What happens to your lifetime’s worth of hard work and money when you’re no longer here?
Without proper estate planning, the answers might shock you.
Your assets could be frozen for months waiting for the ‘Grant of Probate’ to be issued where there is a will, or ‘Letters of Administration’ issued where there is no will. Your family might face an unexpected tax bill if your affairs aren’t in order and the people you care about most might not receive what you intended.
Many people assume estate planning is only for the wealthy. But if you own a home, have savings or run a business, you have an estate worth protecting. Even modest estates can face significant complications without proper planning. If you die in an accident that isn’t your fault there is liability…
Estate planning isn’t just about writing a will, although that’s important. It encompasses everything from setting up trusts and arranging powers of attorney to planning tax-efficient gifts. It’s about maintaining control over your assets and providing clarity for your loved ones during difficult times.
This blog explores the essential strategies that will help protect your assets and ensure they pass according to your wishes.
The foundation: creating a will
A properly drafted will is the cornerstone of any estate plan. Without one, you die ‘intestate’, and the law decides who inherits your assets. This might not match your wishes at all.
Under Intestacy Rules, unmarried partners receive nothing, regardless of how long you’ve been together. Stepchildren aren’t recognised unless you’ve formally adopted them. And your estranged spouse might inherit everything while the friend who’s cared for you for years gets nothing.
Even with straightforward family situations, intestacy can create unnecessary delays and costs.
Your will should cover more than just who gets what. It should name executors you trust to handle your affairs, ideally people who are organised, impartial and likely to outlive you. If you have young children, choose their guardians carefully and discuss your decision with them first.
Review your will every three to five years and after significant like events like births, deaths, marriages or property purchases. A will that made perfect sense a decade ago might now create problems you never anticipated.
Some common pitfalls include making handwritten amendments, which usually invalidate the will, and forgetting to update it after major life changes.
Under current UK law, marriage or entering a civil partnership automatically revokes your previous will(s). However, this could soon change. The Law Commission recommended abolishing the automatic revocation rule in its recently published ‘Modernising Wills Law’ report. The report, along with a draft bill, has been laid before Parliament for the Government to decide whether to implement its recommendations.
Using trusts
Trusts offer sophisticated ways to protect your assets and control how they’re distributed.
While they might sound complex, they’re simply legal arrangements where your nominated trustees hold assets for your beneficiaries according to your instructions.
Discretionary trusts provide maximum flexibility. Your trustee(s) can decide who benefits and when, making them ideal for unpredictable family circumstances. Perhaps you want to provide for grandchildren but aren’t sure how many you’ll have, are concerned about a beneficiary’s spending habits or want to protect them against a divorce claim?
Life interest trusts work well for blended families. Your spouse could live in your home for life, with the property eventually passing to your children from a previous marriage. This balances everyone’s needs while preventing accidental disinheritance.
For vulnerable beneficiaries, like very young children or those with disabilities, trusts provide additional protection. Your assets remain outside their direct control while ensuring their needs are met. Trustees can provide support without handing over a lump sum that might be mismanaged or targeted by others.
The way trusts are taxed has become less favourable recently, with most facing higher rates and charges. However, the non-tax benefits often outweigh these costs. The key is ensuring your trusts serve a purpose beyond tax savings.
Powers of attorney
Estate planning isn’t just about death. It’s also about protecting yourself during your life.
Powers of attorney let you choose who makes decisions if you lose mental capacity.
There are two types. A Lasting Power of Attorney (LPA) for Property and Financial Affairs covers money matters, allowing your nominated attorney(s) to manage your bank accounts, pay your bills, sell property on your behalf, and handle your investments.
A Health and Welfare LPA gives your attorney the power to make decisions regarding your medical treatment and care arrangements.
Now, many people think, I’ll sort this out if I get ill.
But, once you’ve lost your mental capacity, it’s too late. Your family would need to apply to the Court of Protection for deputyship, a process that can take months and cost thousands, with ongoing supervision and annual fees.
So, choose your attorneys carefully. They need to be trustworthy, capable and willing to act.
Many people choose their spouse and adult children, but you should consider any potential conflicts.
Tax-efficient gifting
Gifting during your lifetime can reduce your Inheritance Tax (IHT) liabilities while helping your loved ones when they need it most.
Understanding the rules will help you gift generously without creating any unexpected tax issues.
Everyone can give away £3,000 annually with no IHT implications, and any unused allowance can be carried forward one year. So, couples could potentially gift £12,000 immediately. You can also make unlimited £250 gifts to different people, perfect for birthday or Christmas presents.
Wedding gifts enjoy special exemptions. Parents can give £5,000, grandparents £2,500 and anyone else £1,000. These are per person, so both parents could give £5,000 each.
For larger gifts, the seven-year rule applies. If you survive seven years after making the gift, it’s completely free from IHT. If you pass away within this period, tax may be due, though taper relief reduces the rate after three years.
Charitable gifts can reduce your estate’s value and also lower the rate of IHT you’ll pay, from 40% to 36%, if you leave at least 10% to charity.
You should always document any gifts you give, recording the dates, amounts, recipients and reasons. Your executors will need this information.
Consider, too, whether you might need the money back for care costs, and how gifts might affect your beneficiaries’ financial situations.
Bringing your estate plan together
Effective estate planning starts by understanding what you own.
List all your assets including property, savings, investments, pensions, business interests and valuable possessions. Note how they’re owned – solely or jointly – as this might affect how they pass on death.
Calculate the approximate value and subtract any debts. This figure is your estate’s net value.
Any amount below the nil-rate band threshold, currently £375,000, is exempt from IHT. Anything above this amount will be taxed at 40%.
Consider your family dynamics. Are there complications like second marriages, estranged relatives or vulnerable beneficiaries? What are your priorities – treating everyone equally, protecting assets for your bloodline or supporting charitable causes?
And think beyond distributing your assets. Who might need protection? What family conflicts might arise? How can you minimise tax while achieving your goals?
Review your arrangements every few years and after significant life events. Marriage, divorce, births, deaths, property purchases or retirement can all trigger the need to update your estate plan.
Your will, trusts, business agreements and pension should work together, not contradict each other.
How can Heathcote Financial Planning help?
Estate planning touches every aspect of your financial life. A professional financial adviser can help ensure your strategies align. That’s where we come in.
At Heathcote Financial Planning, we take a comprehensive view, ensuring all the elements work together to protect your assets and achieve your wishes.
Professional estate planning provides invaluable peace of mind, knowing you’ve protected the people and causes you care about most. So, don’t leave your family’s future to chance. Book a consultation today to discuss how we can help safeguard your assets and create a lasting legacy for your loved ones.
Disclaimer
The content of this article is for general information purposes only and does not constitute personal financial, legal, or tax advice. Estate planning can be complex and the right approach will depend on your individual circumstances, including your family situation, financial goals, and the nature of your assets. Tax rules and allowances are subject to change and may vary depending on your personal situation. You should not take any action based on the information in this blog without first seeking advice from a qualified and regulated financial planner or legal professional. Heathcote Financial Planning is authorised and regulated by the Financial Conduct Authority and offers tailored advice to help ensure your estate planning is appropriate, effective, and aligned with current legislation.
Company registration: Heathcote Financial Planning is a trading style of The Mortgage and Protection Partnership Ltd, authorised and regulated by the Financial Conduct Authority under No: 612049. Registered address: Olympus House, Olympus Park, Quedgeley GL2 4NF. Company No: 08734287.