It’s too easy to avoid thinking about what will happen when you die. But there are some distinct benefits of estate planning that you should be aware of.
If you think estate planning is something you won’t benefit from, think again. Everyone could benefit from getting their finances in order. Making plans for when you pass away is an integral part of this process.
Let’s take a look at five distinct advantages of estate planning.
1. Your dependants will be taken care of
Estate planning doesn’t just involve your finances. If you have dependants, you may need to think about what would happen to them in the event of your untimely death. Planning ahead just in case will give you peace of mind.
If you have a spouse and young children, talk to your spouse about arrangements for them if something happens to you. If you are a single parent, think about who you would like as a guardian for your children.
You may then need to think about how your dependants will be taken care of financially, especially if you are the main breadwinner. Options include creating a trust for your children, or making a will so your dependants will benefit.
2. Everyone knows where they stand
This is one of the main benefits of estate planning. It will prevent any unwanted surprises for your loved ones when you are gone.
If you make plans and talk to everyone involved, they will know what to expect. But communication is key. It is important to be honest and make your wishes perfectly clear.
Make a will and outline the division of your estate. Inform your appointed executors so they will know what to do when the time comes.
3. You could reduce your taxes and expenses
In the tax year 2020/21, the first £325,000 of a person’s estate is exempt from inheritance tax (IHT). Anything above this amount will be subject to IHT at 40%.
One of the main financial benefits of estate planning is a possible reduction in your tax liability. Tax efficient estate planning will ensure that most of your estate is passed on to your loved ones, not to the Treasury.
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4. You can plan for incapacity
Sadly, one of the side effects of increased life expectancy is an increase in age-related illnesses. This includes illnesses such as dementia and Alzheimer’s, which could render you unable to take care of your affairs.
As part of your estate planning, you could nominate someone that would have power of attorney if such a situation arises. This would enable them to make legal and financial decisions on your behalf if you become incapacitated.
Alternatively, power of attorney doesn’t have to be permanent. If you have a temporary illness, it can be assigned on a temporary basis until you get better.
5. You won’t leave a mess behind
This is one of the main benefits of estate planning for the people you leave behind.
Immediately following a person’s death, their next of kin will be responsible for notifying loved ones and making funeral arrangements. They will have to do this while coming to terms with the recent passing of someone dear to them.
Think about it from their point of view. The process will be hard enough without worrying about an uncertain financial future. Estate planning will ensure your next of kin are not left with the burden of a financial mess.
Store all of your legal documents in a safe place. Make sure you inform your next of kin and/or your appointed executors.
Think carefully about your estate and who you want to leave it to. Make sure your plans are as future-proof as possible.
Be prepared to change your estate plans in the event of a major change in your circumstances. This could include the birth of a child, the selling of a property or the inheritance of a large sum of money.
It’s good practice to review your estate plans and update your will every 4-5 years.
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