What is estate planning?
It can be uncomfortable to talk about death but preparing for the worst can make it much easier for loved ones. We take a look at why estate planning is important and what to consider when you arrange a plan.
What is estate planning?
An estate plan sets out your exact wishes for when you pass away. It considers everything you own (your estate) and who will inherit (your beneficiaries).
Depending on the extent of your estate plan it can also include instructions about medical treatment, long-term care, and funeral arrangements.
A will is one element of an estate plan and specifically sets out how you want to divide assets such as your home, money and valuable possessions.
Who is estate planning suitable for?
It’s a common misconception that estate planning is only for the wealthy, but it’s important for everyone to seriously consider estate planning.
Even if you don’t think you have much in the way of financial wealth to leave behind, an estate plan is your opportunity to make clear what you want to happen to you and your belongings.
What happens if you don’t have a will?
If you don’t have a will, your assets will be divided according to the rules of intestacy. In other words, the law will decide who gets what, which might not reflect what you want.
Passing away ‘intestate’ means that:
- Your spouse or civil partner will inherit all your assets up to the value of £270,000. They will also inherit all your personal possessions regardless of their total value. Anything in addition to this, will be shared between your spouse/civil partner and your children.
- If you don’t have children, your spouse or civil partner will inherit everything.
- If you aren’t married or in a civil partnership but do have surviving relatives, they have the right to inherit your assets.
- Your assets can pass to the Crown if you have no surviving relatives.
If you’re unmarried but in a relationship, it’s important to know that your partner does not have the automatic right to inherit your assets. With that in mind, if you want your unmarried partner to inherit, you’ll need to set this out in a will at the very least.
What to consider when estate planning.
Estate planning takes into account all your affairs and assets, and plans are typically made up of several documents, including:
This covers medical treatment and what you’d like to happen if you’re diagnosed with a terminal illness or degenerative condition. Living wills are also called healthcare directives, advanced decision, advance directive, or advance decision to refuse treatment (ADRT).
Power of attorney
You can choose someone you trust to have power of attorney. This means they can advise you or make decisions on your behalf if you’re incapacitated and unable to make those decisions yourself.
You can have multiple powers of attorney to look after different areas. For instance, a power of attorney for property and wealth, and another for health and welfare.
Last will and testament
Your will should clearly set out how you would like your assets to be distributed. This can include property, personal possessions, investments, private pensions, savings and current accounts.
Don’t forget any active digital assets, for instance if you have a digital music library, book collection, or earn money from blogging or vlogging.
If you have specific ideas about funeral arrangements, you can make these clear in your last will and testament or a separate document within your estate plan.
If you have children under 18 years old it’s advisable to specify who you’d like to be their guardians. This can be included in your will or set out under a separate guardianship document.
Read more: Guide to children’s pensions
What is a trust?
This is a special legal arrangement that lets someone else look after your assets on behalf of someone else; it involves a:
- Trustor – the person who sets up the trust (you).
- Trustee – the person who looks after your assets (this can be more than one person).
- Beneficiary – the person who the trustee is looking after assets for.
Trusts are frequently set up on behalf of children. The trustor might decide to set up a trust for their child (the beneficiary) that will be overseen by a trustee until the child becomes an adult.
Trusts can be complex so if it’s something you intend doing its recommended you seek professional advice. Trusts (alongside gifts) can be arranged so they exist outside of your estate which means they can minimise the impact of inheritance tax.
Read more: Guide to pension death benefits and succession planning
Who can help with estate planning?
At Alan Boswell Group we offer a complete wealth management service which covers all your financial affairs including estate planning.
Whether your estate planning needs are simple or complex, putting a plan together can be hugely beneficial for those you leave behind – minimising uncertainty and ensuring your requests are formally acknowledged.
The value of tax reliefs depends on your individual circumstances. Tax laws can change.