Estate Planning Guide

administering estate

What is Estate Planning?

Estate planning is the process of preparing and arranging for the management and distribution of your assets and wealth during your lifetime and after your death.

It involves making legal arrangements to ensure that your wishes regarding your property, finances, and healthcare are carried out according to your desires and in consideration of your family’s needs. Estate planning typically involves the creation of various legal documents and strategies tailored to your specific circumstances and goals.

Key elements of estate planning include:

  • Will: A will (or last will and testament) is a legal document that specifies how you want your assets to be distributed after your death. It also allows you to name an executor who will manage the distribution of your estate according to your instructions.
  • Trusts: Trusts are legal arrangements that allow a trustee to hold and manage assets on behalf of beneficiaries. Trusts can be used to provide ongoing financial support for beneficiaries, minimise estate taxes, and avoid the probate process.
  • Power of Attorney: A power of attorney document authorises someone (known as an agent or attorney-in-fact) to make financial or healthcare decisions on your behalf if you become incapacitated and unable to make decisions yourself.
  • Healthcare Directives: Healthcare directives, such as a living will or healthcare proxy, outline your preferences for medical treatment and appoint someone to make healthcare decisions for you if you are unable to communicate your wishes.
  • Beneficiary Designations: Estate planning involves reviewing and updating beneficiary designations on assets such as life insurance policies, retirement accounts, and investment accounts to ensure they align with your overall estate plan.
  • Guardianship Designations: If you have minor children, estate planning allows you to designate a guardian who will take care of them if you and the other parent are unable to do so.
  • Tax Planning: Estate planning often includes strategies to minimise estate taxes and other taxes that may be triggered upon your death or the transfer of assets to beneficiaries.

The goals of estate planning are to protect your assets, ensure that your loved ones are provided for according to your wishes, and simplify the process of settling your estate after your death. By engaging in estate planning, you can also minimise the potential for family disputes and ensure that your legacy is managed and preserved in accordance with your values and objectives.

Consulting with an estate planning attorney or financial advisor can help you create a comprehensive estate plan that addresses your unique circumstances and goals.

Why is Estate Planning important?

We understand that it’s challenging to think about a future where you may not be there to care for your family. Planning a will, appointing financial managers for hospital stays, or considering retirement living arrangements might be the last things on your mind.

However, our research reveals concerning statistics:

  • Only 1 in 6 (14%) individuals have formalised their estate plan.
  • More than a third (36%) of people have yet to start drafting a will.
  • Over 1 in 5 (22%) individuals are unfamiliar with what a lasting power of attorney entails.

Planning how your estate will be distributed and managed provides peace of mind for you and your loved ones, allowing you to cherish your time together. It’s advisable to begin this process as early as possible—while yesterday was the ideal time to start estate planning, today is the next best option.

Benefits of Estate Planning

Estate planning offers several important benefits that can provide peace of mind and financial security for you and your loved ones.

Here are some key advantages to estate planning:

  • Control over Asset Distribution: One of the primary benefits of estate planning is the ability to control how your assets and property are distributed after your death. By creating a will or trust, you can specify who will inherit your belongings and in what proportions. This ensures that your wishes are carried out and can help prevent disputes among family members.
  • Minimisation of Estate Taxes: Proper estate planning can help minimise the amount of estate taxes that your heirs may have to pay upon inheriting your assets. Techniques such as setting up trusts or making strategic gifts during your lifetime can reduce the overall tax burden on your estate.
  • Probate Avoidance: Estate planning can also help your heirs avoid the lengthy and often costly probate process. Assets held in trusts, for example, can pass directly to beneficiaries without going through probate court, which can save time and money.
  • Protection for Minor Children: If you have minor children, estate planning allows you to designate a guardian who will take care of them in the event of your death. You can also establish trusts to manage and distribute assets for the benefit of your children until they reach a certain age or milestone.
  • Incapacity Planning: Estate planning encompasses more than just distributing assets after death. It also involves preparing for potential incapacity due to illness or injury. Through tools like a durable power of attorney or healthcare directive, you can appoint trusted individuals to manage your finances and make medical decisions on your behalf if you become unable to do so.
  • Family Harmony: Clear and well-thought-out estate planning can promote family harmony by reducing the likelihood of disputes over inheritance. When your wishes are clearly communicated and legally documented, it can help minimise misunderstandings and conflicts among family members.
  • Privacy: Certain estate planning tools, such as trusts, offer a level of privacy by keeping your estate details out of public record. This can be beneficial for those who prefer to keep their financial affairs private.
  • Charitable Giving: Estate planning allows you to support causes that are important to you through charitable giving. You can designate specific assets or a portion of your estate to charitable organisations, leaving a lasting impact on the community.

Estate planning is a proactive way to ensure that your assets are managed according to your wishes, minimise tax liabilities, and provide protection and security for your loved ones during life’s uncertainties. Consulting with an estate planning attorney or financial advisor can help you create a comprehensive plan tailored to your specific needs and goals.

What documents will I need?

  • Will: A last will and testament is a crucial document in estate planning. It specifies how you wish to distribute your assets after your death and allows you to designate an executor to carry out your instructions. Without a will, your assets may be distributed according to the rules of intestacy. For assistance with creating a will, visit our dedicated will & probate page, where our expert team can guide you through the process of drafting a will.
  • Trusts: Depending on your objectives, you may require one or more trusts. Explore our dedicated trusts page to learn how we can help you safeguard your estate for future generations.
  • Power of Attorney: This document enables you to appoint a trusted individual as an attorney to make decisions on your behalf if you become unable to do so due to mental or physical incapacity. It’s crucial to seek guidance from an experienced solicitor or estate planning attorney to ensure the proper creation and execution of these documents. They can ensure that your estate plan adheres to UK laws and regulations and accurately reflects your wishes. Additionally, it’s important to regularly review and update your estate plan to accommodate changes in your life circumstances and financial situation.

General Guidance And Advice

Homeowners

Transferring ownership of your home to a relative is a significant decision that requires careful consideration of both the implications and potential benefits.

Here are some important factors to evaluate before proceeding with such a transfer:

  • Reasons for the Transfer: Understand the motivations behind transferring ownership of your home to a relative. This could include estate planning, ensuring the property stays within the family, or other personal considerations.
  • Your Continued Residence: Consider whether you intend to continue living in the property after transferring ownership and how this arrangement may impact your financial obligations.
  • Inheritance Tax: Transferring your home as a gift can have implications for inheritance tax. It’s important to assess the potential tax consequences and seek advice on tax planning strategies.
  • Capital Gains Tax: Be aware of any capital gains tax implications that may arise from transferring ownership of your home to a family member. Understanding these tax considerations is crucial for making informed decisions.

It’s essential to fully grasp the potential legal and financial ramifications of transferring your home and to consult with qualified legal and financial professionals for personalised guidance.

True or False: “I can gift my house to my children to avoid inheritance tax.”

True, If: You can potentially reduce or avoid inheritance tax by gifting your property to your children and surviving for another seven years. However, certain conditions must be met. For instance, you must not continue to live on or benefit from the property as you would if you were the primary occupant. This means you cannot reside in the property rent-free; instead, you must pay a market rent equivalent to what a third party would pay to live there. The tax liability diminishes over the seven-year period following the gift.

If you pass away within three to seven years of transferring the property, your children may still be subject to inheritance tax, but potentially at a reduced rate, not necessarily the full 40%.

Understanding these nuances is essential for effectively navigating property transfers and inheritance tax planning.

Young Families

Many young families often delay estate planning, citing reasons like youth, good health, or financial constraints. However, it’s crucial for them to understand that accidents or illnesses can strike unexpectedly, leaving minor children and a spouse dependent on them. While contemplating such scenarios may be uncomfortable, estate planning is a responsible and caring step to ensure their family’s well-being.

A comprehensive estate plan for a young family involves appointing an executor and trustee, designating a guardian for minor children, providing clear instructions for asset distribution, and selecting a manager for the children’s inheritance until they reach a specified age. Additionally, it should encompass a review of insurance needs and disability planning. Neglecting estate planning can lead to dire consequences for the family’s future.

  • Guardianship for Children: One of the most critical aspects of estate planning for young families is the ability to designate guardians for minor children. Without a legal document specifying your wishes, a court may have to decide who will care for your children if both parents pass away. Estate planning allows you to choose someone you trust to raise your children and make decisions about their upbringing.
  • Financial Security: Estate planning helps ensure that your family’s financial needs are met, even if you’re no longer around. You can create a trust to manage and distribute assets for your children’s benefit, ensuring they have access to financial resources for education, healthcare, and other expenses.
  • Peace of Mind: Perhaps the most significant benefit of estate planning is the peace of mind it provides. Knowing that you have a plan in place to protect and provide for your family can alleviate stress and anxiety.

Estate planning is not just for the wealthy or the elderly; it’s a critical process for young families to secure their future and ensure their children are cared for according to their wishes. Consulting with a qualified solicitor or estate planning attorney can help you create a tailored plan that meets your specific needs, protects your assets, and ensures your family is looked after.

True or False: “I’m too young to think about estate planning or making a will.”

False: An estate plan consists of crucial legal documents like a lasting power of attorney, a will, details of financial assets, and end-of-life wishes. Yet, more than two-thirds of people (67%) have not considered estate planning, and 21% have no plans to do so.

There is no specific age requirement for estate planning, unlike obtaining a driver’s licence. Essentially, it should be done when you have assets or loved ones to protect. The biggest mistake is not having an estate plan at all. You never know what can happen, which is why setting up a plan for how your estate should be handled will protect you and your loved ones if the unthinkable happens.

As soon as you own anything, it’s advisable to prepare a will. Without one, the law will determine who inherits your possessions. This document ensures your assets pass to your chosen beneficiaries and family members in the most practical and sensible way. However, only 29% of people have formalised their will, and more than a third (38%) have not started drafting this crucial legal document at all.

It’s also important to update your will when significant life changes occur, such as buying a house, getting married, or having children.

Unmarried Couples

Unmarried couples do not have the same legal rights as married or civil partnership couples. Therefore, it is crucial for unmarried couples to create wills if they want their partner to receive an inheritance from their estate.

In the absence of a valid will, a person who passes away is considered “intestate.” According to the Rules of Intestacy, if your partner dies without a will and you are unmarried, you will not be entitled to any inheritance.

Estate planning for unmarried couples is essential to ensure that your wishes are carried out and your partner is protected in the event of your incapacity or death. Although the legal framework may differ for unmarried couples compared to married couples, estate planning offers several important benefits:

  • Protection for Your Partner: Without a legal marriage, your partner may not automatically inherit your assets or have the same legal rights as a spouse. Estate planning allows you to specify how you want your assets to be distributed and ensure your partner is provided for.
  • Avoiding Intestacy Laws: If you die without a valid will (intestate), the law dictates how your assets will be distributed, which may not align with your wishes and could result in your partner not receiving anything. Estate planning allows you to determine how your assets are distributed.
  • Appointing Guardians: If you have children and want your partner to have custody if something happens to you, estate planning allows you to specify this in your will. Without a will, the court will decide who should have custody.
  • Power of Attorney: Estate planning can include setting up lasting powers of attorney (LPA) to allow your partner to make decisions on your behalf if you become incapacitated. This ensures your partner has the legal authority to handle your affairs.
  • Protecting Shared Assets: If you own property or assets jointly with your partner, estate planning can help clarify ownership rights and what should happen to these assets in the event of your death.

True or False: “If I die, my partner will automatically inherit my assets.”

False: If you die without making a will, your money, property, and possessions will be shared according to the rules of intestacy. Unless you are married or in a civil partnership, your partner will not inherit anything under these rules, regardless of how long you have lived together. The only way to ensure your partner inherits your assets is to prepare a will, get married, or enter into a civil partnership.

High-net-worth families

Estate planning is a critical component of financial strategy, particularly for high-net-worth individuals and families. Given their substantial wealth and complex financial situations, these individuals face unique challenges and opportunities that require a specialised approach to safeguarding and transferring wealth efficiently.

We recognise that clients dedicate their lives to building strong incomes or expanding their businesses. The demands of daily work can often divert attention from personal financial assets. In some cases, individuals may inherit assets during difficult times of bereavement, making it challenging to assess the financial value of the inheritance. Regardless of how you acquired your wealth, taking a moment to consider the scope of your assets and the implications for both you and your family is a crucial first step.

With professional guidance, there are several lawful methods available to reduce inheritance tax liability on your estate. These methods include leveraging available allowances, structuring your will with tax efficiency in mind, and considering charitable donations as part of your estate plan.

Key Benefits of Estate Planning for High-Net-Wage Families:

  • Wealth Preservation: Estate planning strategies can help minimise inheritance tax (IHT) liabilities, ensuring more of your wealth passes on to your heirs and beneficiaries.
  • Asset Protection: Estate planning involves creating trusts and other structures to protect assets from creditors, lawsuits, and potential financial risks, safeguarding your wealth.
  • Control Over Asset Distribution: Specify how your assets are distributed among heirs and beneficiaries, ensuring your wealth is distributed according to your wishes and not subject to default inheritance laws.
  • Business Succession Planning: Facilitate a smooth transition of business ownership through estate planning, ensuring business continuity and protecting its value.
  • Charitable Giving: Include charitable donations as part of your legacy through estate planning, supporting causes important to you and your family.
  • Tax Efficiency: Use various strategies to minimise income taxes, capital gains taxes, and other tax liabilities, preserving wealth and optimising its distribution.
  • Peace of Mind: Having a comprehensive estate plan provides peace of mind, reducing stress and uncertainty for both you and your loved ones.

True or False: “It is too much effort to make an estate plan.”

False: Estate planning is indeed a time-consuming and complex process, and discussing death is never easy. However, inadequate or no planning can lead to family disputes, assets falling into the wrong hands, prolonged court litigation, and excessive taxes. We recommend seeking expert guidance to simplify the process and make it less stressful than anticipated. Proper estate planning is essential to protect your wealth and ensure your wishes are carried out efficiently.

Family Businesses

Estate planning is crucial for ensuring the continuity and prosperity of your family business, while also providing for your family’s future. It can protect your business and personal assets, minimise your tax burden, and provide clear instructions for how the company should operate after your involvement ceases.

Here are specific ways estate planning can benefit a family business:

  • Ensure Business Continuity: A well-crafted estate plan specifies who will inherit the business and how they will be prepared to take over. This helps avoid disputes and ensures the business remains within the family.
  • Protect Against Taxes: Estate planning strategies can minimise taxes on the business when transferring ownership to the next generation.
  • Provide for the Family: An estate plan ensures that your family is financially secure after your passing. This can be achieved through life insurance, trusts, retirement plans, and other means.
  • Minimise Family Conflict: A thoughtful estate plan minimises conflict among family members regarding ownership and operation of the business.

True or False: “I don’t need to think about wills, lasting powers of attorney, or future care plans until my health deteriorates.”

Our research revealed:

  • 17% of people plan for future care only when their health declines, with an additional 13% stating they never intend to plan.
  • 21% of people do not engage in estate planning.
  • 10% of people never make a will, while 30% do so in their 50s.
  • 17% of people arrange lasting power of attorney only when their health starts deteriorating.

However, the approximate healthy life expectancy in the UK is 64 years (the average number of years a person is expected to live in good or very good health based on current mortality rates). Waiting until health declines may be too late.

Firstly, estate planning requires mental capacity. Delaying until health declines and capacity is lost may necessitate costly and lengthy Court of Protection applications.

Secondly, without future care plans, desired facilities and care may be lacking, and carers may face sudden, stressful decisions.

Proactive estate planning is essential for safeguarding assets, ensuring business continuity, and providing for future care needs. Consulting with legal and financial professionals can simplify the process and reduce stress for you and your loved ones.

Elderly Parents

Estate planning is a crucial step for elderly parents to ensure their assets are distributed according to their wishes and their loved ones are cared for. This conversation should start early and be revisited regularly as circumstances change. Here are several reasons why estate planning is essential for elderly parents:

  • Financial Security: Estate planning organises your elderly parents’ financial affairs, including creating a will, setting up trusts, and designating beneficiaries for assets like bank accounts, retirement accounts, and insurance policies. Proper planning protects assets and supports financial needs during retirement.
  • Healthcare Decisions: Ageing brings complex healthcare needs. Estate planning lets your parents designate a healthcare proxy or create a living will to specify medical treatment preferences, end-of-life care, and organ donation wishes. This avoids family disputes and ensures preferences are respected.
  • Guardianship and Care for Dependents: For elderly parents with dependents like disabled adult children or grandchildren, estate planning ensures they receive necessary care and support after your parents pass away. Guardians can be appointed, and special needs trusts can be established.
  • Avoiding Probate: Estate planning structures assets to minimise or avoid probate, a costly and time-consuming legal process. This ensures beneficiaries receive inheritances efficiently and with fewer expenses.
  • Preserving Family Harmony: A clear estate plan prevents family disputes by specifying asset distribution and decision-makers for financial and healthcare matters. This maintains family harmony during challenging times.
  • Peace of Mind: Estate planning provides peace of mind, ensuring wishes are followed, loved ones are cared for, and financial affairs are managed according to preferences.

True or False: “I can access my parent’s account if they become ill.”

False: Accessing a parent’s finances requires a lasting power of attorney. This legal document appoints someone (a ‘donor’) to make decisions on their behalf. Without this, managing finances becomes complex and costly if mental capacity is lost.

  • Importance of Lasting Power of Attorney: Despite its importance, 48% haven’t discussed if their parents have one, and 82% haven’t prepared one for themselves.
  • Paying for Long-Term Care: State coverage for care varies by region and is often means-tested. In England, assets under £14,250 (Wales: £50,000, Scotland: £20,250) may qualify. NHS care is limited to hospital settings.

It’s essential not to delay estate planning. Accidents and illnesses can strike at any time, underscoring the need for proactive preparation to protect assets and ensure family well-being.

How can a solicitor help, and how much will it cost?

Our team, led by experienced partners, is among the most knowledgeable in the UK when it comes to advising on wills, trusts, and estates—particularly in complex matters. Our work often involves high-value estates, high net-worth individuals, and their families, as well as an increasing number of cases involving international estates, each presenting unique challenges.

Our solicitors, specialising in wills, trusts, and estates, can expertly guide you through all aspects of managing and safeguarding your wealth. We provide tailored advice specific to your circumstances, helping protect your assets for your family while addressing any tax considerations and offering strategies to minimise them.

Checklist: How to Establish an Estate Plan

As emphasised in this guide, estate planning extends beyond drafting a will. Unsure how to begin? Use this checklist to organise your affairs and ensure you’ve covered all aspects:

  • Catalogue Your Assets: Compile a list of your assets and estimate their value.
  • Document Non-Physical Assets: Include bank accounts, insurance policies, pensions, and properties.
  • List Your Debts: Note any debts and open credit accounts, including account numbers.
  • Identify Beneficiaries: Determine who you want to benefit from your estate.
  • Assess Inheritance Tax: Check if you’ll be subject to inheritance tax.
  • Update Insurance Policies: Ensure beneficiaries on your insurance policies are current.
  • Select an Estate Administrator: Choose a responsible individual to manage your estate.
  • Draft Your Will: Create a legally binding will outlining your wishes for asset distribution.
  • Establish a Lasting Power of Attorney: Appoint someone to make decisions on your behalf if you become unable to do so.
  • Regularly Review Documents: Revisit your estate plan every two years and after significant life events.
  • Communicate with loved ones: Discuss your estate plan with family members to ensure they understand your decisions and reasoning.

Following this checklist will help you establish a comprehensive estate plan tailored to your needs and circumstances. Regular updates and open communication with loved ones will ensure your plan remains current and understood by those closest to you.

Important words you may need to know

  • Administrator: An individual appointed by the probate registry to manage a deceased person’s estate in cases of intestacy or issues with the deceased’s will. They are responsible for asset collection, debt settlement, and estate distribution according to intestacy rules or the terms of the will.
  • Assets: property, vehicles, investments, or any owned items.
  • Attorney: Someone appointed through a lasting power of attorney to make decisions on your behalf if you become mentally incapacitated in the future.
  • Beneficiary: A person who benefits from a will, trust, or insurance policy.
  • Bequest: An item or asset given in a will.
  • Estate Plan: A process determining how an individual’s assets will be managed and distributed after death, including will creation and tax planning.
  • Executor: An individual responsible for applying for a grant of probate, gathering assets, settling liabilities, and distributing the estate per the terms of the will.
  • Grant of Probate: A document confirming an executor’s authority to handle a deceased person’s assets and manage estate matters, including taxes.
  • Inheritance Tax: A tax on the estate (property, money, or possessions) of a deceased person. The tax rate starts at 40% (reduced to 36% in some cases) for estates exceeding available allowances.
  • Intestate: someone who dies without a valid will.
  • Lasting Power of Attorney: A legal document enabling appointed individuals to make decisions on your behalf if you cannot.
  • Legacy: A cash gift specified in a will.
  • Letters of Administration: Probate is granted to an administrator when there’s no will (intestacy) or someone other than the named executors applies for probate.
  • Long-Term Care: Paid assistance needed for daily living activities.
  • Probate: legal authority to manage someone’s property, money, and possessions after death, issued through a grant of probate or letters of administration.
  • Trust: assets held and managed by trustees for the benefit of others.
  • Will: A legal document declaring your intentions for asset distribution after death.
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DLS Solicitors

Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.

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