Ensuring the future security of our loved ones ranks high on the priority list for many individuals. While we cannot foresee what lies ahead, we can be realistic of what modern living involves and place proactive measures in place to guarantee the protection of our assets and the provision for our families in the unfortunate event of our passing.
Whether it involves putting a will in place, establishing a trust, or designating guardians for our children, understanding the legal avenues available is important. In this article, we explore wills, trusts, and powers of attorney, offering practical guidance on utilising these to safeguard the future of your family.
Wills
Making a will ensures your estate is distributed according to your wishes after you die. Failing to do so can pose challenges for your loved ones, for example, by resulting in them paying more tax than is needed. Without a will, your estate is distributed in accordance with a legislative order rather than your wishes. A will contains several provisions, but here are a few key aspects to consider when planning for your loved ones’ future.
Guardianship
If you have children under 18, it’s advisable to appoint a guardian in your will to care for them if you die. This enables you to designate your preferred caregiver and avoids the need for court intervention and the state taking control.
Trust Provisions
A trust safeguards and manages assets effectively, and trust provisions can be incorporated within your will.
Blended Family
Referred to as ‘legal rights’, your children and spouse have a claim on your estate regardless of your will. Children often waive these rights when their surviving parent inherits everything, as typically they’ll inherit later. Issues may arise however when spouses remarry or purchase new properties with new partners, assets can pass automatically to a second (or subsequent) spouse or civil partner before your children. To address this, your will can be drafted to protect your assets, allowing your spouse or civil partner access while you control their ultimate destination.
Trusts
A trust is a legal relationship allowing assets to be owned by one party (the trustee) while benefiting another (the beneficiary). In practical terms, a trust can protect your family in the following ways:
- Managing Assets – Trusts can offer valuable protection to vulnerable beneficiaries, providing a safeguarding mechanism for individuals unable to manage their financial affairs due to poor health or disabilities, individuals who are too young, lack financial skills and need protection from reckless spending, or influence from third parties. Establishing protective measures, particularly on death, offers peace of mind for many clients, whether the trust is managed by family members or professional trustees.
- Divorce – With nearly 50% of marriages ending in divorce, direct inheritances to children via the Will can be a major concern for parents, particularly regarding the spouses of their children or other family members. To address this, you can opt for a trust ensuring that no beneficiary has a specific share (as seen in a discretionary trust). Additionally, they may guide their trustees to consider the circumstances of their children before making significant distributions to prevent loosing half of an inheritance.
- Asset Protection – While creating a trust doesn’t automatically eliminate Inheritance Tax, it can decrease the amount payable upon your death. Transferring assets into a trust means giving up ownership. Upon your death, these assets won’t factor into your Inheritance Tax (“IHT”) calculations if you survive the requisite period after setting up the trust and refrain from benefiting from these assets. Instead, they become part of the trust, exempt from your estate for IHT assessment. Trusts can also provide protection from claims on divorce, by creditors or from legal rights.
- Generational Trust Protection – The use of Legacy/Generational trusts puts a protective wrapper around children’s inheritances, protecting against life’s social issues like divorce, bankruptcy and predeceasing partners but also prevents the same monies being taxed again & gain as the trust assets pass through the generations. Over three generations this could be a saving of over 90% in IHT alone!
Powers of Attorney
Most people assume that if they were to lack capacity, a family member or spouse automatically takes over – this is not the case, the only automatic authority would be the state. This can be avoided by putting in place Lasting Powers of Attorney (“LPA’s”). These documents give your chosen attorney/s authority to deal with both financial and health & welfare matters. It gives your attorneys the ability to make any decision you could’ve made, so it is really important that you appoint individuals that you trust.
Granting power of attorney over your affairs offers numerous advantages, and we advise everyone to establish one who is over the age of 18. If you cannot make decisions then someone legally has to, LPA’s allow your chosen family to urgently access bank accounts, deal with mortgages, pensions or just everyday utilities if you become incapacitated. Additionally, granting power of attorney spares your loved ones from navigating the court system to secure guardianship during an already challenging period if you become incapacitated.
Reviews & Changes in Law & Tax
Many people believe that once they have written their Will – it’s done and they don’t have to worry about it anymore, but what a lot of people are finding is that in the 10-15 years since they last thought about it – not only have their circumstances changed – they’ve moved, new partner, own more assets – but laws & legislation have changed directly impacting inheritance tax allowances or who benefits.
Regular reviewing of your Will along with executors knowing where the originals are when the time comes is all part of the planning structure when drawing up a Will. This is especially true if the Will is contested or challenged for any reason and originals are needed. If dealing with a company like Foresight, these responsibilities are all covered as part of the ongoing service to the client.
Reviews, updates, support and ongoing advice are always available to ensure the security of your Will and estate for your loved ones.