Estate planning helps an individual devise a plan to pass their assets and wealth on in the most tax-efficient way possible. This planning includes certain components or tasks such as;
This is a way to manage, safeguard and distribute your wealth after you die. However, it’s important to plan for the event of becoming incapacitated (unable to make decisions for yourself). In this scenario, without planning in place, your family will be left to fight over your estate without knowing your wishes entirely.
Assets considered in estate planning include:
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.
There’s normally no Inheritance Tax to pay if either:
Estate planning is extremely integral for an individual who wishes to decide how their wealth will be utilised or managed after death or in case of disablement. The idea is to find the easiest and most efficient way of transferring your wealth to your family without any hassle or argument whilst reducing the tax and fee’s you pay in doing so.
You can easily plan the distribution and management of your assets whilst in your lifetime. In the event you’re unable to make decisions yourself, you can grant power of attorney to an individual who will make decisions on your behalf.
Estate planning also aims to reduce taxes (i.e. inheritance tax) and other fees that affect the amount you leave behind. In the absence of an estate plan, taxes and fees could be much higher. These taxes and fees are charged in transferring and segregating assets.
The entire process of transferring assets and wealth can take a long time. There can also be disputes among family members that can further delay the process. This is where estate planning can help you make this process swift and hassle-free.
You also need to take into account whether you may need care in the future in order to make financial projections about your living expenses.
This can be an issue where you give away your assets or put them in a trust fund, then do not have any left to pay for your care. This is especially relevant if you already have a degenerative health condition.
The first task is creating a Will. A Will is a legal document that records your instructions and wishes regarding the management of wealth and custody of minor children after your death. A trustee or an executor is appointed, who is then responsible for communicating these wishes to the family and relatives.
The taxes and fees applied by the state can easily decrease the value of assets before the distribution process. In the case of death, families can be left with liabilities that can become a huge burden for them. Some steps can be taken to lessen the impact of these taxes however, it’s vital you speak to a qualified professional to ensure your money is left in the most efficient way.
A trust is a financial instrument you can set up whilst alive to safeguard money and assets after you’re gone. Think of it as a safe. You put your money and assets into it, appoint a trustee (someone to guard the safe) then when you pass, they give the contents to your next of kin (or whoever you’ve appointed as beneficiaries of the trust). This saves time and hassle as your wishes are known and cannot be tampered with.
You need to have a legally appointed executor that is responsible for handling your estate and carrying out the wishes laid down in your will. The Executor will be responsible for paying off any debts when you die, from the estate, before communicating your wishes to your family.
Never assume you’re too young to make a plan. You never know when the worst could happen to planning for the future is always a good idea.
Assuming that because your income is modest, or your finances are simple, a Will is not required is one of the biggest estate planning mistakes that you can make
Estate planning is a constantly changing process. Make sure to keep your will up to date. Some key life events that can trigger a need to update are;
If you want to avoid estate planning mistakes then don’t forget to feature your digital assets in essential estate planning. Property today includes the virtual, from bitcoin through to banking app passwords. Make sure that your plans for the future include instructions on how these should be dealt with.
Source – @jeremybezanger
You can give away up to £3,000 a year as a gift as part of your annual exemption – doing so can considerably cut the Inheritance Tax bill you leave behind.
Last but not least, is not understanding the plan and its importance. Sometimes people are completely dependent on their estate planner and have no idea what they’re signing or why. It’s important to tell your beneficiaries that you’ve named them in your plan. Explain your decisions to the people it affects so they understand what to expect.