What is Estate Planning and Why is it Important?
Estate planning is the process of deciding what will happen to your assets when you die, and taking action to put your wishes in place. It involves writing a Will and keeping it up-to-date, and can include taking steps to reduce the amount of inheritance tax that your beneficiaries may need to pay.
Without proper estate planning, your assets may not be distributed in the way you would like. For example, if you die without a valid Will, it will be down to the state to determine who gets what from your estate. If you have children under 18 at the time of your death, the Courts will need to decide who takes care of them. Your family and friends will not know how to carry out your wishes and there may be disputes or disagreements about what you would have wanted.
What estate planning documents do I need?
The most important estate planning document to have in place is a valid Will. Trusts are also important legal documents that can be used in your estate plan.
What is a Will?
Your Will is a document that sets out:
- Who will inherit your assets
- Who should look after any dependants under 18
- Any charitable donations you would like to make from your estate
- Who will be in charge of administering your estate (the executor)
It is very important that when you write your Will, you make sure that it is legally valid. This means that:
- You are 18 years or over and of sound mind
- It is signed by you in the presence of two witnesses, and then signed by each witness
It’s also advisable to date your Will, and to keep it in a safe place (such as with a solicitor) to ensure that it will be found when you die.
If your Will is not valid (for example, if it wasn’t witnessed), or if it cannot be found, there is no guarantee that your wishes will be carried out.
Why use Trusts in estate planning?
There are a number of advantages to putting assets in trust for your beneficiaries. Trusts in estate planning can be used as follows:
- If your beneficiary is under 18, it’s common to put assets in trust for them until they reach a specified age.
- If you want money to be used for a particular purpose – for example, to pay school fees – you can set up a trust for that purpose.
- For those with second marriages who wish to leave their property to children from the first marriage, a Life Interest Trust is often used. This would allow your spouse to continue to live in your home for the rest of their lifetime, before the property is passed to your children.
- Trusts can also be set up before you die, in order to reduce the amount of inheritance tax payable on your estate. When you put money into a trust, the idea is that it no longer legally belongs to you – so it is outside your estate and cannot be taken into account when calculating inheritance tax.
What if I have assets in other countries?
If you own property or other assets both in the UK and abroad, estate planning is more complicated. That’s because inheritance laws differ from country to country. Specialist advice on international estate planning will be required to ensure that your assets are treated according to your wishes.
When should you start estate planning?
It’s never too early to start thinking about what will happen to your estate when you die. Nobody can predict what will happen in the future, so it’s important to always be prepared. It’s only by putting plans in place that you can take some control over what happens after you die.
When to start estate planning is an individual matter, but it’s advisable to have your Will written and other plans in place as soon as you become an adult with assets of your own.
The phrase ‘estate planning’ might seem like it only applies to the very wealthy. But your estate just means the assets that you will leave after your death. Whether that’s a few hundred pounds or an extensive property portfolio, if it matters what happens to your assets, it’s worthwhile putting legal provisions in place.
Life events that could affect your estate
It’s wise to start estate planning (or rethink your existing plans) whenever there is a major change in your life, such as marriage, divorce or the birth of a child. These events are likely to make a difference to how you would like your affairs to be managed after your death.
If you are in a couple but are not married, there is no legal provision for your partner when you die, so it’s particularly important that they are remembered in your Will. You may find this information useful about making a Will as a couple.
Specialist estate planning advice, from Hepburn Delaney
At Hepburn Delaney, our specialist inheritance solicitors can advise you on all aspects of estate planning, from making a Will to setting up a trust, nominating a guardian for your child and inheritance tax planning. We can also offer professional advice on international estate planning.
Contact us today for more information or to book a consultation.