Protecting your family with estate planning: a legal guide
If you have a family, spouse and children, it is likely that you expend a large portion of your intellectual and emotional energy on the constant task of looking after their health and welfare. You may even, occasionally, think about what would become of your family if you were to pass away. If you don’t, then you should.
Of course, nobody knows what tomorrow may bring and the future is always radically unpredictable. However, there are things you can do right now to help provide for your family when you are gone. This process is called “estate planning”.
Make a Will
If you have a family but not a valid Will, then making a Will is the first thing you should do. This is not something you should put off. If you die without leaving a valid Will, then you have died “intestate” and your estate will then be distributed in accordance with the rules of intestacy and not your wishes, not in a way that would necessarily best benefit those you leave behind. If you and your partner are not married and you die, then your partner stands to gain nothing whatsoever under the intestacy rules. The only way you can ensure an unmarried partner benefits from your estate is to make a Will.
Furthermore, it is only by making a Will that you can reduce any liability to Inheritance Tax (IHT) or, possibly, avoid it altogether. A married couple with children can now pass on the family home to their children up to a value of £1m tax-free.
Making a Will is nowhere near as expensive as is widely believed, nor is it complicated or stressful and every Will should be reviewed roughly every four to five years and updated as necessary to reflect you or your family’s changed circumstances. A Will should be thought of as a process and not an event. It is an essential component of family estate planning.
Life insurance
Another popular and very secure method for providing for your family’s future is to take out a policy of insurance on your own life. The amount of the death benefit – the sum paid by the insurance company upon your death - varies according to your wishes. Generally speaking, the higher the death benefit, the higher the premium payable for the policy.
If you do take out a life insurance policy, make sure that the death benefit is made payable directly to your family in the event of your death and not to your estate. If the death benefit is paid to your estate, it will greatly swell the value of your estate, thus risking greater IHT liability. If the death benefit is paid to your family, then only the premiums you have paid count as part of your estate.
Set up a trust
Most people tend to think of trusts as mechanisms that are set up after you die to manage your estate. However, you can create a trust during your lifetime – known as an ‘inter vivos trust.’ Creating and transferring assets to a trust while you are still alive is a very effective way to ensure that you provide for your children. If your children are all under the age of 18, then whoever you appoint as trustee will manage the assets for them until they reach majority or a higher age if you so specify, e.g., 21 or 25.
If you decide to create a trust, then you need to ensure that the assets you place in that trust are ones that you can live without. Once you transfer assets or property to a trust, it is as if you have gifted them and it is next-to impossible to get them back again. Trusts are a very common tool of estate financial planning.
Making an LPA
A Lasting Power of Attorney, or LPA, is a formal document by which you appoint someone to make decisions on your behalf in the event that, because of great age or infirmity, you no longer have the mental capacity to make decisions for yourself.
There are two types of LPA: one for your financial and property affairs and another for your personal health and welfare matters. You can appoint the same attorney to deal with both LPAs if you so wish. Your attorney may be a family member, a good friend or even a professional adviser but the most important consideration when choosing your attorney is that you opt for someone that you trust and who knows you well enough to be able to make decisions for you in your best interests. An LPA is also a very effective way of estate planning for family businesses.
Of course, the LPA may never actually be used at all but most professional advisers take the view that it is better to have it and not need it than to need it and not have it. You can only make an LPA when you have the mental capacity to do so. Once your mental capacity begins to decline, it is already too late.
Relatively straightforward measures such as these can provide your family with some security and you with some peace of mind. You can take action now by making an appointment with a solicitor who has experience with estate planning for families who can assess your needs, advise you on the best steps to take and prepare the documents you need to plan your estate.
For further information and trusted legal advice regarding Wills, Probate and family estate planning, get in touch with us at Carlsons Solicitors.