expensive to do so. And it's not, it's really not, and I speak from experience on that. Getting a solicitor to draft your will, particularly if you've got fairly simplistic affairs and wishes, doesn't need to cost the earth. And it's one of those things you pay it now, you put it to bed, and you forget about it. Now, of course, there are triggers in life when revisiting your will and making sure it still reflects your wishes. There might be life events that happen that might necessitate a review of your will, but but largely speaking, this is one of those things you can just tick off your to-do list and it permits you that financial relief, the release of pressure on your shoulders, and you can move on and enjoy life. And that, of course, is is true with lots of financial planning. Is this stuff it's hellishly boring, it's hellishly dull, and it's also hellishly pessimistic and bleak at times, but you just tear off the plaster and go on headfirst into it, tackle it, nail it down, and move on. So a will is very much in that bucket. Basically, you want to nail this stuff down so that you know what's going to happen to your wealth when you're no longer here. So it's not cost as a barrier, perhaps for most people, it's that reluctance to consider and bring your passing to the forefront of your mind. Obviously, when you have a will in place, this kind of stuff that you've perhaps parked and not really thought about, you've maybe got a loose plan around it, but you've never actually articulated it, you've never actually written it down. Well, sitting down with a solicitor to draft your will obviously will bring this stuff very much to the forefront of all conversation. So many people, they just don't want to get into that mindset. But I would argue the risks, the cons, the costs of not getting this right far outstrip that short-term unrest from thinking about this stuff. But perhaps most people they don't set up a will is because they think, you know what, even if I don't have a will, my affairs are pretty simple, it's all gonna work out in the long run. And that is an extremely costly mistake. If you pass away without a will, you're considered to have died what's called intestate. It's a fancy legal term, basically meaning that you don't have a will and there's laws in place that decide how your assets are distributed according to a set script. So think of this as you do not get to customize what happens to your wealth. Instead, you're ordering off the set menu. And for many people, that set menu will not accurately reflect what you would wish to happen to your wealth, and it can mean your wealth goes to the wrong people, it can mean that your wealth passes in a tax-inefficient manner, and it can also just mean a raft of complications and headaches for your loved ones when you're no longer here. So the cons, the cr the the costs of not doing this now. Dying in test state means your money may not go where you expect. So the law, as I said, follows a strict order of priority. I'm not going to get into it today because I'm not a solicitor and I do not want to bore you. But basically, it might not reflect your personal wishes, your relationships, or the way in which you want your assets to actually be divided. There's also a risk in that it causes a delay in accessing the funds on your passing. So without a will, it can take several months, sometimes years, for an estate to be distributed and settled correctly, which is both extremely stressful for your family and also could cause cash flow issues. What if they need some of those funds for day-to-day living or perhaps to pay an inheritance tax bill? There's a chicken and egg scenario here that you need to have the funds with which to clear an inheritance tax liability before the estate can be distributed, or in Scotland, as it's called probate being granted. Well, there's a chicken and egg, and that if you can't get your hands on the wealth, how do you pay the tax liability? And there's no doubt about it that dying in test state muddies the waters and can cause greater, far greater delays than if you die with a will, which clearly articulates and specifies your wishes. There's also increased costs and complexity with all of this because sorting out an estate without a will is usually far more time consuming for your loved ones, far more onerous for a solicitor to get involved with, and of course, the par the charges are then passed on to you. So it's costly. Having a will in place, yes, there's going to be that financial outlay to do that now, but it will save you money and your loved ones in the future. And of course, the trickiest one, the messiest one of all, is it can potentially lead to family disputes. If there's no clarity as to what you wish to happen with your wealth, then it can get really messy. And I've sadly come across more cases of this than I'd like to in my career, stories where families end up absolutely in tatters because siblings get disinherited, there's prolonged disputes over who owns which assets, it's emotionally draining and financially costly. Am I making my point by now, money nerds? So, financial planning impact. What does this mean for your financial plans? Well, as I've said, a good financial plan, it's not just about growing wealth for wealth's sake, it's also about protecting it and making sure it's passed on efficiently from a financial angle, but also from an administrative angle to make sure that your money goes to the right people. And without a will, your estate planning strategy can just fall apart. Tax planning opportunities might be missed, assets might not be structured efficiently for your beneficiaries. In other words, all of the careful planning that you've carefully articulated and nailed down over the years all gets unwound in a messy manner because there is no will in place. Again, if you've got your financial plan nailed down without a will, then I would argue your financial plan is not nailed down. So some of the common misconceptions, let's go through some of these. I don't have enough assets to need a will. I'm not wealthy. Well, even if you don't have millions, if you own a home, if you've got savings, if you've got a pension, and we'll come back onto a pension in a moment. Any dependence, then having a will is important because again, you need to articulate who you want that wealth to go to. And if you don't have a will, it will pass under the law of intestacy, and that may not reflect the actual makeup of your family. Now coming back to the pensions point before I forget, I've talked about this in previous episodes of the podcast, that the pension isn't typically administered and dealt with via your will. Because of the fact that pensions basically, the pension trustees were the people who hold your pension, the provider, if you think about it that way, they've ultimately got discretion over who they pass that wealth to. And because of that, it's not dealt with under your estate and the terms of your will. That's the summary. So your pension gets administered via a document called an expression of wish form or a pension death benefit nomination. Now I'm not going to go into this in this episode, I've covered it in other episodes of the podcast, but basically think of that as your will for your pension. You need to make sure your pension provider knows who you want your pension to go to on your passing, and they will be guided by that document on your passing. So pension dealt with separately. You need to make sure you've got that form up to date and reflective of your wishes, and like your will, revisit over time as your situation and your objectives change. Myth number two, perhaps I see most common is I'm young, like I don't need a will yet, and that is just false economy because life can be unpredictable, as we all know. We never know what's around the corner. There's stories in the media we hear all the time. You know, I'm thinking about one example was um Liam Payne, one direction member, young guy, sadly passed away, did not have a will, but had a fairly substantial estate to be dealt with. Massive complications and tax issues there. So life is unpredictable. Even young people can still benefit from having named guardians for their children, or even just specifying how you wish certain assets to be held, who you want them to go to. Again, you do not need to be wealthy, you do not need to be in the later years of your life to do this stuff. Number three, I'll just rely on my loved ones to sort it out. My spouse or my family, my brother, my sister, they'll sort it out when my death, they all know what want what I want to do or what my wishes are. But without a will, it's the law that makes the decision, and it might not align with what you actually want it to happen. The will is getting it down in writing, black and white, non-ambiguous, clearly stipulating your wishes and what you want to do with your wealth on your passing. So I hope Money Nerds, I'm getting this across to you, but what I thought I would do is leave you with some some thoughts and reflections for yourself. Is if I were to ask you something happened to you tomorrow, then who would inherit your assets? Do you have an answer to that? Is it just something that's in your mind? Do you have this written down? Is it formed through a will? If not, you need to get that in place. Do you have dependents who are children typically who may need guardianship arrangements if you're no longer here? What will happen to your children if you pass away before they reach adulthood? What about any nice causes you wish to support? Are there any charitable causes you'd like to give money to? Again? That can be very important to write down in the will so that your wishes are known, but also from an inheritance tax planning angle, there can be some tax efficiencies that can be created there again, out with the realm of this episode. But I'm just planting seeds, money nerds. And of course, are my assets structured efficiently to minimize tax for your loved ones? Have you thought about that? Have you thought about who's going to get what? How it's going to be divided up? Is it going to be in a tax efficient manner? Is it going to be causing family rifts in the future that you want to avoid? Well, having a will in place really is the perfect solution to all of this to make sure, as far as possible, that things are kept equal if that's what you want, and ensures the avoidance of family disputes in the future. So it can seem a bit daunting if you are just thinking about this stuff for the first time, but I promise you it's actually really cathartic to go through these documents and actually work out what you want to happen to your wealth. And as you'll probably quickly realize when speaking with a solicitor on this, that many of the views that you have around how your estate is dealt with in the event that you don't have a will are gross misconceptions. Um, one that comes to mind is if you are not married, then there's masses of risks there that cohabitees could be disinherited completely. There's risks around property ownership and where that links in with regards to if you've got, you know, children from previous relationships. Again, I don't want to get into the weeds too much here, folks, but I've seen time and time again family scenarios play out not in a good way purely because there is no will with which to guide the direction here. So please, please, please get them in place. And the actionable steps I will give you and will leave you with today is just check if you've already got a will. When was that put in place? If it's years and years and years old and lots has happened to you in your life since then, then is it still an accurate reflection of your wishes? If it's not, it's probably worth you getting another appointment with your solicitor to revisit that. Again, speak to a qualified solicitor, they can make sure your will is legally valid and it's reflective of your wishes, and you don't make any costly mistakes through doing this yourself or through some cheap DIY online build a well website or whatever it might be, speak to a professional on this. This is one of those things in life you don't want to get wrong. And review it regularly because life happens. Marriage, divorce, children come along, you buy a new property, you sell things, you all of these things should trigger a review of your will. Again, it varies the legal standings north and south of the border, so I'm not getting into the weeds here. But basically, if anything happens in your life that's significant, then it's probable that you should ensure your will is reflective of that. Because again, the costs of not getting this right, the costs of getting this wrong far outstrip the small financial outlay now to nail that stuff down. And of course, with my financial advisor hat on, is you integrate your will with your financial plan. So make sure that your investments, your savings, your insurance plans, make sure they all align nicely with your estate planning, with your legal will planning. Again, a good financial plan will make sure it's all singing from the same hymn sheet. With all my clients, I make sure I know their solicitors so that I can ensure that any financial planning things we're putting in place are moving in the same wavelength as their legal planning. You don't want things to be moving in opposite directions there. So if you haven't got a will yet or it's been many years since you've looked at it, I really want to encourage you, money. To make this one of your financial priorities for this tax year. Let's say it's your New Year's tax resolution. It's a small step that can save your family a lot of stress. Ensure that your financial plan that you've worked hard to build will remain valid on your passing, and it can also result in tax savings and cost savings from a legal standpoint when you're no longer here. There really is no reason as to why you shouldn't be pursuing this. Okay, that's me climbing down off my soapbox. Again, money nerds, having this stuff in place, it's a priority ahead of many of the stuff we talk about in the podcast. And yes, all of the more juicy stuff like investing and tax planning through tax wrappers and all the fun stuff that gets me excited. Um, that stuff is irrelevant if you don't have a will in place. If you do not have the foundations in place for your financial plan, then you're just building a nice financial plan on a two-legged stool, and it just doesn't work out. So I will leave this with you to ponder over Money Nerds. In next week's episode, I'm going to conclude my little legal soapbox soliloquy, and I'm going to talk about power of attorney arrangements and why you should also look into setting up that at the same time as speaking to a solicitor about drafting or redrafting your will, because they come together as a pair in a great manner that can offer you bags of peace of mind. Again, nail this stuff down, and then you can focus on enjoying life and focus on the important stuff. So I'll cover off Power of Eternity in next week's episode, but I'm going to wrap up this week's episode because I'm conscious we're getting close to the half hour. It would have been sinfully dull to have covered both of them in one episode, so I'm going to leave a little teaser and I'll conclude this in next week's podcast show. So anyway, have a great week. In the meantime, stay safe out there, folks, and thank you as always for your time every Friday and for listening. I've been Benjamin Mitchell. I'll catch you next week. Goodbye for now.