How to build a solid estate planning foundation for your heirs

Dec 16, 2020 | Tony Byrne's View

It is remarkable how few people in the UK have Wills (40%) and Lasting Powers of Attorney, LPAs, or their precedents Enduring Powers of Attorney, EPAs, (1%) – source: Office of the Public Guardian.  I consider these legal documents to be the most important foundation for all clients’ estate planning needs.  

Interestingly 95%+ of our clients have Wills and 67%+ have LPAs or EPAs.  I am very proud of that fact because I consider it critical to have these legal safeguards in place to not only protect your own estate but to protect your beneficiaries’ inheritance too.

Let me explain why these legal documents are so, so important starting with Wills. A Will is a legally binding document that allows you to appoint executors to administer your estate and dispose of it to the beneficiaries chosen by you.

It is very important to make sure your Will is up to date in light of the numerous changes to legislation and case law in recent years.  Changes to the taxation of trusts, pension freedoms and the introduction of the Residence Nil Rate Band, RNRB, in the last 5 years alone mean that most Wills drafted more than 5 years ago need to be at least reviewed if not changed.  That’s why it is important to have your Will drafted by a Will writing company as opposed to a solicitor for several reasons.  

Firstly, a Will writing company such as The Will Company in Northampton will store your Will safely for just £15 a year.  They will also store other important legal documents of yours such as Lasting and Enduring Powers of Attorney free of charge.  The fee also entitles you to up to three free Will re-writes a year.  Admittedly you are unlikely to need to re-write your Will three times in a year but even if you just re-write it once every five years you are still saving more than the cost of the annual storage fee.

A Lasting Power of Attorney or an Enduring Power of Attorney is essential but unlike a Will that applies on death, these Powers of Attorney apply during your lifetime on the occurrence of your physical and/or mental incapacity.  A lasting power of attorney (LPA) is a legal document that lets you (the donor) appoint one or more people (known as attorneys) to help you make decisions or to make decisions on your behalf. This gives you more control over what happens to you if you have an accident or an illness and cannot make your own decisions (you lack mental capacity). You must be 18 or over and have mental capacity (the ability to make your own decisions) when you make your LPA.  There are 2 types of LPA: health and welfare or property and financial affairs. You can choose to make one type or both.

The cost and hassle, if not out and out stress, of not having an LPA can be very high.  That is because without one your family will need to appoint a solicitor, go to the Court of Protection and appoint a deputy to act for you instead of an attorney.  It is not a foregone conclusion that your spouse, civil partner, life partner or other close relative will be appointed as your deputy.  For example, a retired solicitor may be appointed as your deputy in which case you will have to pay the professional an hourly rate just to look after your property and financial affairs and to make decisions regarding your health and welfare.  Is that what you truly want?  I very much doubt it.  Think this won’t happen to you?  Think again.  Just do a Google search on Lasting or Enduring Powers of Attorney and read the disastrous stories of people who lost mental or physical capacity and who did not have either an LPA or EPA in place.  It’s truly disturbing.

Next, why not buy a prepaid funeral plan?  It is depressing enough having to visit the deceased’s doctor’s surgery to report the death and then go to the Registrar of Births, Deaths and Marriages to report it too.  Having to then visit the funeral directors to arrange the funeral is even more depressing for your loved ones.  Why not take the hassle away from them by arranging your own prepaid funeral plan instead? We recommend Dignity prepaid funeral plans to all of our clients.  They are considered to be one of the best, if not the very best prepaid funeral plan companies in the UK.  Their plans guarantee to pay for your funeral.  What’s more the money you invest with them is placed in a nationwide trust so it is totally ring-fenced.  Furthermore, the cost of funerals rises above the rate of inflation each year.  This means that the money you invest in such a plan will increase tax-free above the rate of inflation by about 4.4% a year currently.  So it’s a win-win situation for you and your relatives if you buy a prepaid funeral plan.

Last but not least, make sure you have a Letter of Wishes to support your Will to cover all of those small possessions you have such as jewellery and what you want to happen to these items after your death.  You can update your Letter of Wishes as often as you like as it doesn’t cost you anything.  Do also ensure you have at least one death checklist too.  We offer three by the way.  You can explain in a lot more detail where everything is kept and what you want to happen to it all after your death.  Oh and don’t forget to include details of your logins for your computer and devices so that your survivors may access your digital records too.

If you are a married couple or civil partners, you jointly own property and your taxable estate excluding pensions and other IHT exempt assets such as IHT free investments and discretionary trusts, does not exceed £1 million, it is unlikely you will have Inheritance Tax to pay on your estate when you die.  That’s because you will each probably be entitled to two IHT exemptions on your deaths – The Nil Rate Band worth £325,000 and the Residence Nil Rate Band worth £175,000.  That’s because these allowances are inherited by the survivor after the first death. Nonetheless do get it checked out by a professional first.  If your taxable estate between the two of you is more than £1 million you will probably have IHT to pay on your death.  If this is the case your need for professional advice is even greater.

After all Inheritance Tax is truly a voluntary tax.  Tax avoidance is legal but tax evasion is not.  Remember failing to plan is planning to fail.  You know it makes sense*.

*The contents of this blog are for information purposes only and do not constitute individual advice. All information contained in this article is based on our current understanding of taxation, legislation and regulations in the current tax year. Any levels and bases of and reliefs from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. Although endeavours have been made to provide accurate and timely information, we cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

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