Financial Planning

Inheritance, Wills & Trusts: 7 Steps For Smart Estate Planning

24th January 2022

The Author: David Cooper

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Financial strategist, investment adviser and Sales Director for United Advisers

How important is estate planning? Over half of all adults (60%) die without a will, according to data from Unbiased.

This means that more than 31 million people run the risk of dying intestate, which could result in their home, investments and savings being distributed in a way that doesn’t align with their wishes.

People often procrastinate when it comes to drawing up a will and planning their estate. It’s easy to see why. Death is a topic few people want to talk about. Thinking about our own mortality is unlikely to be high on anyone’s list of priorities.

But with the right mindset and knowledge, estate planning can be empowering, not depressing. It can be about life, rather than death. By focusing on what your money can do for others, you can make meaningful changes that have the potential to alter your loved ones’ lives for the better. With that in mind, here are 7 steps for smart estate planning.

1. Choosing beneficiaries

Estate planning

When you open an investment account or see your pension contributions reflected in your payslip, you might assume you’ve got everything taken care of.

But have you considered what will happen to your pension or investments if you pass away before you get a chance to spend them? We’re living longer than ever before so chances are you will get to enjoy a long and wealthy retirement, but to be on the safe side, it’s wise to add beneficiaries to your pension and investment accounts.

Nominating beneficiaries may inspire you to save more for the future. After all, many people feel discouraged from making their pension a priority because it’s hard to imagine living that long. With beneficiaries, you’ll have peace of mind that no matter what, your money will take care of you and your family.

2. Appointing an executor

When you make a will, it’s wise to name one or more people as an executor. Your executor is the person whose role it is to carry out your wishes after you die.

It’s not an easy job so it’s worth discussing it through with your chosen person. Specific duties can include registering the death, getting copies of the will, applying for probate, and distributing the estate between beneficiaries.

3. Make your loved ones aware of your accounts

When you pass away, will your loved ones know where your money is?

Many people die without giving their loved ones this information, creating avoidable challenges for those left behind. Save your nearest and dearest unnecessary stress and admin by having an honest conversation about which accounts you hold and where your investments are.

Talk this through with your financial adviser. We can help you create a basic account overview list along with details of policies and investments. These details can be a godsend to loved ones when they’re sorting through your affairs while grieving.

4. Preparing children and grandchildren for inherited wealth

Another thing that very few people think about is how their loved ones will cope with inheriting large sums of money.

No one’s going to complain about receiving a hefty inheritance, but the money can easily disappear without careful and considerate planning. As you’ll know yourself, when invested and spent wisely, money can take on a life of its own.

Help your loved ones to make smart decisions by asking them about their plans for the future and discussing ways to make the most of their inheritance.

By telling them about all the ways your adviser has helped you, you might even inspire them to invest in financial advice.

5. Trusts and foundations in estate planning

Trusts and foundations are one of the most valuable estate planning tools you can find, but very few people understand them and even fewer make the most of them.

There are a number of ways trusts and foundations can benefit you:

  • Greater control over the assets you place in it. This can be particularly beneficial for those who have remarried and want to ensure both their second spouse and their children are taken care of. Trusts and foundations can be quite versatile too, so you can tailor the terms to suit your wishes.
  • Protection of assets. An asset protection trust is designed to protect your money from creditors. The ownership of your cash or property will be transferred to a trustee who will manage it for you. Since the trust is now owned by someone else, in theory, creditors can no longer seize the assets. Trusts can also protect assets in the event of divorce, though the legalities are complex and it’s not always guaranteed.
  • Saving inheritance tax (IHT). If you place assets into a trust or foundation, technically they no longer belong to you. This means that when you die, their value won’t be considered when calculating your IHT bill. Instead, the cash, investments and property will belong to the trust.

6. Life insurance

Life insurance is another aspect of estate planning that many people put on the back burner. But if your loved ones rely on your income, life insurance can protect them in the event of your death.

Compare a few different policies to find one that suits your needs. Some pay a lump sum, but others will provide your loved ones with regular income payments. It’s simply a matter of figuring out what works best for you and your dependents.

7. Give generously while you’re alive

If you’re looking for a meaningful and cost-effective way to manage your estate, give generously while you’re alive. You might like the idea of leaving your loved ones large

sums of money in inheritance, but try to spend as much as possible while you’re still around. Not only is this a better way to live, but it could also potentially reduce your IHT bill too!

Before making any large gifts, talk through your plans with your financial adviser. They’ll work out whether your gifts will be subject to IHT if you were to pass away in the next seven years.

Estate planning might sound daunting and depressing, but by making it a priority you can ease the burden for those left behind and leave a lasting legacy.

This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.