Planning for the future is an aspect of life we often delay, however, it is still an essential step in ensuring that your wishes are detailed so that your loved ones can honour them once you’re gone. A fully comprehensive plan not only addresses the distribution of assets after your death, but also prepares for potential incapacity and healthcare decisions later in life. There is no end to the preparation you can take, however in this article we will discuss the most important documents in establishing a robust Estate plan that you can place faith in. From drafting a Will to the range of Deeds that could be put in place, each document plays a crucial role in safeguarding your legacy and providing peace of mind. Whether you are Estate planning for the first time or revisiting your existing plan, understanding these key components will give you the knowledge you need to make informed decisions that will determine how your Estate is managed.
Last Will and Testament
A famously important document, a Will is without a doubt one of the most crucial documents you will ever create. This is the cornerstone of your Estate plan, outlining how you want your assets to be distributed and appointing Executors to arrange their distribution. It can also include provisions for guardianship of children under 18. This document ensures that your wishes are clearly communicated and legally enforceable.
Health and Welfare Lasting Powers of Attorney (LPA)
This document designates Attorneys the power to make health related decisions on your behalf if you are unable to do so for yourself. A key part of Estate planning is preparation during your lifetime, and creating the necessary documentation to support your health and welfare is crucial. This outlines your wishes for how you will be cared for in all manner of ways, from huge decisions such as life-sustaining treatment to day-to-day care (such as how you will be dressed). This document ensures your preferences are respected and the decisions made on your behalf are in your best interest.
Finance and Property Lasting Powers of Attorney (LPA)
Where a Health & Welfare LPA addresses your wellbeing, this does the same for your financial and property decisions. One crucial difference between the application of the two LPAs is that a Health & Welfare LPA can only be used following a loss of capacity, whereas an Attorney assigned by the Finance & Property LPA can use their powers in conjunction with your own decision-making. This means that even if you still have the capacity to perform actions (such as going to the bank), an Attorney can act on your behalf. This can be incredibly useful in scenarios in which you have full mental capacity but your mobility is suffering. This document means that your bills can be paid and financial interests are protected while being taken care of by a trusted individual.
Declaration of Trust
A Declaration of Trust can be pivotal in Estate planning. As it is a document that defines the share of a property that you own, it ensures that your financial contributions and ownership interests are clearly defined, documented and protected. People who own property as Tenants in Common own specific portions of properties, unlike Joint Tenants, who have equal rights to the whole property. This means that your portion of the property is entirely yours to distribute as you see fit and does not pass by survivorship. This may mean selling your share or transferring it to the other people, either during your life or upon your passing, however a Declaration of Trust is crucial in protecting your intentions.
Tax information and Records
While not strictly a single document, it is vital to compile necessary tax information and records to ensure compliance with tax obligations. This will typically involve past income tax returns, records of property taxes, documentation of taxes paid on any gift made in the past 7 years and information of any outstanding tax liabilities. This may mean working alongside accountants or tax professionals, but the end result is greatly facilitating the smooth settlement of your Estate. If this is done correctly, your assets and Beneficiaries will be protected from a number of legal and financial issues that would arise otherwise.
Inheritance Tax and Business Succession Plans
Events such as the COVID-19 pandemic have made it apparent in recent years that tough situations are around every corner for businesses. That has led to a rise in the importance of preparation for every possibility, and for that, business succession planning is paramount. This involves creating detailed documents, potentially including buy-sell agreements and shareholders’ agreements, which delineate the succession process, identify successors and establish the terms of transition. Inheritance Tax (IHT) can be a significant obstacle when passing on high-value assets, such as a business. If your business is distributed as part of your Estate, rather than ownership being transferred during your lifetime, seeking guidance on minimising IHT liabilities can help prevent significant hardships befalling your business and its future owner/s.
This is not to say that IHT and succession plans are a measure that only business owners may want to take. IHT affect all Estates that exceed the threshold at a rate of 40%. By employing a range of legal instruments (such as Wills and Trusts), you can manage and distribute your Estate in accordance with your wishes, however they can also be powerful tools in mitigating IHT liabilities. Wills in particular can help in maximising the use of the Nil Rate Band and Residence Nil Rate Band, utilise spouse exemptions and leave part of the Estate to charity (which reduces the IHT rate to 36% from 40% if 10% or more is left to charity). Strategic IHT and succession planning can therefore incur less tax, preserving wealth for Beneficiaries.
The key component of your Estate plan, however, is to always remember that it is ever-evolving, and you must review it regularly in accordance, ensuring the distribution of your Estate and preparation for potential loss of capacity is both aligned with your wishes and legally sound. If you would like to review your Estate plan, we offer a free 30-minute consultation to discuss your specific situation and its corresponding needs. Feel free to get in touch here.
