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Estate planning

Estate planning encompasses the process of assessing the value of your estate and ensuring that the right documentation is in place (such as wills and lasting powers of attorney) to transfer your assets and pass on your business interests after your death, in line with your wishes. It also relates to the formation of any relevant trusts.

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In order to establish the value of your estate, it is first necessary to calculate the total worth of all your assets. These assets can include:

  • your home
  • any other property
  • money and savings
  • shares and investments
  • business equity
  • cars, jewellery and other personal possessions

To determine the value of non-monetary assets, a realistic selling price should be used (ie 'market value'). Any gifts which incur inheritance tax are added to the value of assets. Debts and liabilities are then deducted from this amount, to establish the total value of the estate. Deductions that can be made include:

  • any outstanding bills
  • mortgage debt
  • loans, credit cards and overdrafts
  • gambling debts (except in Northern Ireland)
  • funeral expenses

The most basic - and usually the most important - part of successful estate planning is ensuring that a valid Will is in place. The main elements of any will include:

  • setting out your estate and detailing your various assets
  • specifying how you wish to divide your estate and to whom you would like to bequeath your assets (ie naming your beneficiaries who will inherit your estate)
  • appointing any guardians to look after any of your children under 18
  • appointing executors to carry out the instructions contained in your will
  • providing alternative instructions in case your beneficiaries die before you (eg specifying secondary beneficiaries)

For more information, read Elements of a will and Making your will.

As well as making sure that a will is correctly drafted, it’s important to follow the right procedure when making a will, such as having your signature witnessed. 

In England and Wales, a will must be witnessed by at least two people. A witness cannot be a beneficiary to your will or the spouse of a beneficiary to your will (who themselves are not beneficiaries). Friends, neighbours or work colleagues are suitable people to witness your will.

In Scotland, a will must be witnessed by one person. It is advisable that this witness is not a beneficiary under the Will.

For more information, read Executing a will.

A Lasting Power of Attorney (LPA), known simply as a 'power of attorney' in Scotland, allows you to grant the power to make certain decisions on your behalf to someone else (known as your attorney), in the event that you lose the mental capacity to make your own decisions. There are two types of LPA, the first of which is most relevant to estate planning:

  • LPA for financial and property decisions (known as a Continuing Power of Attorney in Scotland) - this can take effect while you still have mental capacity (eg if you fear the onset of dementia) or can be invoked upon the loss of mental capacity. This allows your attorney to make a variety of decisions - as wide or narrow as you choose - concerning your financial affairs and property assets. It may be as simple as providing them with the authority to use your bank account to pay your bills - or as complex as selling your house.
  • LPA for health and care decisions (known as a Welfare Power of Attorney in Scotland) - this can only be used if you no longer have mental capacity and involves decisions such as medical care or whether you should be in a hospital or at home.
  • Combined Continuing and Welfare Power of Attorney (this applies in Scotland only) - this allows your attorney to make decisions regarding both your financial affairs and your health and welfare.

For more information, read Lasting powers of attorney and Power of attorney in Scotland.

If you are a business owner, you will need to decide how to pass on your business interests to your beneficiaries. If it is already run as a family business, this may just be a case of sharing out equity and determining who should take over your job responsibilities. However, if your business affairs are kept separate from your family or any beneficiaries, you may need to consider a variety of other factors, such as:

  • Who will take over the running of the business?
  • Can your beneficiaries exercise any sort of control over the business - if so how?
  • Should a share of profits be ploughed back into the business or divided up amongst beneficiaries?
  • How will your death affect any partnership agreement?
  • Should any shares be held on trust?

If you decide that it would be better to sell your business in the event of your death, instead of passing it on to the next generation, putting in place a capable executor who understands how to tackle a business sale is crucial.

A trust is essentially a way of managing money or other assets on behalf of one or more beneficiaries. There are various types of trusts which provide an alternative to direct inheritance or transfer of certain parts of an estate. For more information, read Trusts.

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