What is estate planning and how to prepare your wealth for inheritance

May 19, 2021 | 6 min read

We all know we should have a Will, and yet they tend to drift lower down on the priority list year by year.

But a Will is just one component of your estate plan and is arguably the last piece of the puzzle. There are other aspects of your plan that will have more of an impact during your lifetime, particularly if your health declines in later years.

What is Estate Planning?

An estate plan is a key element of your financial strategy. While it may seem morbid to think about death and incapacity, especially if you are young, making a few decisions now can make life easier further down the line.

An estate plan covers the entire roadmap of what you would like to happen to your assets when you die or become incapacitated and are unable to manage your own affairs. It can even include a strategy for making gifts during your lifetime. It allows you to balance your own current and future needs with the legacy you leave behind, aiming to save as much tax as possible along the way.

The benefits of an estate plan are:

Certainty over who manages your estate and makes important decisions for you.
Control over how your assets are managed and who receives your money.
Protection of your estate from mismanagement, or in the event of bankruptcy, divorce, or incapacity.
Navigating the tax landscape and reducing the amount that you, or your estate, need to pay. Most Inheritance Tax (IHT) planning strategies are not quick fixes and take several years to be fully effective. An estate plan can help with this.

Estate planning is for everyone, not just the wealthy. A clear strategy can benefit anyone, from a young couple with children, to an older person with complex health needs.

Writing Your Will

Your Will allows you to decide how your estate should be managed and distributed after your death. As we say at Tandem, a Will ‘puts the right money, in the right hands and the right time.’

Your Will should include:

The people you would like to look after your estate (Executors).
Who you would like to benefit from your estate (Beneficiaries).
Whether any assets should go into Trust (whereby you elect at least two Trustees usually.) You can have a Corporate/ Professional Trustee if you choose, which can benefit complicated estates as well as provide complete impartiality.
A Statement of Wishes (if you create any trusts) for your Trustees.
Legal Guardians for your children (if they are under age 18)
Whether you would like to make any specific gifts, including charitable donations.
How the remainder of your estate should be divided.
What should happen if any of your beneficiaries predecease you.
Any specific bequests
Funeral wishes

Your Will should be as clear and specific as possible to avoid confusion and even legal challenges.

If you do not have a Will, the intestacy rules come into play. These vary across the UK and will depend on your assets and family situation. The intestacy rules rarely reflect a person’s wishes, particularly in the case of second marriages, blended families, common-law partners, or estranged relatives. It can also take longer to finalise the estate.

You should review your Will regularly, particularly if your situation changes. For example, if you get married or divorced, your Will may no longer work as you intended. You can usually update your Will quite easily, especially if you use the same Will Writer.

It is normal to procrastinate over big decisions. But it is far better to have a basic Will than none at all. You can always make changes later.

You can find out more about Wills, and how Tandem can help you here on our website.

Trusts

Trusts can also factor into your estate plan. They can be set up during your lifetime to receive gifts or become effective on your death. There are different types of trust, so it pays to take advice about which are suitable for you.

A Trust allows money to be set aside for beneficiaries without giving them full control. This can be useful to:

Create a family legacy.
Ring-fence assets for specific people.
Protect your money if any of the beneficiaries are declared bankrupt, get divorced, or become incapacitated.
Reduce the value of your estate for Inheritance Tax purposes.

Trusts are complicated and there can be unexpected tax consequences. An estate planner, in conjunction with a financial planner, can help you make sense of the options and decide on the best strategy.

Putting something in trust essentially means giving it away, but there are types of trust where you can benefit from the income from the asset even if in trust.

Lasting Powers of Attorney (LPAs)

A Lasting Power of Attorney (LPA) allows you to appoint a relative, friend, or carer to make important decisions for you if you become unable to manage your own affairs. The correct term is if you lose ‘capacity.’

The two types of LPA are:

Property and Financial (covering regular bills, managing investments, and looking after any property)
Health and Welfare (healthcare, medical treatment, and end of life decisions)

If you have been following the news, you may be aware of the difficulties faced by TV presenter Kate Garraway and her family. Kate’s husband, Derek, has been severely affected by Covid-19 and more than a year on, is only just starting to recover.

The family did not have an LPA in place, which meant that Kate could not access her husband’s accounts to pay for his care or have a legal right to see his medical notes. A great deal of stress could have been avoided by making and registering an LPA.

Your LPA must be created while you still have full mental capacity. This means that to be effective, you should have one before you actually need it. An LPA is basic risk management, just like a Will or life insurance. As Kate’s situation demonstrates, the need for an LPA applies to young and healthy people as well as older people with care needs.

Your LPA needs to be registered with the Office of the Public Guardian, at a cost of £82 each.

You can create and register your own LPA, but it is important to fully understand the decisions involved and the implications. An Estate Planner can talk you through this and can explain your options, then draft and register the documents on your behalf. You can find out more about our Estate Planning service and get in touch with us here.

Meet Marcos

Marcos Kallou is Tandem’s affiliated Will Writer and Estate Planner. He can help you not only create your Will and Lasting Power/s of Attorney, but also to make a plan for ensuring you and your loved ones are in the best financial position in the event of death or incapacity.

You can find out more about Marcos, and how he can help you, here.

Your adviser at Tandem Financial can also assist with the following:

1. Making use of your annual allowance and exemptions.
2. Gifting monies, directly as well as into various types of trust.
3. Set up various forms of protection insurances and placing them in the correct trust.
4. Working out your Inheritance Tax liability and planning to mitigate it using the above options.

Please do not hesitate to contact Marcos or a member of the Tandem Financial team if you have any questions or would like to discuss Wills or estate planning.

It will give you peace of mind. The right money – to the right people – at the right time.