You may have heard the term ‘estate planning’ and know that it is connected to sorting out what happens to your assets and savings after you die. Estate planning can seem daunting as it is connected to aspects of life that we would all prefer not to dwell on for too long. However, knowing that you have made plans and arrangements to protect your loved ones, sort your tax obligations and leave your legacy in trusted hands can be hugely reassuring – at any stage in life.
The Importance of Planning what will Happen to your Estate
The importance of estate planning cannot be denied. It is all about putting your affairs in order, not matter how simple or complicated they may be, so that your loved ones can be taken care of if you die or become incapacitated. It is important to include as much as possible in the estate planning process to avoid unwanted surprises further down the line. At its simplest, estate planning involves drawing up a list of financial assets, income streams, properties and business interests, as well as financial commitments, tax documentation and significant outgoings.
This allows everyone involved in the process to understand your financial position. From there, you can draw up documents to distribute assets, leave instructions for continuing or winding up business affairs and ensuring financial protection for loved ones. Common documents for this purpose include Wills and Trusts. These are both legally accepted documents that lay out what you want to happen to your estate after you die or become incapacitated.
Done correctly and comprehensively, the estate planning process removes undue stress and minimises conflict for everyone involved. This is because your instructions and wishes are made clear and are legally approved. Your loved ones are protected, even if you are unable to look after them yourself. Plus, you can anticipate and make provisions to cover any tax and other financial obligations, such as debt or loan repayments. This removes a huge hassle for those who succeed you at what is likely to be an emotionally difficult and busy time for them.
The Difference between Wills and Trusts
As already mentioned, setting up a Will or Trust are extremely efficient ways of ensuring the importance of estate planning is respected. Whether you need a Will or a Trust will depend on your individual circumstances. A solicitor specialising in estate planning will be able to help you navigate your way around wills and trusts. In basic terms, a Will is a document that lays out how you want your estate distributed and affairs handled after your death. You can leave your estate to one of more people, naming specific bequests and leaving written instructions.
A Trust is a slightly more complex arrangement whereby you leave instructions for a sum of money, business or other assets to be held and managed by an individual, group of people or organisation (known as trustees) for the benefit of a specific person or purpose (the ‘beneficiary’). Reasons for including a Trust in your estate planning can vary. They can be used to protect the interests of a minor or other dependent. Trusts can also be set up to take advantage of legitimate tax planning and minimise the impact of inheritance tax on your estate. They can also be set up to allow tax efficient giving to a chosen charity, protect assets from creditors or limit how a sizeable inheritance can be spent.
What else should you think about?
The importance of estate planning is such that it is not limited to arranging who will inherit your assets. Also included should be decisions and documentation around what happens if you become very ill and what you want to happen at the very end of your life. One important estate planning provision to think about putting in place is Power of Attorney. This is a document granting a trusted person, or group of people the power to make financial and/or medical decisions on your behalf if you are unable to do so yourself. You can name the people you want to act for you, as well as leave detailed instructions about how they should proceed. Again, this can save a lot of heartache and conflict at a potentially difficult and emotional time.
For more details about estate planning, you should consult a family solicitor with expertise in this area. They will help you draw up a personalised plan and provide you with the reassurance that everything will be taken care of according to your own wishes when you die.