Month: March 2013

Estate planning, wills and trusts

Estate Planning in 2024: Wills, Trusts, and Powers of Attorney

As accountants, TaxAgility understand that discussing death is never easy, but preparing for it through careful estate planning can alleviate many of the financial and legal burdens that arise. Our goal is to ensure that you have the right information from a tax and estate planning perspective to help ensure your legacy is preserved and that your property and assets, both personal and business, are passed on according to your wishes.

Wills

A will is a fundamental legal document that outlines your instructions on how the assets in your estate should be distributed after your death. It also designates guardians for any minor children you may have. For those of you who own a business, a will is crucial in ensuring a smooth transition and continuity of operations.

Why You Need a Will:

• Young Children: Naming guardians in your will ensures that your children are cared for by individuals you trust. Without a will, social services may place your children into foster care while the court appoints a guardian, which can be a lengthy and stressful process for your children. For example, if both parents of a young child pass away unexpectedly without a will, the child could be placed in foster care temporarily until a guardian is appointed by the court.
• Unmarried Couples: Without a will, your partner may not be entitled to any part of your estate. If you own a house jointly and die without a will, your partner might not automatically inherit your share, potentially forcing them to sell the property. Additionally, your children may not automatically go to your surviving partner, potentially leading to them being placed in social services.
• Separated Couples: If you die without updating your will, your estate may go to an ex-spouse, bypassing the individuals you intended to benefit. For example, a man who separated from his wife but did not update his will could inadvertently leave his entire estate to her, excluding his new partner and children from inheritance.
• Business Owners: A will can specify who will take over your business, ensuring it continues to operate smoothly. For instance, you can name a trusted colleague or family member to manage or inherit the business, preventing disputes and disruptions.

The Complications of Dying Without a Will (Intestate):

Dying without a will, known as dying intestate, can lead to significant complications for your loved ones during a time when they are most in need of help and are most vulnerable. Here’s what really happens:

• Legal Uncertainty: Without a will, the distribution of your assets is determined by the laws of intestacy. This can mean that your estate may not be distributed according to your wishes. For example, your spouse might receive only a portion of your estate, with the remainder divided among your children, which can lead to financial difficulties for your surviving spouse.
• Family Disputes: Intestacy can cause conflicts among family members, as there might be disagreements about who should inherit what. This can lead to long-lasting rifts in the family. For instance, siblings might argue over the family home or valuable heirlooms, causing emotional stress and division.
• Delay in Asset Distribution: The process of administering an intestate estate is often slower and more complex than if a will were in place. This can result in delays in accessing funds needed for daily living expenses, funeral costs, or paying off debts. For example, if a primary breadwinner dies without a will, their family may face financial hardship as they wait for the estate to be settled.
• Guardianship Issues: If you have minor children and no will, the court will decide who will become their guardian. This can be a prolonged and distressing process, leaving your children in a state of uncertainty and potential foster care. For example, children may be placed with a family member they are not close to, or worse, with someone they don't know well.
• Higher Costs: Administering an intestate estate can be more expensive due to the need for legal intervention, court fees, and potential disputes that require resolution. These costs can reduce the overall value of the estate, leaving less for your beneficiaries. For instance, legal fees from contesting the estate can significantly diminish the inheritance your loved ones receive.
• Business Continuity: Without clear instructions, the future of your business could be jeopardized. Disputes among potential heirs or a lack of immediate leadership can lead to operational disruptions, loss of clients, or even the business's closure.

If you already have a will, review it regularly to ensure it reflects your current wishes and circumstances, particularly if there have been significant changes in your personal life or business.

Lasting Power of Attorney (LPA)

The loss of your decision-making ability due to physical or mental incapacitation can be just as challenging for your loved ones as your death. A Lasting Power of Attorney allows you to nominate a trusted individual to make decisions on your behalf if you become incapacitated.

Without an LPA, an application must be made to the Court of Protection, which can be time-consuming and may leave your affairs in the hands of social services temporarily. For example, if someone suffers a severe stroke and loses the ability to communicate or make decisions, their family would need to apply to the Court of Protection to manage their finances and health care decisions, potentially causing delays and stress during an already difficult time.

Trusts

A trust is a legal arrangement that allows you to split the ownership of an asset into two parts:

• Legal Ownership: Held by the trustee.
• Beneficial Ownership: Held by the beneficiary.

Trusts offer flexibility in protecting your assets after death and can be particularly useful in the following scenarios:

• Young Children: Trusts ensure that any money left to young children is managed wisely until they reach a specified age. For instance, a trust can be set up to release funds to a child at 18 for educational expenses and then at 25 for other needs.
• Spouses: Trusts can protect your assets if your surviving spouse remarries and later divorces, ensuring that your children’s inheritance is safeguarded. For example, a husband leaves his estate in a trust for his wife’s lifetime benefit, but ensures that the remaining assets will pass to their children after her death, protecting the estate from claims by a new spouse.
• Inheritance Tax: Trusts can help protect your assets from inheritance tax. As of 2024, the inheritance tax threshold (Nil Rate Band) remains at £325,000, with a tax rate of 40% on assets above this threshold. For example, placing assets in a trust can help reduce the taxable estate and provide tax-efficient benefits to beneficiaries.
• Care Costs: Trusts can protect your property and assets from being depleted by the high costs of long-term care. For instance, a family home placed in a trust can be protected from being sold to cover care home fees, ensuring it remains available for future generations.
• Business Assets: Trusts can ensure your business continues to operate smoothly and benefits the intended heirs. For instance, you can set up a trust to manage business assets, appointing a trustee to run the business until your children are ready to take over.

Contact Us

If you have any concerns about your estate planning or protecting your assets, both personal and business, for the benefit of those you leave behind, please feel free to call TaxAgility on 02087802349. Let’s work together to ensure that your legacy is secured and your loved ones are cared for.

This article provides a general overview and should not replace professional advice tailored to your specific circumstances.

by Robin Brown