Estate Planning

What is estate planning and why is it important?

Estate planning is really an umbrella term, explaining how an individual can control the distribution of their estate and their net worth at any given point in time – both in life and after death. 

The reason it’s important is because estate planning puts you in control. By doing nothing, you leave yourself open to the rules of intestacy, where the government dictates who would get what, and how. And that may not necessarily reflect your views. 

By proactively putting estate planning in place, you are doing the best possible thing for your loved ones.

What should be included in an estate plan?

There are three main areas here: 

A will

First and foremost is a will. Most people have some understanding of what a will is. It’s a legal document to set out how you want your estate to be distributed when you pass away. 

A will deals with gifting parts or the whole of your estate to individuals. In the eyes of the law and the taxman, it moves from your estate into that person’s estate, and they become the legal owner. 

But they can be left vulnerable – they could lose that asset and monies through future divorces, bankruptcy or a multitude of horrible life events.

Trust planning

That brings us on to the next part of estate planning, which is trust planning. That can either be an in-life trust, which we tend not to deal with as a company because I don’t agree with them. Some people like them, professionally, I don’t.

But we do excel in will trusts. These are trusts set up upon your death, within your will. That adds a lot of security for your loved ones going forwards. You can leave assets and monies your children or grandchildren, for example, in a trust. 

That trust can then add security so they don’t lose those assets to divorces, bankruptcies or care costs in their future. It’s a very good way of adding generational inheritance tax planning, and the trust can last for up to 125 years. So it’s worthwhile exploring that avenue.

Lasting Powers of Attorney

The third pillar I suggest as part of a comprehensive estate plan, is Lasting Powers of Attorney. People often view them as for someone who’s advancing in years and perhaps not thinking as clearly as they used to. But if one good thing came from the dreaded Covid, it was that people realised they were not invincible. 

We are all vulnerable to losing capacity – through an illness like Covid, or an accident. You, your partner or another family member could end up in a coma in hospital. You’re unable to make decisions for yourself, and that can have serious consequences on the family unit as a whole – both financially and around their health and welfare.

By having powers of attorney in place, you can mitigate that risk to your family and avoid financial armageddon.

Do I need a will?

Yes, but you’re likely to need more than that. Everybody’s circumstances are different, but we look at what most people expect to happen in their lives. You might purchase your first house – what would you want to happen with that if you were to pass away?

It’s really key to put a will in place for that. If you live together and you’re not married, it’s even more important.

If you have children, you will need a will to set down guardianship specifications. If you have any beneficiaries you want to leave money or valuables to, you need a will. If those beneficiaries are vulnerable, you can put what’s known as a vulnerable beneficiaries trust in place, which gives them a lot of protections. 

There’s a whole raft of trusts you can put in wills. As we know, a lot of people do get divorced, and we can address that in wills, and put in place a protection trust to protect part of your estate for your children. 

The simple answer is yes, everybody needs a will to protect as many of your assets as possible, so they stay wherever you want them to go and are protected from external people coming after them. 

It goes back to the whole estate planning point – we’re looking at your assets as a whole to make sure we’re doing the best for you.

Do I need a Power of Attorney?

I would suggest that everyone should have a Lasting Power of Attorney. It’s a document that I hope is the biggest waste of money in your life. A will can never be a waste of money because we’re all going to die, so it’s always going to come into force at some point. 

Hopefully your Lasting Powers of Attorney are a waste of money, because that means you’ve maintained your faculties for the entirety of your life.

The flip side is that if you need them and don’t have them in place, things can go wrong quickly. Your assets, including bank accounts and mortgages in your name would be frozen. That’s designed to protect people when they’re in a vulnerable state and don’t have capacity. 

By having Lasting Powers of Attorney in place, you appoint people – your attorneys – to act as though they’re you. A good example of this, is that a couple of years ago, landlords were getting Covid and ending up in hospital. Their tenants found this out and stopped paying their rent.

The only person who can do anything about that is the landlord. Their husband or wife cannot do anything because legally they are not entitled to that property. That asset goes quickly from providing a monthly rental income, to become a liability where the tenant decides not to pay the rent. 

Having Lasting Powers of Attorney in place can mitigate the risk of that happening. And that’s just one instance. 

What happens if you’re in intensive care but your fixed rate mortgage expired and you needed to remortgage? Your spouse will have to pay the variable rate for as long as it takes you to come round, or die, or have a deputy appointed through the Court of Protection. That would take about a year and cost you £10,000 to £20,000 in legal fees.

That’s a lot of added stress to the family unit. It’s crucial for every individual to have that, I suggest. It’s much like car insurance. I don’t like paying it each year but if I have a crash I’ll be happy, because my car gets fixed. An LPA is protection. You can run the risk of not having it in place, but the impact to your family could be catastrophic. 

Do I need to consider care provisions in estate planning?

Yes, but this is a sensitive subject. If you take obvious measures to avoid paying care costs, those measures can be deemed null and void. 

Let’s say you give away your house to your children because you don’t want it used for care costs. Then three years later, you go into residential care. Even though that asset is no longer in your name, it could potentially be clawed back and factored into your care calculation. The local authority will say you only got rid of that asset to avoid paying care costs.

So it’s not a simple thing to do. We need to sit down with clients and explore this in a lot of detail. It’s about knowing how best to go about doing these things and avoid pitfalls other people have found in the past.

If we can learn from other people’s mistakes, it’s less painful. The average person doesn’t know what they can and can’t do with care provisions. So it’s well worthwhile having a chat with us – we can guide people accordingly.

What should I plan to do with my pension? 

I suggest you contact your pension provider and ask them to send them a nominated beneficiaries form. You can nominate who you want to receive that pension if there is any left on your death. 

We’ve got our own financial planner as well, so we’d always suggest contacting them about pensions. I’ve had a case previously where a client had probably about five or six different pensions just because they kept moving jobs. 

By getting financial advice, they were able to put all of those together – and it actually meant they could actually retire three years early by making it more efficient. 

What is inheritance tax?

Nobody wants to pay tax, you pay it all your life and then you pass away and then the government comes along and charges you some inheritance tax as well. 

There are different amounts and different rules as to what you pay, and there are also some reliefs and other ways to mitigate that. That’s where we can come in – to help you understand what your estate is now, review it going forward and see how we can help you mitigate the cost. 

We ensure that you’re not doing anything wrong or illegal, just by helping you plan efficiently so you’re only paying what you need to pay on inheritance tax.

Can estate planning specialists ensure I don’t pay too much inheritance tax?

Yes, because as Gary said, there are a lot of tax reliefs. These are dependent on certain factors, how you wish to leave your estate, who to and the timescale on which they’re claimed by your executors. 

There are a lot of variables there. But by sitting down and getting to know our clients and their wishes and how their estate’s made up, we can direct them to the applicable reliefs.

None of us can predict what’s going to happen with future governments etc, which is why we encourage clients to have regular reviews with us. We make sure that what you have in place is indeed the most tax efficient route at any point in time. 

But yes, we can effectively help mitigate the amount of inheritance tax payable on death. The other week I saved a married couple with children £498,000 in inheritance tax by just doing a few little tweaks here and there. By setting assets up in different ways and claiming certain tax reliefs their children were considerably better off. So it is definitely worthwhile.

How do I make a gift as part of estate planning?

If you’ve got an inheritance tax liability, which we will explore with you, each year you can gift £3,000 to whoever you want. That comes off the overall estate value. If you’ve got children who get married, there’s allowances around that, too. That’s always a good way to start looking at gifting. 

Within your will, you can make specific gifts – such as leaving a collection of records to somebody or jewellery to your son or daughter. You can make monetary gifts, and you might even have a couple of properties you want to give to different people. As part of the estate planning consultation, we’ll understand what you’ve got and what you want to happen with it. 

We delve a bit deeper, as well. So, if something can’t happen, what would you want? Perhaps somebody you want to leave things to passes away. What’s the next level? What would you want to happen to it? That’s all part of what we offer.

Will writing is not part of the Openwork offering and is offered in our own right. Openwork Limited accepts no responsibility for this aspect of our business. Will writing is not regulated by the Financial Conduct Authority.