Protecting Your Loved Ones: Legal Planning
Although it is something we would rather not think about, eventually there will come a time when we are no longer around or are unable to look after ourselves independently. This can be an extremely stressful time for your loved ones, especially if you do not have a plan in place. You can help to ease this, and protect your loved ones, by preparing for your future now. It is never too early to start estate planning.
The Importance of Estate Planning:
Estate planning is a way to ensure that your assets are effectively managed in the event that you are mentally incapable, and that your assets are passed on in accordance with your wishes when you die, in the most tax efficient way.
When an individual dies, their estate becomes liable for inheritance tax if no exemptions are applicable and the value of the estate exceeds the tax threshold. Currently, anything over the value of £325,000 is taxed at 40%. In some circumstances, an additional relief of up to £175,000 can be claimed when residential property is left to direct descendants and the value of the total assets does not exceed £2 million.
If you are leaving your entire estate to a spouse/civil partner or charity there will be no inheritance tax as these are exempt.
Here are some of the areas you should consider when estate planning:
- Make a Will
- Set up powers of attorney
- Set up trusts
- Making a Will:
A Will is a legal document that allows you to appoint individuals of your choosing (executors) to deal with your assets after you have died and distribute those assets to your chosen beneficiaries. If you die without a valid Will, you will be deemed to have died ‘intestate’. This means that your assets will be distributed according to statutory rules. For example, depending on the value of your assets, if you were to die leaving behind a spouse/civil partner (CP) and children, your spouse/CP would not automatically receive everything. Additionally, if you are not married or in a civil partnership your significant other will not inherit under the statutory trusts. This may not be what you want to happen and so preparing and keeping your Will up to date, is important to avoid this.
A Will can be drafted to meet your needs whether this includes appointing a guardian for minor children, protecting assets for vulnerable beneficiaries and children from previous marriages or ensuring that everything passes to your spouse in the first instance. There are endless possibilities as to what your Will can do and so it is recommended that you instruct a professional to help prepare your Will to ensure that it meets your requirements and that it will be deemed valid after your death.
- Lasting Powers of Attorney (LPA):
A Lasting Power of Attorney (LPA) is a legal document that allows you (the donor) to appoint people (attorneys) to make decisions on your behalf. There are two types of LPA available: Property & Financial Affairs and Health & Welfare
- Property & Financial Affairs
This type of LPA allows your attorneys to make decisions on your behalf that relate to your property and financial affairs. This LPA can be used as soon as it is registered if you choose to set it up this way. This means that with your consent, your attorneys would be able to assist you with your property and financial affairs. If you were deemed to have lost mental capacity (i.e. be incapable of making decisions for yourself) the LPA would remain in force and your attorneys would make those decisions for you.
- Health & Welfare
This type of LPA can only be used if you are incapable of making the decision for yourself.
This LPA covers decisions relating to your health and welfare. For example, if you had to enter a care home your attorneys would be able to have an input as to where you were placed (subject to availability). You can also choose to give your attorneys the power to give or refuse consent to receiving life sustaining treatment.
The LPA cannot be used until it has been registered with the Office of the Public Guardian. Once the LPA has been registered it will remain in force until the donor has died or there is no-one left in the document to act.
It is possible to make both of these documents online so you could question the need for a solicitor. Whilst the documents can be accessed easily, without wider understanding they can be quite daunting to complete and it is easy to make mistakes which could render them invalid when the time comes for them to be used. It is recommended that you instruct a professional to ensure that all documents meet your requirements and attorneys are appointed in the correct way.
If you do not make LPAs and you subsequently lose mental capacity there will be no one legally appointed to make decisions on your behalf. In these situations, your family would need to apply to the Court of Protection to be appointed as your deputy in order to manage your finances. This is far more time consuming, and costly than setting up LPAs. As a result, it is never too early to think about putting LPAs in place.
3.Trusts:
In some circumstances you may want to consider setting up a trust in your lifetime. A trust is a way of managing assets. It involves a person (the settlor) transferring assets into a trust which is managed by trustees for the benefit of someone else (the beneficiary). There are many types of trust that can be set up however, one of the more common types is a family home trust (FHT).
With a FHT individuals transfer the ownership of their property to the trust and retain a right to live in the property for the remainder of their lives. The property held in trust will no longer be deemed an asset as it is owned by the trust. However, please note that this trust is not effective for inheritance tax purposes. However, it can be a useful tool to ensure that your property passes in accordance with your wishes. The trust can be drafted to include a wide range of powers so it is important to discuss your requirements with a professional to ensure that it meets your needs.
Summary:
Ultimately, the main aim of estate planning is to ensure that your wishes are put in place so your assets go where you wish them to, which will ease the burden on your loved ones after you die. Although it is not something we wish to think about, it is important to begin planning early to ensure that your loved ones are protected. Once you have a plan in place it should be revisited when necessary, especially following big changes like marriage, divorce, birth of a child or major additions to your estate such as the receipt of an inheritance.
Estate Planning Solicitors
The above is a brief summary of some of the frequently used options available to you but should you require any additional information or assistance in planning to protect your loved ones, please do not hesitate to get in touch. Our estate planning team will be happy to assist you in making sure your plan is legally sound and meets your wishes. To speak to the experienced team at Bridge McFarland LLP today regarding your estate, please call 0800 987 8800 or make an online enquiry.
