Nobody likes to think about death, but deciding what happens after you die is essential to financial planning.
Many people think that will writing and estate planning are the same, but this is not the case.
In this blog, we’ll look at the key differences so you can decide on the best course of action.
Is estate planning the same as a will?
Although the two terms are often used interchangeably, estate planning is not the same as writing a will.
A written will is part of an estate plan, but several other documents are involved. These are intended to help you distribute your assets as effectively as possible.
This is especially beneficial if you have a large or complicated estate, but estate planning is not just for the wealthy. Even if your estate is relatively small, proper planning can make things much easier for your family after you pass away.
What is included in estate planning?
Estate planning has three main elements: writing a will, establishing powers of attorney and setting up trusts. If you own a business, planning your succession will also be included.
Making a will
You’re probably already familiar with this part of the process. At a minimum, it’s sensible for most adults to make a will setting out their wishes after death. This will include:
- a total valuation of your estate, including property, savings, investments, pension funds and valuable items, as well as details of any outstanding debts.
- a list of beneficiaries, i.e. the people you want to receive your assets when you die.
- instructions for the care of any underage dependents.
- a named executor to carry out your wishes.
Powers of attorney
As well as ensuring that your wishes are honoured after you die, estate planning allows you to put someone in charge of your affairs should you become incapacitated. This is done by establishing one or more powers of attorney, usually one for financial affairs and another for health and care, and often both are done simultaneously.
A trust allows you to put a third party in charge of your assets, rather than giving them directly to a beneficiary. This person is called a trustee, and will manage the trust on behalf of the beneficiary. This can be done while you’re alive or included as a condition of your will. There are a number of reasons to set up a trust:
- safeguarding money for underage beneficiaries by putting a responsible adult in charge until they come of age.
- protection of vulnerable beneficiaries who scammers could target.
- to prevent assets from being given away if a beneficiary gets divorced or goes bankrupt.
- allowing your family to manage inheritance tax, as trusts are subject to their own tax rules.
As well as allocating your personal assets, estate planning gives you a say in the future direction of your business. This is especially important if your company is not family-owned.
As well as naming your successor, you can leave instructions for the distribution of company assets. You can divide them among your beneficiaries or ask for them to be reinvested in the business.
What if I have a large estate?
The larger your estate, the more important it is to plan thoroughly. Estates worth more than £325,000 are subject to inheritance tax, which can prove expensive for your family.
Careful estate planning can help you avoid paying too much tax and spare your family the stress of a drawn-out probate process.
Preserve your wealth – talk to the experts
Large-scale estate planning can be confusing, so it’s always best to get some help.
An experienced accountant can make the process much smoother and may be able to spot ways to reduce the tax burden on your family.