Very few of us like to think about our own mortality. After all, life’s for living, not for planning the funeral. And while most of us understand the importance of having a will, there’s a myth that estate planning is only for the wealthy. But that’s not strictly true. Here’s what to consider.
What is estate planning?
At its simplest, an estate plan sets out where you want your money and your belongings to go when you pass away. It can also set out any last wishes you have regarding healthcare provision.
Estate plans take into account all of your assets (your estate). This includes everything from the big things like your home and furniture to assets like premium bonds and pension funds. Estate plans also deal with your debts, for instance, outstanding loans, overdrafts or even credit card balances.
A comprehensive estate plan should record any financial gifts you’ve made in the last seven years. Regularly reviewing your estate plan to reflect this means you can prevent your estate from overpaying inheritance tax. As it stands, monetary gifts made seven years before your death are exempt from IHT. You can find out more at gov.uk/inheritance tax.
Are a will and an estate plan the same thing?
Not quite. A will is one element of an estate plan. The easiest way to think of it, is that a will is a broad outline of where your assets go. An estate plan is a more detailed roadmap tracking all aspects of your finances. In addition, plans set out your wishes in case certain situations arise – for example, if you need specialist end of life care.
With that in mind, an estate plan can also include what’s called a Lasting Power of Attorney (LPA). An LPA is a legally binding document that names the people you want to help you make decisions if you can’t. This would be important if you developed a debilitating condition like Alzheimer’s or dementia.
There are two types of LPA. One focuses on your health and welfare and one looks at your property and money. You can have one or both; it’s entirely up to you, depending on your financial situation.
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As well as an LPA, you can choose to include an Advance Directive. This is sometimes called an Advance Decision, an Advance Decision to Refuse Treatment (ADRT) or a living will.
Advance Directives are very specific. It’s a declaration that specifies the types of medical intervention you want to avoid. For example, you can make it clear that you don’t want to be resuscitated or ventilated. You can also stipulate that you do not want to receive antibiotic treatment even if it could potentially save your life.
Each element of your estate plan is legally binding (so long as they’ve been witnessed and you’re of sound mind). It might seem over the top, but outlining exactly what you want to happen if you become ill, can’t make decisions or die, means your wishes will be observed.
A detailed estate plan can also prevent family upset after you pass away because you’ve already made your decisions clear.
Do I really need an estate plan?
Putting together an estate plan is a wise move. Whether you want to have all the elements (a will, an LPA and an Advance Directive) is up to you. At the very least, it’s important to have a comprehensive will that deals with all your assets.
While you can organise a do-it-yourself will using pre-prepared kits, it might be worth taking the time to speak with a professional. An expert will be able to fully advise you about all aspects of your estate, including how to minimise inheritance tax.
If you decide to ask a solicitor for help, check they’re regulated by the Solicitors Regulation Authority (SRA). You can also find guidance at Will Aid, a charity that can help you get your will written professionally.
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