Helping you with estate planning

Estate planning is about figuring out what to do with your wealth (all the things you own) before and after you die. Sometimes, it’s getting jumbled up in the words that make the process feel overwhelming. So, let’s grab five of the main words around estate planning:

What’s an estate?

• Traditionally, this means a large piece of land owned by one person or family. In the case of ‘estate planning’ it means all the money and property (including land) owned by a person when they die. So, estate planning is putting together a plan of what you’d want to happen to your wealth when you die. It’s not a pleasant thought, but one that’s important to understand (more on this to come).
  

What’s a will?

• It’s a legal document, put together either by yourself or a solicitor, that gives instructions on what should happen to your money, property, and things you own after your death. When writing your will, you’ll need to know what these words mean, too:
  • executor (or administrator) – this is a person (or people) who you'll name in the will, that will be responsible for handling your estate (all your wealth) and who will carry out the instructions in your will. They'll also register your death, get a death certificate and arrange the funeral.
  • beneficiary – this is anyone named in the will who will get a benefit or gift after you’ve died.

What’s an asset?

• It’s anything of value that can be exchanged for money, like:
  • property (house and land)
  • pensions and investments
  • cash and bonds
  • household furniture and art
  • gold/silver and jewellery
  • vehicles

What’s a trust?

• It’s a way of managing your wealth (money, investments, property) to help pass on assets (your wealth) when you die.
• You'll choose someone, or a few people who you trust, called a trustee (or trustees) to manage your assets to benefit whoever you choose (called the beneficiaries).
• Naming your best friend Margaret as the trustee and your children as beneficiaries, for example, will mean that Margaret will control the assets in the trust on behalf of your children and they will get paid from the trust based on what you’ve agreed.

What’s a Lasting Power of Attorney (LPA)?

It’s a legal document that allows you to appoint someone who can make decisions on your behalf or act in your place.  Meaning, this person (the ‘attorney’) will step in to make important life decisions for you, either when you grant permission or you’re no longer able to do so. This depends on which LPA is in place.

There are two types of LPA:

• One for health and welfare – this can only be enacted if you’re unable to make your own decisions.
• One for property and financial affairs – this can be used as soon as it’s registered, subject to the individual’s permission.

You can choose to make one or both types of LPA. To learn more, check out GOV.UK.

1. Protects your loved ones and things – ultimately, the main goal of estate planning is to make sure that the things you’ve worked hard to earn throughout your life (be that your house or a rockstar collection of vinyl) are passed down to the people you want. Without an estate plan, the courts may decide who gets your things – and this may take greater time, more money, and it could bring out tensions between people. It’s important to know that, even with the best intentions, the courts may not always divide your things in the same way you would.
   
   An estate plan can also protect your young children in the will. Naming guardians, should anything happen to you and your partner before the children turn 18, will give you the confidence that they’ll be cared for in a way you approve. Without named guardians in your will, the courts will decide who will raise your children.
2. Maximise your inheritance – Inheritance Tax may be due when an estate is worth more than £325,000 on death. Currently, anything above £325,000 is taxed at 40%, subject to other exemptions and reliefs. If it’s below, or you leave everything above this threshold to a spouse, civil partner, charity or amateur sports club, Inheritance Tax won’t normally apply.
   
   If your spouse or civil partner dies, they can transfer any of their unused allowance onto you. This could double your tax-free allowance, meaning your estate will only be eligible for Inheritance Tax above £650,000.
   
   When it comes to property, anything left to a spouse or civil partner is also exempt from Inheritance Tax. And if you’re leaving a home to children (this includes those adopted and fostered) or grandchildren, then the RNRB (Residence nil rate band) will increase your estate’s tax-free threshold to £500,000. If your partner dies and transfers their unused Inheritance Tax threshold onto you, there’s potential to leave a home to your children or grandchildren up to the value of £1m tax-free.
   
   With estate planning, you'll explore how to maximise passing on your inheritance while managing the tax burden your beneficiaries will face. It’s important to remember there may be some exceptions and details, and tax rules may change depending on your individual circumstances.
   
   Check out how Inheritance Tax works on GOV.UK, and bear in mind tax rules may change at any time. You can also read our guide and use our Inheritance Tax calculator to help work out how much your estate may need to pay.
3. Reduces tensions and aggression – unless you’re planning a burial with all your valuables, then estate planning can help encourage a more peaceful transition of your wealth. It may be that you’d rather set up a trust for a child that won’t cope well with a lump sum payment, or perhaps give more to someone who cared for you long-term - estate planning will also let you choose who controls your money and assets if you become too unwell. Ultimately, it's an opportunity to figure out what’s best for who when the time comes, or those rather personal decisions may be left to the courts.

This largely depends on your assets and individual estate, which can vary dramatically from person to person, but here are the basics:

• Figure out your net worth – this means add up all your assets (the things you own) and subtract any liabilities (things you owe, like a mortgage, unpaid bills, car loans, other debt). Things to remember:
  • your home, any other properties, buildings or land
  • your money includes investments, pensions, savings
  • your valuables include anything worth money, be that vehicles, jewellery or antiques
  • you may have insurance policies that pay out when you die, so have a look through your policy documents.
• Work out the who, what and when – once you have your list of assets, figure out who is getting what followed by when they should get it and how. This also means thinking about whether there should be a trust, or whether your beneficiaries should meet certain conditions before getting their gift.
  
  Things to remember:
  • if you haven’t paid off your mortgage, this will need to be paid out of your estate
  • you may want to give someone a right of residency, or a right to live in your home.

• Make a will – you’ll need to make a will to make sure your wishes are legally binding, so deciding whether you’ll do that on your own or hire a solicitor is worth exploring.
  
  Things to remember:
  • you may think about appointing a Power of Attorney, but it's entirely up to you when to do this. It doesn't have to be when you make a will, but it can be helpful as part of your estate planning.
  • you can use your will to let people know your wishes for the funeral and paying funeral costs
  • you can add a digital assets clause to your will, which will let people know what you’d like to happen with your online presence – this includes everything from family photos and music collections to social media platforms.

As you're exploring your options with estate planning, you may find that having extra support from a financial adviser can help give you the confidence to move forward. 

Estate planning will take time and effort – it may take weeks or months, something you dip in and out of or a process you’d like to get sorted by a certain deadline. It may also bring up unexpected thoughts and feelings, so please be kind to yourself as you’re planning. And if you’re feeling overwhelmed or needing more guidance, there are plenty of resources available. As a start, check out how to make a will from GOV.UK and Citizens Advice.