Thinking about what happens after we die probably isn’t something any of us particularly enjoy doing.
It’s easy to assume that if something happened to you, everything you own would simply pass to the people you love. Your partner would be looked after, your children would inherit what you intended them to, and your family would know what to do.
Unfortunately, without the right plans in place, it isn’t always that straightforward.
And with changes to the way pensions are expected to be treated for Inheritance Tax from April 2027, now is a particularly good time to understand what could happen to your estate and whether your existing plans still work in the way you expect them to.
What happens if you die without a will?
If you die without a valid will, you are said to have died intestate.
Rather than your estate being distributed according to your wishes, it is divided according to the rules of intestacy.
Who receives what will depend on your individual circumstances, including whether you are married or in a civil partnership, whether you have children and the value of your estate.
One of the biggest misconceptions is around unmarried couples. If you live with your partner but aren’t married or in a civil partnership, they do not automatically have the same inheritance rights as a spouse or civil partner under the intestacy rules.
That can come as a huge shock at an already incredibly difficult time.
A will allows you to make your wishes clear, rather than relying on a set of rules to decide what happens.
A will is about more than who gets your money
When people think about making a will, they often think about houses, savings and other financial assets.
But there are other important decisions a will can help you make too.
For example, you can name who you would like to act as executors of your estate, set out how you would like particular assets or possessions to be distributed and, if you have children under 18, appoint guardians to care for them if the worst were to happen.
It can also make the administration of your estate clearer for the people you leave behind.
Why April 2027 matters for pensions and Inheritance Tax
There is another reason estate planning is becoming increasingly important.
From 6 April 2027, the government plans to bring most unused pension funds and death benefits into a person’s estate for Inheritance Tax purposes.
Currently, pensions can often sit outside of the estate when calculating Inheritance Tax. The planned changes mean some families could find the overall value of the estate considered for tax purposes is higher than they expected.
That doesn’t automatically mean your family will have an Inheritance Tax bill. Whether tax is due will depend on the value and structure of your estate, the available allowances and exemptions, and who inherits your assets.
But it does mean that pensions should increasingly be considered as part of your wider estate planning rather than looked at in isolation.
Could your estate be worth more than you think?
It can be surprisingly easy to underestimate the value of everything you’ve built up.
Your home, savings, investments, possessions and, from April 2027, potentially more of your pension wealth could all form part of the wider picture.
Property values may also have increased significantly since you last thought about your estate.
This is why estate planning isn’t necessarily something you do once and then forget about.
Major life events such as getting married, having children, buying or selling property, divorce, bereavement or significant changes to your finances are all good reasons to revisit your plans.
Changes to tax rules can be another.
How can you avoid unwanted surprises?
You don’t need to have an enormous estate to benefit from putting proper plans in place.
A sensible starting point is to:
- Make a valid will and keep it up to date.
- Understand approximately what your estate is worth.
- Review your pensions and make sure your beneficiary nominations or expressions of wish are current.
- Consider how the April 2027 pension changes could affect your estate.
- Review your arrangements following significant changes in your family or finances.
- Speak to the appropriate professional if you are unsure about the potential tax implications.
The aim isn’t simply to reduce tax. It’s about making sure your affairs reflect what you actually want to happen and making things as straightforward as possible for the people you care about.
Don’t leave it for your family to work out
Nobody wants to think about their own death, which is probably why writing a will is so easy to keep putting off.
But estate planning is ultimately about the people you leave behind.
Taking some time now to understand your estate, put your wishes in writing and review your arrangements ahead of the April 2027 changes could help prevent uncertainty and unwanted surprises later.
If you haven’t made a will yet, or your existing will hasn’t been reviewed for several years, now could be a good time to take another look.
Here at MCB Financial Services, we can help you look at your wider financial position and understand how your pensions, investments and other assets fit into your future plans.