Estate Planning Guide: Checklist, FAQs & More

What is Estate Planning?

Simply put, estate planning is the process of putting your affairs in order so your loved ones are taken care of should you require long-term care, lose mental capacity or die.

Our research has found that:

• Fewer than 1 in 6 (14%) people have formalised their estate plan.
• More than a third (36%) of people have not started drafting a will.
• Over 1 in 5 (22%) people do not know what a lasting power of attorney is.

Here’s a summary of what you need to know:

In this guide we’ll go through the following:

1. Benefits of Estate Planning
2. What Documents Will I Need?
3. General Guidance
4. How can a solicitor help and what will it cost?
5. Checklist: How to set up an estate plan
6. Important words you may need to know
7. Helpful Resources
8. Free Estate Planning Guide

Why is it important?

We appreciate it can be difficult to envisage a time when you are not around to provide for your family, and preparing a will, appointing people to manage your finances while you are in hospital or thinking about where you will live in your retirement can be the last thing on your mind.

Wills clearly have an important role in estate planning on death, but often the best inheritance tax planning opportunities are those effected during one’s lifetime.

Whilst stock markets are tumbling, property prices falling and businesses of all sizes are facing uncertain futures, it’s reasonable for people to sit tight and be hesitant to part with their wealth. However, ironically, some of the best tax saving opportunities can be found and achieved in a falling market.

So how can I reduce my tax liabilities?

Capital gains tax (CGT) often prohibits the direct gifting of assets to individuals.  However, if the value of an asset decreases in a falling market, then so does the impact of capital gains tax on the gift – this is because the tax is based on the gain that’s been made on that asset, and not on the value received. This is often overlooked by individuals, who only recognise the potential implications for inheritance tax and not those for capital gains tax.

Gifting assets into a certain trust can potentially mitigate an immediate charge to CGT on the person making the gift, deferring it into the hands of the trustees of the trust, often giving them time to plan/minimise the future crystallisation of such a gain.

A decrease in the value of assets could also mean that more assets can be placed into a trust before any inheritance tax is triggered – so a double tax-saving opportunity.

Planning who will inherit your estate and how they will do so gives you and your family peace of mind so you can enjoy your time together in the present. The process should start as early as possible – while yesterday was the right time to estate plan, today is the second best option.

1. Benefits of Estate Planning

• Wealth Preservation: Estate planning allows you to protect and preserve your wealth for future generations. Through strategies such as trusts, you can minimise the impact of inheritance tax (IHT) on your estate, ensuring that more of your assets are passed on to your heirs rather than being lost to taxes.
• Control Over Assets: Estate planning gives you control over how your assets are distributed. You can specify who should receive your property, when they should receive it, and under what conditions. This helps ensure that your assets are used in accordance with your wishes.
• Avoiding Intestacy: Without a proper estate plan, your assets may be distributed according to the rules of intestacy, which might not align with your wishes. Estate planning allows you to designate beneficiaries and heirs, reducing the likelihood of disputes and ensuring your assets are distributed as you desire.
• Protecting Vulnerable Beneficiaries: If you have beneficiaries who are vulnerable, such as minors, individuals with disabilities, estate planning can establish trusts to protect and manage their inheritances until they are able to handle their finances responsibly.
• Business Succession: If you own a business, estate planning can facilitate a smooth transition of ownership to your chosen successor, ensuring the continuity of the business.
• Peace of Mind: Perhaps one of the most significant benefits of estate planning is the peace of mind it offers. Knowing that your affairs are in order and that your loved ones will be taken care of according to your wishes can relieve a significant amount of stress.

2. What Documents Will I Need?

Will

A last will and testament is a fundamental document in estate planning. It outlines how you want your assets to be distributed after your death and allows you to name an executor to carry out your wishes. Without a will, your assets may be distributed according to the rules of intestacy. If you need help with a will, see our dedicated will & probate page, where our expert team can help you navigate through the complexities of writing a will.

Trusts

Depending on your goals, you may need to establish one or more trusts. See our dedicated trusts page, where we can help safeguard your estate for future generations.

Power of Attorney

This document allows you to appoint someone you trust as an attorney to make decisions on your behalf if you become mentally or physically incapable of doing so.

It’s essential to consult an experienced solicitor or estate planning attorney to help you create and execute these documents properly. They can ensure that your estate plan complies with UK laws and regulations and that your wishes are accurately reflected in your estate planning documents. Additionally, your estate plan should be reviewed and updated regularly to account for changes in your life circumstances and financial situation.

See our dedicated power of attorney page where our team of specialists can help you.

3. General Guidance And Advice

Homeowners

Transferring your home to a relative is a significant decision, and it’s essential to understand both the implications and benefits. Here are some key factors to consider before giving away your home:

• Reasons for the Transfer
• Your Continued Residence
• Inheritance Tax
• Capital Gains Tax

It’s crucial to understand the potential consequences and consult with legal and financial professionals for guidance when making such a decision.

Myths and facts: “I can gift my house to my children to avoid inheritance tax.”

TRUE, IF: Your children can reduce or avoid paying inheritance tax if you gift your property to them and live for another seven years. This is as long as you have not lived or benefited from the property as a primary householder might. So, for example, after you have gifted the property, you will not be able to live there rent-free and you must pay a market rent (whatever a third party would be expected to pay for living in the property) for the duration of your occupation. For every passing year, up to seven years, the amount of tax tapers off.

If you die between three and seven years after giving your property, your children will still have to pay tax, but possibly not the full 40%.

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 recognise that accidents or illnesses can strike unexpectedly, leaving minor children and a spouse dependent on them. While it may be uncomfortable to contemplate such scenarios, 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 your 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, protect your assets and ensure your family is looked after.

Myths & Facts: “I’m too young to think about estate planning or making a will.”

FALSE: Broadly speaking, an estate plan is made up of important legal documents like a lasting power of attorney, will, details of financial assets and end-of-life wishes. Yet more than two-thirds of people (67%) have not thought about estate planning and 21% said they have no plans to ever do so.

Unlike a driver’s licence, there is no age that says when you should create an estate plan. Essentially, however, it should be done when you have stuff or loved ones to protect. The biggest mistake is not to have 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, you should prepare a will. If you don’t, the law will decide who inherits your possessions. This document ensures your assets pass to your chosen beneficiaries and family members, and ensures it happens in the most practical and sensible way. However, just 29% of people have formalised their will and more than a third (38%) have not started drafting this very important legal document at all.

It is also important not to forget to update your will when something changes in your life, such as buying a house, getting married or having children.

Unmarried Couples

Unmarried couples do not enjoy the same legal rights as married or civil partnership couples. Consequently, it becomes crucial for unmarried couples to create wills if they wish for their partner to receive an inheritance from their estate.

In the absence of a valid will, a person who passes away is referred to as “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. While the legal framework may differ for unmarried couples compared to married couples, there are still several important benefits to estate planning:

• 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. This 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.

Myths & Facts: “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 stands as a pivotal element within the financial strategy, especially when it comes to high-net-worth individuals and families. Given their significant wealth and intricate financial situations, these individuals encounter distinct challenges and opportunities that necessitate a specialised approach to safeguard and transfer wealth efficiently.

We understand that clients dedicate their lives to building a strong income or expanding their businesses. The daily demands of work can frequently divert attention from one’s own financial assets. In some cases, individuals may inherit assets during challenging times of bereavement, making it hard to assess the financial value of the inheritance. Regardless of how you acquired your wealth, pausing for a moment to contemplate the scope of your assets and the implications for both you and your family is the initial and essential step.

With help from professionals, there are several lawful methods exist for reducing the inheritance tax liability on your estate. These methods include leveraging your available allowances, structuring your will with tax efficiency in mind, and considering charitable donations as part of your estate plan.

• Wealth Preservation: High net-worth individuals often face significant inheritance tax (IHT) liabilities. Estate planning strategies can help minimise IHT, ensuring more of your wealth passes on to your heirs and beneficiaries.
• Asset Protection: Estate planning can include the creation of trusts and other structures to protect assets from creditors, lawsuits, and potential financial risks, safeguarding your wealth.
• Control Over Asset Distribution: You can specify how your assets are to be distributed among heirs and beneficiaries, ensuring that your wealth is distributed according to your wishes and not subject to default inheritance laws.
• Business Succession Planning: If you own a business, estate planning can facilitate a smooth transition of ownership, ensuring the continuity of the business and protecting its value.
• Charitable Giving: Estate planning allows you to include charitable donations as part of your legacy, supporting causes that are important to you and your family.
• Tax Efficiency: High net-worth individuals can use various strategies to minimise income taxes, capital gains taxes, and other tax liabilities, preserving wealth and optimising its distribution.
• Peace of Mind: Knowing that you have a comprehensive estate plan in place can provide peace of mind, reducing stress and uncertainty for both you and your loved ones.

Myths & Facts: “It is too much effort to estate plan.”

FALSE: Honestly, estate planning is a time-consuming, complex process and talking about death is never a pleasant conversation. However, improper or no planning can lead to family disputes, assets getting into the wrong hands, long court litigation and excess money paid in taxes. With this in mind, we would always advise you to take expert guidance to ensure the process is simple and much less stressful than you anticipate.

Family Businesses

Estate planning is essential for ensuring the continuity and prosperity of your family business, as well as providing for your family. It can also protect your business and personal assets, minimise your tax burden, and give your family and business partners clear instructions on how the company should operate after you are no longer involved.

Here are some specific ways that estate planning can help a family business:

• Ensure the continuity of the business. A well-crafted estate plan can specify who will inherit the business and how they will be prepared to take over. This can help to avoid disputes and ensure that the business remains in the family.
• Protect the business from taxes. There are a number of estate planning strategies that can be used to minimise the amount of taxes that are paid on the business when it is transferred to the next generation.
• Provide for the family. An estate plan can ensure that the family is financially secure after the death of the business owner. This can be done through a variety of means, such as life insurance, trusts, and retirement plans.
• Minimise conflict. A well-thought-out estate plan can help to minimise conflict among family members over the ownership and operation of the business.

Myths & Facts: “I don’t need to think about wills, lasting powers of attorney or making plans for my future care until my health starts deteriorating.”

Our research revealed that:

• 17% of people will begin planning for their future care when their health starts deteriorating, with a further 13% stating they had no plans to ever do so.
• 21% of people will never estate plan.
• 10% of people will never make a will, while 30% will do so in their 50s.
• 17% of people will prepare a lasting power of attorney when their health starts deteriorating.

However, with the approximate healthy life expectancy in the UK being 64 (the average number of years that an individual is expected to live in a state of self-assessed good or very good health, based on current mortality rates and prevalence of good or very good health), this could be too late.

Firstly, you can only make a will or prepare a lasting power of attorney if you have mental capacity. If you leave this until your health starts deteriorating and you lose capacity, your loved ones will have to make an application to the Court of Protection – again, this is a very costly and lengthy process.

Secondly, if you do not put plans in place for your future care, you may be left without the facilities you would like, gaps in your care provision or without any adequate care at all. Furthermore, the person who ends up caring for you could end up having to make important decisions at the last minute – causing unnecessary stress.

Elderly Parents

Estate planning is an important step that can help elderly parents ensure that their assets are distributed according to their wishes and that their loved ones are taken care of. It is a conversation that should be started early and revisited regularly as the parents’ circumstances change. Here are several key reasons why estate planning is essential for elderly parents:

• Financial Security: Estate planning helps ensure that your elderly parents’ financial affairs are in order. This includes creating a will, setting up trusts, and designating beneficiaries for assets like bank accounts, retirement accounts, and insurance policies. Proper financial planning can help protect their assets and provide for their financial needs during retirement.
• Healthcare Decisions: As individuals age, their healthcare needs often become more complex. Estate planning allows your parents to designate a healthcare proxy or create a living will to specify their wishes regarding medical treatment, end-of-life care, and organ donation. This can help avoid disputes among family members and ensure their preferences are respected.
• Guardianship and Care for Dependents: If your elderly parents have dependents with special needs, such as disabled adult children or grandchildren, estate planning can help ensure that these dependents receive the care and support they require after your parents pass away. Guardians can be appointed, and special needs trusts can be established to provide for their ongoing needs.
• Avoiding Probate: Probate is a legal process that can be time-consuming and costly. Estate planning can help your parents structure their assets in a way that avoids or minimises the need for probate. This can help beneficiaries receive their inheritances more quickly and with fewer expenses.
• Preserving Family Harmony: Without a clear estate plan, disputes and conflicts among family members can arise. Estate planning can provide clear instructions on how assets should be distributed and who should be responsible for making financial and healthcare decisions. This can help prevent family disputes and maintain family harmony during difficult times.
• Peace of Mind: Ultimately, estate planning provides your elderly parents with peace of mind knowing that their wishes will be followed, their loved ones will be taken care of, and their financial affairs will be managed according to their preferences.

Myths & Facts: “If one of my parents becomes ill, I’ll be able to access their account to pay their bills.”

FALSE: The only way someone can manage another person’s finances is through a lasting power of attorney. This is a legal document that lets an individual (known as a ‘donor’) appoint one or more people to make decisions on their behalf. This could be a temporary situation – for example, if someone ends up in hospital and needs help with paying bills – or a longer-term situation, such as being diagnosed with dementia or losing mental capacity.

Arguably, a lasting power of attorney is one of the most important legal documents a person can make. However, almost half of people (48%) have not discussed whether their parent has one in place and 82% of people have not formally prepared one for themselves.

Accidents and illnesses can happen to anyone at any time, so it is highly advisable not to leave this exercise until too late. If someone does lose mental capacity without a lasting power of attorney in place, loved ones will have to apply for the right to manage their financial and health affairs through the court, which is a lengthy and costly process.

“I don’t need to worry about paying for long-term care – the state will pay for it.”

IT DEPENDS: In limited circumstances, the state (i.e. the NHS and social services) will pay for care. The former, however, is limited to (generally) care in a hospital setting and the latter is means tested. While NHS-funded care is available to those outside hospital, the criteria can be difficult to meet. Social care is paid for only when assets fall below a certain level. In England and Northern Ireland, when your capital falls to £14,250, it will no longer be counted in calculating how much you have to pay towards your care. In Wales, the figure is £50,000 and Scotland is £20,250.

4. How can a solicitor help and what will it cost?

Our partner-led team is one of the UK’s most experienced teams advising on the complex areas of wills, trusts and estates. Much of our work involves high-value estates, high net-worth individuals and their families and an increasing amount of matters involving international estates – which bring with them a whole additional set of challenges.

Our wills, trusts and estates solicitors can guide you expertly through all aspects of managing and securing your wealth offering bespoke advice to your unique set of circumstances helping to protect your wealth for your family and understand any tax implications and how to minimise them.

We are one of only a few firms that have members of the Society of Trust and Estate Practitioners (STEP); meaning our team practices, and is recognised at, the highest level in will writing.

Each situation is different and we prefer to talk to our clients and understand your situation before costs come to mind. Contact us and let us walk beside you, give you a helping hand and let us do the heavy lifting. Call us today on 0330 024 0333 or use the button below to complete our contact form and will aim to get back to you as soon as possible.

5. Checklist: How to set up an estate plan

As this guide has highlighted, estate planning goes well beyond simply drafting a will. Not sure how to get started? Complete this checklist to get your affairs in order and ensure
you have covered all bases:

1. Write down your assets and roughly what they are worth
2. Document any non-physical assets, such as bank accounts, insurance policies,
   pensions, and properties
3. Assemble a list of debts and open credit accounts, including account numbers
4. Make a list of who you want to benefit from your estate
5. Check if you will have to pay inheritance tax
6. Update the beneficiaries of your insurance policies
7. Choose a responsible estate administrator
8. Draft your will
9. Create a lasting power of attorney
10. Regularly review all your documents – at least once every two years and after any
    major life-changing event
11. Talk to your loved ones about your estate plan – make sure they know the practical
    facts, and tell them what you have decided and why

6. Important words you may need to know

• Administrator: Someone who is appointed by the probate registry to manage a deceased person’s estate in the event of intestacy or an issue with the deceased’s will. They are responsible for collecting in assets, paying liabilities and distributing the estate in accordance with the terms of the intestacy rules or, in some cases, the will.
• Assets: Something that is owned, such a property, a vehicle or investments.
• Attorney: Someone you appoint via lasting power of attorney to make decisions on your behalf if you lose the mental capacity to do so in the future.
• Beneficiary: Someone who benefits from a will, trust or insurance policy.
• Bequest: Something that is given in a will.
• Estate plan: A process to determine how an individual’s assets will be managed and distributed after death and can include making a will, as well as tax planning.
• Executor: A person responsible for applying for the grant of probate collecting in assets, paying liabilities and distributing the estate in accordance with the terms of the will.
• Grant of probate: A document that confirms the executor of a will has the authority to deal with the assets of a deceased person and act on behalf of the estate in relation to tax and other matters.
• Inheritance tax: A tax on the estate (including property, money and possessions) of someone who has died. Inheritance tax starts at 40% (reduced to 36% in some circumstance) where the estate is valued at more than any available allowances.
• Intestate: A person who dies without leaving a valid will.
• Lasting power of attorney: A legal document that lets you appoint one or more people to help make decisions on your behalf.
• Legacy: A cash gift within a will.
• Letters of administration: The type of probate issued to an administrator where there is either no will (intestacy) or someone other than the name executors within the will has applied for probate.
• Long-term care: When you may need paid assistance with activities associated with daily living.
• Probate: The legal right to deal with someone’s property, money and possessions when they die either under a grant of probate or letters of administration.
• Trust: Assets are held in a trust and managed by a person or people (trustees) to benefit another person or people.
• Will: A legal document where you declare your intention as to what happens to your assets after your death.

7. Helpful Resources

• The Law Society
• STEP
• Solicitors for the Elderly
• Society Later Life Advisers