Why you need to review your will if you’re gifting to loved ones now

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Are you thinking about gifting during your lifetime? Traditionally, you’d pass on wealth to family and friends through an inheritance, but many people are finding that doesn’t fit in with their plans. Instead, they’re passing on some assets now, but they do need to think about how it will affect the legacy they leave behind.

There are many reasons why you may be thinking about gifting during your lifetime. The act may allow you to see the joy or security your gift can bring, or use gifting to reduce a potential Inheritance Tax bill. However, one of the biggest drivers behind gifting is that younger generations are currently facing serious financial challenges.

Whether your loved ones are struggling day-to-day due to insecure employment or can’t save for a mortgage deposit as house and rent prices rise, gifting now can lend support when loved ones need it most. A lump sum for children or grandchildren now can have a far bigger impact on their long-term financial security than waiting to leave it as an inheritance.

Financial gifts fund half of house purchases among young adults

The Bank of Mum and Dad now plays a pivotal role in the housing market, and demonstrates the value of gifting during your lifetime.

Half of house purchases among the under-35s involved financial support from family in some way, according to Legal & General. This may range from a significant deposit to a loan, but 71% of homebuyers say it’s unlikely they could have bought a home without the support. A deposit to buy a home may mean your loved one’s outgoings are now lower, as renting can be more expensive, and it also creates long-term financial security.

There are also other reasons you may want to offer financial support now, from paying school fees to providing loved ones with an opportunity to travel while they’re young.

Among retirees that have accessed their 25% tax-free pension lump sum, 6% said it was to provide a gift to children, a survey from Canada Life found. A further 1% planned to make gifts to grandchildren. Many more families are likely to use savings, investments, and other assets to provide gifts during their lifetime.

Before you hand over a gift, it’s important you weigh up the impact it could have on your long-term financial security. Would taking a lump sum out of your estate now mean you could face challenges in the future?

This is why it is important to review your will.

2 reasons to review your will after gifting to loved ones

1. The value of your estate will change

First, if you’re providing significant gifts to loved ones, it could change the value of your estate. Understanding how much your assets are worth can help you effectively plan for the long term and your legacy.

In some cases, reducing the value of your estate may be part of the reason you’ve decided to gift. For example, you may want to bring the value of your estate under Inheritance Tax thresholds, reducing the bill loved ones will face when you pass away.

However, it can also mean the way your money is split up in your will isn’t appropriate anymore. A pecuniary bequest, which means you leave a fixed sum of money, could become a higher portion of your estate than you’d wish. Switching to a residuary bequest, where you leave a percentage of your estate, could make more sense.

2. You may want to distribute assets differently

Second, giving a gift now may affect your wishes for later. For instance, if you’ve just given a lump sum as an early inheritance to one of your children, you may want to adjust your will to reflect this. This may include leaving the recipient a smaller portion of your estate so each of your children receives an equal amount when gifts and inheritance are combined.

How to update your will

As a general rule, you should review your will every five years, or following major life events such as getting married, making significant gifts or your family growing.

If you need to make changes to your will, there are two ways to do this.

The first is through a codicil. This is a document that allows you to make amendments to an existing will. It must be signed and witnessed in the same way as a will and should be kept with the original document. While there are no rules about what you can change using a codicil or how many you can make, it’s a good idea to keep changes small and straightforward to avoid complications when you pass away.

The second option is to write a new will. This should clearly state that your new will revokes any older wills or codicils. You should also destroy your old will and any copies so it’s clear which will should be followed.

Your finances and estate planning are intertwined and it’s important they’re considered together. If you’re planning to give a gift or make other lifestyle changes, you can talk to us about what it will mean for your estate plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate will writing, tax or estate planning.


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