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Estate planning

A comprehensive guide on Estate planning

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What is estate planning?

Estate planning is the process of arranging for the management and distribution of a person's assets, properties, and finances during their lifetime and after their death. The primary goal of estate planning is to ensure that an individual's wishes are carried out and that their loved ones are provided for in the most efficient and effective way possible. Estate planning involves a variety of legal, financial, and personal considerations. Here are some key aspects of estate planning:

Will: A will is a legal document that outlines how a person's assets will be distributed upon their death. It may also name guardians for minor children and specify any other final wishes.

Trusts: Trusts are legal arrangements that allow a person (the "grantor" or "settlor") to transfer assets to a trustee for the benefit of specific individuals (the "beneficiaries"). Trusts can be used to manage and protect assets, provide for family members, and minimize estate taxes.

Beneficiary Designations: Many financial accounts and insurance policies allow you to name beneficiaries. Ensuring that these designations are up-to-date and aligned with your wishes is an important aspect of estate planning.

Power of Attorney: A power of attorney authorizes someone (an "agent" or "attorney-in-fact") to make financial or legal decisions on your behalf if you become unable to do so yourself.

Healthcare Directive or Living Will: A healthcare directive or living will outlines your preferences for medical treatment and end-of-life care if you're unable to communicate your wishes.

Estate Tax Planning: Depending on the value of your estate, there may be estate taxes to consider. Estate tax planning involves strategies to minimize the tax impact on your estate and beneficiaries.

Charitable Giving: Estate planning can include provisions for charitable donations or bequests to organizations you support.

Digital Assets: Estate planning now includes considerations for digital assets, such as online accounts, social media profiles, and digital files.

Guardianship: If you have minor children, estate planning allows you to designate guardians who will care for them in the event of your death.

Business Succession Planning: For business owners, estate planning can include strategies to ensure the smooth transfer of business ownership and management to the next generation or chosen individuals.

Minimizing Family Disputes: Proper estate planning can help reduce the potential for family conflicts and legal disputes over inheritance.

Long-Term Care Planning: Estate planning can also involve considerations for long-term care, including Medicaid planning and asset protection.

Estate planning is a comprehensive process that involves careful consideration of your financial situation, family dynamics, and personal values. Consulting with an experienced estate planning attorney and potentially a financial advisor can help ensure that your estate plan is well-structured and tailored to your specific needs and goals. It's important to review and update your estate plan periodically to account for changes in your life, such as marriage, divorce, the birth of children, and changes in financial circumstances.

Working with an Independent Qualified Advisor

Although the agreement is between you and the insurance underwriter, it's often common and beneficial to work with an Independent Qualified Advisor, who will act on your behalf to find the best deal on the market for your circumstance. The advisor will act as a bridge between you and the underwriters, so they will ask you the questions required by the underwriter to generate a quote. The advisor will be rewarded by getting a pay-out from the underwriter, often there would be no cost to you for the use of their service and you get the benefit of their access to the whole market, which won’t be accessible to you without them.

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How does Estate Planning work?

Estate planning involves a series of steps and legal documents that work together to ensure that your wishes are carried out both during your lifetime and after your death. The process can vary based on your individual circumstances and goals, but here's a general overview of how estate planning works:
1. Assessment and Goal Setting: Begin by assessing your financial situation, family dynamics, and personal goals. Determine what you want to achieve with your estate plan, such as providing for your loved ones, minimizing taxes, and ensuring your medical preferences are followed.
2. Consultation with Professionals: Seek advice from professionals such as estate planning attorneys, financial advisors, and tax experts. They can help you navigate the complexities of estate planning and ensure that your plan is legally sound and aligned with your objectives.
3. Creating a Will: A will is a foundational document that outlines how you want your assets to be distributed after your death. You can specify beneficiaries, name an executor to manage your estate, and appoint guardians for minor children.

4. Setting Up Trusts: Trusts can be used for various purposes, such as asset protection, managing assets for beneficiaries, and minimizing estate taxes. Depending on your goals, you might create living trusts, revocable trusts, or irrevocable trusts.
5. Naming Beneficiaries: Ensure that your beneficiary designations on retirement accounts, life insurance policies, and other financial assets are up-to-date and aligned with your wishes.
6. Power of Attorney: Create a durable power of attorney document that grants someone you trust the authority to manage your financial and legal affairs if you become incapacitated.
7. Healthcare Directives: Draft a healthcare directive (also known as a living will) that outlines your medical treatment preferences and designates a healthcare proxy to make medical decisions on your behalf if you're unable to do so.

8. Long-Term Care Planning: If applicable, consider strategies for long-term care planning, including Medicaid planning and provisions for covering medical and care expenses.
9. Review and Updating: Regularly review and update your estate plan to reflect changes in your life, such as marriage, divorce, the birth of children, changes in financial circumstances, and new laws.
10. Communication: Communicate your estate plan and your intentions to your loved ones, especially your family members, beneficiaries, and those who may be responsible for implementing your plan.
11. Safekeeping Documents: Ensure that your important estate planning documents are safely stored and that key individuals know where to find them.
12. Implementation and Execution: Once your estate plan is in place, it will be executed according to your instructions. This may involve the distribution of assets, management of trusts, and other actions specified in your plan.
Estate planning is a dynamic process that requires careful consideration, expert advice, and regular updates. Working with professionals who specialize in estate planning can help ensure that your wishes are fulfilled, your loved ones are provided for, and your financial and personal goals are achieved.

Further reading: What is an IFA?
Equity release guide
Home reversion plan guide

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What types of Estate Planning are there?

there are different types of estate plans that can be customized to suit your individual circumstances, goals, and preferences. Estate planning is not a one-size-fits-all approach; rather, it involves creating a tailored plan that addresses your specific needs. Some of the different types of estate plans and planning strategies include:

Basic Estate Plan: A basic estate plan typically includes essential documents such as a will, power of attorney, and healthcare directive. It's a foundational plan suitable for individuals with simpler financial situations and estate planning goals.

Revocable Living Trust Plan: This plan often involves creating a revocable living trust to hold your assets during your lifetime and seamlessly pass them to your beneficiaries upon your death. Trusts can provide flexibility, privacy, and potentially avoid the probate process.

Will-Based Plan: A will-based estate plan primarily revolves around a last will and testament. While it doesn't avoid probate, it allows you to designate beneficiaries and name an executor to manage your estate.

Irrevocable Trust Plan: Irrevocable trusts are used to achieve specific goals, such as asset protection, minimizing estate taxes, or providing for special needs beneficiaries. Once established, these trusts typically cannot be easily altered or revoked.

Legacy and Charitable Giving Plan: If philanthropy is important to you, this type of plan focuses on maximizing charitable donations and minimizing taxes while leaving a lasting impact on the causes you care about.

Estate Tax Planning: This plan is designed to minimize estate taxes through strategies such as gifting, creating irrevocable life insurance trusts, and leveraging exemptions.

Blended Family Plan: If you have a blended family with stepchildren and various beneficiaries, this plan can help ensure that your assets are distributed according to your wishes while considering the needs of different family members.

Business Succession Plan: For business owners, this plan involves strategies for transferring ownership and management of a business to the next generation, partners, or chosen individuals.

Guardianship and Family Protection Plan: This plan focuses on designating guardians for minor children, providing for their financial needs, and ensuring that your family is protected in case of your incapacity or death.

Elder Law and Long-Term Care Plan: This plan addresses potential long-term care needs, including Medicaid planning, protecting assets, and ensuring that you receive the care you require.

Special Needs Plan: If you have a loved one with special needs, this plan focuses on providing for their financial needs while preserving their eligibility for government benefits.

International or Cross-Border Plan: For individuals with assets or ties in multiple countries, this plan takes into account the complexities of international laws, taxes, and regulations.

These are just a few examples of the various estate planning strategies and types of plans available. Your individual circumstances, financial goals, family situation, and preferences will guide the creation of a personalized estate plan that best meets your needs. Working with experienced professionals, such as estate planning attorneys and financial advisors, can help you navigate the options and develop a comprehensive plan that aligns with your goals.

What are the costs of estate planning?

The costs of estate planning can vary widely depending on factors such as the complexity of your financial situation, the types of documents you need, the region where you live, and the professionals you choose to work with. Here are some potential costs associated with estate planning:

Attorney's Fees: The primary cost of estate planning often comes from hiring an attorney to draft and review your legal documents. Attorneys typically charge either a flat fee for specific services or an hourly rate. The complexity of your estate plan and the number of documents you require will influence the cost. A basic estate plan with a will, power of attorney, and healthcare directive may be less expensive than a plan that involves trusts and more advanced strategies.

Trust Fees: If you choose to establish trusts as part of your estate plan, there may be additional fees associated with setting up and managing these trusts. Some trusts may have ongoing administrative fees.

Financial Advisor Fees: If you work with a financial advisor as part of your estate planning process, their fees may vary based on the scope of services they provide. Some advisors charge a percentage of assets under management, while others charge a flat fee or hourly rate.

Accountant or Tax Advisor Fees: If your estate plan involves complex tax planning, you may need to consult with an accountant or tax advisor. Their fees will depend on the services required.

Document Filing Fees: There may be fees associated with filing legal documents, such as deeds for transferring real estate into a trust.

Notary and Witness Fees: Some estate planning documents require notarization and witnesses. Notary and witness fees can vary.

Review and Updates: Periodically reviewing and updating your estate plan is essential. This may involve additional legal fees for document revisions and updates.

Safekeeping Costs: Safely storing your estate planning documents, either physically or digitally, may involve costs for secure storage solutions.

It's important to note that while estate planning involves costs, the potential benefits, including asset protection, tax savings, and ensuring your wishes are carried out, can far outweigh the expenses. Additionally, the cost of not having a proper estate plan can lead to greater financial and emotional burdens for your loved ones.

When considering the costs of estate planning, it's advisable to obtain quotes from multiple professionals and discuss their fee structures upfront. While cost is a consideration, it's also important to prioritize the quality of the advice and services you receive. Working with experienced professionals who specialize in estate planning can help you create a comprehensive plan that provides peace of mind for you and your loved ones.

Option to move your home

Some providers allow you to move home with their lifetime mortgage plan so that you can avoid early repayment charges. If the new property is valued lower, you may have to repay part of the mortgage.

Cash reserve facilities

A few lifetime mortgage products have the option to have a pre-approved cash reserve facility for future borrowing needs. No additional financial advice is required in most cases as the facility is set up at the start and advice is given at that point.

Make interest or capital payments

Some lifetime mortgage products offer you the option to pay all or some of the interest each month. This gives you greater control over whether your mortgage balance increases or stays at the same amount. Also, you may be allowed to make capital repayments towards the mortgage and reduce the debt as well. There are strict rules for proving income and passing lending criteria with retirement mortgages, both repayment and interest only. The main difference with RIO mortgages is that the term isn’t fixed. You pay the interest each month until you die or move into long term care

Fixed interest rates

Most of the time, lifetime mortgages have fixed interest rates for the total loan duration. If you take out additional borrowing or drawdown against a cash reserve facility, the rate will also be fixed for the duration but it will be determined by the existing rate at the time you apply for the additional borrowing or drawdown. However, the equity release company won’t get its hands on anything until the property is sold, whether that is when you pass away or move into long term care. The amount the company offers to you will be well below the share’s actual value. For example, a 20% advance means surrendering 70% of your property’s value. The lender takes a larger share of your property, as they lend an initial amount and then have to potentially wait a long time before they see their money back.

Loan repayment

With a lifetime mortgage, the loan is usually paid when your property is sold in the event of your death or you move to long-term care. Your beneficiaries can retain ownership of the property by repaying your lifetime mortgage from their own resources or a new mortgage in their own names.

No negative equity guarantee

Almost all lifetime mortgage plans offer a no-negative guarantee. This means when the property is sold and your proceeds are not enough to pay the amount owed, including the essential fees, you or your beneficiaries will not be asked to pay the shortfall.

Optional inheritance guarantee

Some lifetime mortgage products allow you to protect a part of your property value from the start of the loan term. The percentage protected is guaranteed to be available on the sale of the property to you or your beneficiaries.

Early repayment waiver

Quite a few lifetime mortgage providers offer a waiver which means that in the case of joint borrowers, an early repayment charge will not be payable if you decide to repay the mortgage in the first few years of the first borrower dying or going into long-term care.

Downsizing protection

A few lifetime mortgage plans offer downsizing protection which means you're able to repay the mortgage without penalty if you're moving to a smaller property.

Retained ownership and no repossession

As long as you abide by the terms and conditions of the lifetime mortgage, you will always: • Retain ownership even if the rolled-up interest exceeds the value of your property • Have complete control • Be responsible for maintaining your property • Be able to live in your property until you die or go to long-term care

Because we play by the book we want to tell you that...

1. We understand equity release isn’t for everyone, and we’ll never say it’s the right option for you, that’s why we pass you onto an Expert.

2. A lifetime mortgage is a loan secured against your property. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. Usually, that’s when you, or the last remaining applicant, either passes away or moves into long-term care.

3. With a lifetime mortgage you’ll still retain full ownership of your home.

4. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.

5. Mortgage Advice Bureau Later Life offer lifetime mortgage products from a carefully selected panel of providers.

6. Unless you decide to go ahead, Mortgage Advice Bureau Later Life’s service is completely free of charge as their fixed advice fee of £1,295 would only be payable in completion of a plan.

7. ClearKey is an independent marketing website which only acts as an introducer to companies who offer advice on various financial plans, products and services.

8. Our partners are authorised and regulated by the Financial Conduct Authority.

9. ClearKey.co.uk are not authorised to give any advice and we are not liable for any financial advice provided by or obtained through a third party.

10. Life insurance products attract terms and conditions. Price information contained within this website are for illustration purposes only. You will receive a full policy document upon application which will set out the terms, conditions and limitations of cover provided under the plan.

11. Your home may be at risk if you do not keep up repayments. Think carefully about securing debt against your home. When consolidating existing borrowing be aware that extending the term could increase the amount repaid.