When creating your financial plan, you may think about your loved ones and how you could support them in achieving their own goals in life. Being financially secure could mean that you’re able to gift wealth to your children and grandchildren now, so they can reach important milestones such as going to university, buying a home, or getting married.
It’s equally important to consider how you might support your family after you’re gone, and what inheritance you will leave behind. This is a topic you might shy away from because it’s difficult to talk about, but this could lead to complications for those around you.
Indeed, Canada Life reports that 18% of UK adults have had disputes because their family didn’t have open conversations about inheritance. Even if you do discuss what happens when you pass away, problems could arise if you don’t put a suitable estate plan in place.
Read on to learn three common estate planning mistakes that could cause disputes among your family.
1. Avoiding the topic of estate planning altogether
The biggest mistake you can make is avoiding the topic of estate planning altogether, and this often happens because it’s a challenging subject to talk about.
But if you don’t consider your estate plan, you could be underprepared, and this is the case for many individuals. In fact, in March 2024, Canada Life reported that 51% of UK adults didn’t have a will in place.
Should you pass away without a will, your estate will be divided according to the rules of intestacy. If you have no children, your spouse or civil partner will normally inherit your entire estate. Conversely, if you do have children, your spouse or civil partner inherits:
- All personal possessions
- The first £325,000 of your estate
- 50% of the remaining estate.
The rest of your wealth is then split equally among children or grandchildren. If you’re not married, a long-term partner won’t automatically inherit anything under the rules of intestacy. Instead, your estate will be divided among other family members such as parents or siblings.
In some cases, the decision of the courts might align with your wishes. However, it could mean certain people are overlooked, leading to disputes in the family.
Additionally, if you don’t decide how to divide your estate, and discuss these plans with loved ones, your beneficiaries won’t know how much they are likely to inherit.
Yet, if you make plans ahead of time, the whole process will be smoother, and everybody will have clear expectations about what they will receive. This could reduce disputes and give loved ones more time to plan how they will use their inheritance.
2. Failing to update your will after significant life events
Even if you have an estate plan in place, it’s crucial that you update it regularly, especially after significant life events. For example, if you get married, your current will is invalidated and you’ll need to create a new one. Additionally, your circumstances and wishes might change after:
- Moving into a new home
- Having a child or grandchild
- Starting a new job
- Retiring.
Reviewing your estate plan after these important life milestones will help you ensure your wishes are fulfilled after you’re gone. It could also prevent disputes because, if you don’t update your will, certain people could be overlooked.
For example, your current will might specify that you want to pass a portion of your wealth to your grandchild. If you subsequently have another grandchild, and don’t add them to the will, they could be left with nothing while their sibling inherits from your estate.
There can also be difficulties if you divorce and remarry, meaning that children from a previous relationship might not inherit anything.
As such, it’s important that you review your estate plan regularly and ensure that all your loved ones are treated in the way that you would like them to be when you pass away.
3. Forgetting to nominate a beneficiary for your pension
Your pension may be one of your largest assets, after your home, so it’s important to consider who will inherit any remaining funds when you’re gone.
It’s important to note that your pensions aren’t covered by your will, and you may need to separately nominate a beneficiary by filling out an “expression of wish” form. You can often complete this form online or contact your pension provider to ask for the relevant paperwork.
Your pension provider makes the final decision about who should inherit your pensions when you’re gone, but they will normally follow your wishes where possible.
Forgetting to complete this crucial step for each of your pensions could mean that somebody you wouldn’t have chosen yourself inherits any remaining funds when you pass away. For instance, if you’re not married and you don’t nominate your long-term partner as a beneficiary, your pension provider could pass the remainder of your pension funds to a parent or sibling instead.
If the rest of your beneficiaries don’t agree with the decision, there may be some disputes and individuals could even challenge the pension provider’s choice.
To avoid any confusion, name a beneficiary as soon as possible and communicate this to your family.
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Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning, or will writing.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.