Estate Planning – What is it and why is it important?
Estate planning is the process of working out how best to leave your money and assets to your family. Getting good estate planning advice will make things easier for your loved ones if you were to lose capacity or for when you pass away, whatever your net worth may be.
What is estate planning?
Estate planning will protect your wealth for future generations, minimising Inheritance Tax and making plans in case you lose the capacity to make decisions in the future.
An estate plan sets out what you would like to happen once you’re gone, how you would like your estate to be managed, and other long term plans for the family you leave behind.
What is Inheritance Tax?
Inheritance tax is a tax on the estate of someone who has died, including all property, possessions and money.
The rate of Inheritance Tax is 40% and is charged on the part of your estate that exceeds the Inheritance Tax limit, subject to available exemptions and reliefs.
There’s normally no Inheritance Tax to pay if:
- the value of your estate is under £325,000
- you leave everything above the £325,000 threshold to your spouse, civil partner or a charity
If you leave your home to your children or grandchildren the threshold can increase up to a maximum of £500,000.
Married couples and civil partners can combine their allowances, which means that they can pass on between £650,000 and £1,000,000 in assets after their deaths.
What should an estate plan include?
There are three main elements that typically make up an estate plan:
1. A Will – The best-known part of estate planning is your will, the legal document that sets out what you want to happen after your death. It explains how your money, your property, personal belongings and assets should be distributed. You can also confirm who would look after your children or your pets, and your preferences about funeral arrangements.
2. Trusts – Estate planning involves setting up the most appropriate ways to pass your money on. For many people, this means creating trust, especially if you are leaving money or assets to children or vulnerable adults. In many cases, they can access their inheritance early. Trust can sometimes also be a key part of inheritance tax planning.
3. Powers of Attorney – These legal documents let you appoint one or more people to help you make decisions or to make decisions on your behalf in the future if you are unable to make your own decisions.
Other elements to estate planning may also include:
- Letting your chosen executors know where you keep your Will
- Making sure your funeral preferences are known by your family
- Recording any wishes for your children’s upbringing
- Listing your assets and liabilities to assist your executors in their role
- Recording any gifts you have made in the last 7 years
- Reviewing or arranging life insurance, protection policies
- Updating the beneficiaries of any death in service benefit you may receive from your employer
- Reviewing your pensions and updating any wishes in relation to those
- Exploring lifetime planning opportunities to minimise Inheritance Tax
What is a Power of Attorney?
Power of Attorney is a legal document that allows someone to make decisions for you or act on your behalf if you’re no longer able to.
It could just be a temporary situation, or you may need to make longer-term plans. An example is if you receive a diagnosis of dementia, where you may lose the mental capacity to make your own decisions in the future.
Are lifetime gifts taxable?
There are many approaches to explore and consider in planning your will and legacy. The laws and rules in this area are complex, and everyone’s situation is slightly different.
It’s best to get advice from estate planning experts to make sure that you have considered all the options.
Using a professional to help you with estate planning
Estate planning is very important for the future of your loved ones – but it can be very complex. Inheritance Tax regulations can change and rules around tax, cash gifts, property gifts and trust funds are detailed. It is very important to consult a qualified professional to assist you in making your decisions.
If you die without a will or estate plan, your estate will be subject to ‘intestacy rules’ – a dated set of laws that can cause legal challenges if your family does not conform to old-fashioned norms. The law typically does not allow for unmarried couples, stepchildren and other typical situations today.
Why Expression Wills
Claire has been really helpful throughout the process. She was particularly supportive in helping us decide who to appoint as guardians and trustees and gave us lots of insightful information to help us make the right decision for our family. We have been really happy with the service and would highly recommend Expression Wills.
I used Expression wills to take out my first will, Claire was very knowledgeable and the process was effortless. I would highly recommend Claire and Expression wills to anyone who needed a will.
Had wills completed for myself and my partner, we were already stressed as this was in the middle of our house purchase/sale but Claire made the whole process a breeze. Very informative and helpful every step of the way. Would definitely recommend to anybody thinking of getting a will done