Preparing to pass your wealth on to your loved ones can be a challenge to navigate. While estate planning is often concentrated around mitigating the eroding effects of Inheritance Tax (IHT), there are also other practical considerations to think about.
Estate planning is often time-sensitive, so acting as early as possible can be essential. As such, talking and planning now could save your family a lot of stress later.
Read on to understand five practical elements of estate planning that shouldn’t be overlooked.
1. Set up a Lasting Power of Attorney
A Lasting Power of Attorney (LPA) can help give you and your family peace of mind. Appointing an attorney through an LPA allows them to take care of financial decisions should you become unable to take care of things yourself.
Your attorney could be your spouse or partner, a family member, or friend. Alternatively, you may prefer to appoint more than one attorney, or choose a professional person with fewer emotional biases, such as a solicitor.
There are two main types of LPA:
- A Health and Welfare LPA covers daily routine and medical care decisions
- A Property and Financial Affairs LPA allows attorneys to manage your finances, pay bills, and collect benefits on your behalf.
Anyone over 18 can set up an LPA. It can be temporary or last for the rest of your life. The important thing to remember is that you must have mental capacity to make the decision – so the sooner you act, the better.
Read more: 5 greatest reasons everyone should set up a Lasting Power of Attorney
2. Write your will and review it regularly
It may surprise you to learn that, according to Canada Life, more than half of UK adults haven’t written a will. If you’re one of them, now is the time to rectify this situation.
Although writing a will may seem daunting, it’s usually pretty straightforward.
Having a will can help ensure that your assets are kept in the family, passed to those you care most about, or distributed to people and causes that are close to your heart.
A will can also help avoid legal problems and confusion over who will benefit from your estate.
Once you’ve written your will, don’t just forget about it. Talk to your family and tell them where it is kept. And make a point of reviewing your will every few years to ensure it aligns with your wishes and reflect any changing circumstances within your family.
Read more: Are you and your family well prepared for the “Great Wealth Transfer”?
3. Consider the need for a letter of wishes
You can write a letter of wishes to leave alongside your will. While this isn’t legally binding, it can be useful for your executors and trustees. It could help ensure your personal wishes are understood and carried out more easily.
Although your letter of wishes can outline and advise on anything, the most common uses include:
- Who to notify of your death.
- What type of funeral you want, for example, whether you want a burial or cremation, details about the service, and where you would like to be buried or have your ashes scattered.
- Reasons why you have excluded someone from your will – this is crucial if you think your decision may be controversial or challenged later.
- A comprehensive list of your main assets, including details of your bank accounts, life insurance policies, expensive personal possessions, or jewellery. This information will help your executors administer your estate more efficiently. Be sure to include these items in your will too, as the letter of wishes isn’t legally binding. It’s simply a useful aid to help your executors distribute your estate more easily.
Your letter of wishes should be written in plain English, signed, and dated, but not witnessed.
4. Make sure you’ve completed an “expression of wishes” for your pension
The simplest way to think of an expression of wish form is as a “pension will”. It allows you to nominate the beneficiaries of your pension in the event that you pass away.
Fill out the form with details of your chosen beneficiaries and return it to your pension provider. It’s often possible to deal with this online through your pension provider’s website.
The trustees of your pension scheme will use your expression of wishes form to make decisions over how to distribute your funds, allowing them to comply with your wishes as soon as possible.
Although an expression of wish form is not legally binding, if you don’t complete one, your family may face two dangers:
- Your provider is likely to delay distributing the funds to your beneficiaries as it will take time to establish what should happen with them. Your family may need access to this money quickly on your death, and such a delay could mean they are at risk of not being able to afford bills or other important costs while this is sorted out.
- Your funds may be paid to unintended beneficiaries. Without an expression of wish form, rules revolve around who might be considered to be your “financial dependants”. Such standard rules may mean your funds are distributed in a way that goes against your intentions.
5. Organise your paperwork using an “in case of emergencies” file
While you’re getting your financial affairs in order, it’s a good idea to set up a list of all your assets and information that might be helpful if you were unable to look after your finances yourself.
Store your “in case of emergencies” or ICE document somewhere safe but easy to find.
Remember, the document should help your family avoid having to dig through your old mail, bank statements, and tax returns. As such, it’s a good idea to include:
- Bank account details
- Investment details
- Any life insurance or other financial protection policies
- Where you keep your will and LPA
- The name of your financial planner, solicitor, and accountant.
Having everything organised will save your family time and hassle at a potentially difficult time.
Talk to your family
Finally, don’t feel you have to do all this alone. Talk to your family about your wishes and ask them for help if organising your financial affairs feels too daunting.
Discussing your wishes with your family can help ensure that there are no nasty surprises in store and allows you to explain your thoughts and intentions.
While not always easy, such family discussions can often save falling out afterwards when you are no longer around to explain your reasoning.
Get in touch
If you’d like to discuss the best way to protect your interests and the family legacy, please get in touch.
Email contactme@kbafinancial.com or call us on 01942 889 883.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning or tax planning.
Will writing is not part of the Openwork offering and is offered in our own right. Openwork Limited accept no responsibility for this aspect of our business. Will writing is not regulated by the Financial Conduct Authority.
Approved by The Openwork Partnership on 2 August 2023.
