The 8 Vital Questions You Should Answer Before You Make a Will or Estate Plan
How to choose an estate plan that's fit for purpose and within your budget
When I’m first talking with someone who is thinking about making a will or estate plan, often the first question they ask is this one: -
“How much will it cost me to make a will?”
And while this is a very important question, it’s not the first you should be considering. It’s actually the eighth question.
Value for money is not just about price; it’s about fitness for purpose. If your will or estate plan doesn’t bring about the outcome you wanted to achieve in the first place, you might as well not have bothered.
If you walked into a hardware store and asked “how much is a light fitting?”, you might be directed to a perfectly serviceable light fitting for a couple of pounds. But if you then installed that light fitting in your bathroom, only to be electrocuted the next time you used the shower, you’d immediately – and painfully! - realise that the lowest cost light fitting wasn’t the one you needed.
So, the first and most important question is:-
1.“What is my will for?”
As with many important decisions, it’s wise to begin with the end in mind.
Who do you want to provide for? That’s probably going to be your family, the people you care about, the people you feel responsible for.
How much will you be leaving behind for them? The more you’ll be leaving behind, the more there is for them to lose if things go wrong.
What will you be leaving behind? Different classes of asset need to be protected and passed on in different ways. What you have to do to safely bequeath your house, for example, may be very different from what you must do to safely pass on your pension fund or the proceeds of your life insurance policy.
So, the fuller version of question 1 is this: -
“I have these assets, worth this much, which I want to leave to these people - what’s the safest and best-value way of achieving that?”
Having identified what you want to achieve, the next step is to work out the safest and best-value way of achieving it. It’s vital to arm yourself with all the knowledge you need. You can only make a rational decision about what’s best for you, if you clearly understand the hazards that may prevent you achieving your desired result.
Any estate planner worthy of the name will be happy to take you, free of charge, through an assessment of the risks that may apply to you. Then it’s up to you to decide whether to take action. Deciding whether to disregard a risk, or do something about it, involves answering two basic questions:
- How likely is it to happen?
- How bad would the consequences be if it happened?
Take, for example, the risk of your house burning down. How likely is it that your house will burn down? Pretty unlikely in the scheme of things. And yet, you probably pay hundreds of pounds a year for house insurance just in case. That’s because, although it’s unlikely your house will ever burn down, it would be disastrous if it did. You’re not comfortable with the risk so you’ve done something about it.
The same principles apply to choosing the estate plan that best meets your needs.
Which brings us to the next seven questions you should ask yourself.
2.“Would I mind if my family were faced with an inheritance tax bill of many thousands, almost as soon as I’ve passed away?”
First, let’s look at likelihood. If your assets amount to less than £325,000 – or £650,000 between you if you are a married couple – you’re in the clear. This isn’t a risk that will apply to you.
But if your assets are above that level, then consider how comfortable or otherwise you are with the consequences. Inheritance Tax will have to be paid upfront, even before your assets are unfrozen for inheritance purposes. At the very latest, it will have to be paid within six months of your death. That’s a very short timescale for a bereaved family to come up with what can be a significant sum of money.
The size of the liability will probably determine whether you want to do anything about it. The Inheritance Tax bill will be 40% of anything over £325,000 (or a combined £650,000 if you are a married couple). Make a rough calculation, and if the liability is for an amount your family would struggle to pay upfront, you may want to take action. With professional advice, you can take steps to reduce or eliminate the liability, or to make sure that money is readily available for your family to pay the tax bill when the time comes.
3.“If the council carried out a raid on my assets to pay my care home fees, would I mind if there was only £16,500 left for my children to inherit?”
Sadly, the likelihood of this is rather greater than your house burning down. As a nation, we’re living longer, but our health isn’t lasting the distance. Our average life expectancy is currently 84, but our healthy life expectancy is only 76. The worst case scenario for Mr or Ms Average is eight years of residential care. At a current average cost of £40,000 a year, that’s a potential loss of £320,000 from your children’s inheritance.
Again, you can make a rough calculation of just how much your children would stand to lose from their inheritance. It’s the difference between your net worth and £16,500. If you’re uncomfortable with the level of potential loss, a basic will probably won’t be fit for its purpose, and a more robust solution will probably suit you better.
4.“If I died first, and my spouse got married again, would I mind if their new partner inherited everything instead of my children?”
The likelihood of this happening is almost impossible to envision. None of us knows what life has in store for us. But, just like the risk of your house burning down, although may seem an unlikely scenario, you can consider how you’d feel about the consequences if it did happen.
For example, the late Lynda Bellingham’s children have been left penniless by her second husband, because she didn’t take robust enough action to make sure they were looked after. If you’re comfortable with that risk, then a simple will is going to be fine for you. But if not, a more protective solution would be a better choice.
5.“If my kids inherited from me, would I mind if they lost half their inheritance in a divorce?”
The divorce rate in the UK is currently 47%. So, if your child is married when you pass away, there will be a 47% risk of them ending up in the divorce courts, and having half of their inheritance diverted to their ex.
You can divorce-proof your child’s inheritance. A simple will won’t do this for you, though, so whether to opt for a more muscular approach depends on how you feel about your child’s marriage.
Coincidentally, the protections you can put in place to divorce-proof your child’s inheritance will also make it debt-proof, addiction-proof and disaster-proof in other ways. So, if the risk of your child’s inheritance slipping through their fingers, for whatever reason, is an issue for you, you can decide rationally whether to take protective action in your estate plan.
6.“If I get dementia when I’m elderly, would I mind my money being frozen if I couldn’t manage it myself?”
On the question of likelihood, there are some hard facts you can take into account. At age 65, your risk of getting dementia at some point is 1 in 12. By the age of 80, the risk doubles to 1 in 6.
As for consequences, if you can’t manage your own affairs, your assets will in effect be frozen. They can only be managed for your benefit if someone applies to the Court of Protection to be appointed your Deputy. That costs £900 in court fees, plus at least twice as much again in legal fees if they use a solicitor to help them through the process. It also takes about nine months for the application to go through.
You can act in advance to eliminate this risk altogether with a Lasting Power of Attorney for Property and Financial Affairs. Whether or not to do this depends on how you feel about the likelihood and the consequences.
7.“If I get dementia when I’m elderly, would I mind if strangers made decisions about me “in my best interests” without consulting me?”
The likelihood of this happening is the same as for Question 6, but the consequences are deeply personal. If you can no longer make decisions for yourself, then well-meaning medical and social care professionals will decide what’s “in your best interests”. But without anyone empowered to speak up for you, all they can do is make a guess as to what your wishes and preferences might be.
Whether to take action depends on how strongly you feel about this issue. If it’s important to you, you can make a Lasting Power of Attorney for Health and Welfare, appointing someone you trust to speak up for you, and making sure they know from the outset what your priorities are.
8.How much is the right estate plan going to cost me?
When you’ve answered the first seven questions, you’ll be clear in your mind about the ultimate outcome you want to achieve, and what risks you want to manage or disregard. Then you can think about setting a budget.
In setting a budget, you can make a decision as to how much you want to invest in creating an estate plan that’s fit for the purpose you intend. And that’s about keeping things in proportion.
Although it’s unlikely that your house will burn down, you’d be in a minority if you decided to forego the protection of house insurance in order to save spending money on the premium. But you probably wouldn’t employ a full-time fire-warden to stand guard over your house in case it burnt down either.
As a rule of thumb, keeping your estate planning budget to a one-off investment of 0.5% to 1% of your net worth is a wise and proportionate way to protect yourself, your assets and the people you care about most.
When you’re looking for the best value estate plan, look for the plan that achieves your aims and eliminates the risks as far as possible within the budget you have set.
For a personalised risk assessment, free of charge, and a tailored recommendation of the best-value and safest way of achieving the outcomes you want to achieve, within the budget you have set, just fill in the contact form below or give us a call on 0151 601 5399.
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"We decided to seek advice about estate planning because we wanted to understand how to efficiently protect our assets and pass them safely to our children and grandchildren. We also wanted to put as much help in place for our family as possible, so as to make things as easy as possible for them when the time comes. We liked Gina’s patient and diligent manner in answering our questions and guiding us to the right solutions. Gina explained everything to us with great clarity, making concepts we were unfamiliar with accessible and clear. We particularly liked the fact that Gina came to see us in our own home without our having to make a special request; this is just the way she works. It was so much easier for us to relax and talk freely in the comfort and privacy of our home. Having put the right estate plan in place we feel that we have ticked a big box. This was something we knew we had to get round to. Now it is done and sorted and we don't have to worry about it anymore. We have also gained a clear understanding of the measures that have been put in place and why they are important. "
Matt & Betty R