8 Things to Consider Before You Begin…
How to decide on the future you want, consider what could get in the way, and set a proportionate budget.
The single most important factor in choosing the right estate plan for you is not cost, but FITNESS FOR PURPOSE.
If your estate plan doesn’t achieve the result you wanted, it’s a waste of your effort, time and money.
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 soon realise it wasn’t the light fitting you needed.
Which brings us to the first, and most important, question you must ask yourself:
1. “What is my estate plan for?”
It’s wise to begin with the end in mind. Who do you want to provide for? Probably 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 types of asset need to be protected and passed on in different ways. For example, what you must do to safely bequeath your house, is very different from what you must do to safely pass on your pension fund.
So, the real first question is:
“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?”
Once you know what outcome you want to achieve, then you must work out the safest and best-value way of achieving it. You can only make a rational decision about what’s best for you, if you clearly understand what risks can sabotage your desired outcome.
You need to know what those risks are, then decide whether to protect yourself. Deciding whether to protect yourself from a risk involves thinking about two things:
- How likely is it to happen?
- How bad would the consequences be if it did happen?
For example, look at risk of your house burning down. How likely is it that your house will burn down? Pretty unlikely in the scheme of things. But you still pay hundreds of pounds a year for insurance just in case. Because, unlikely as it is that your house would burn down, it would be a disaster if it did. You’re uncomfortable with the risk so you’ve protected yourself.
The same principles apply to choosing the estate plan that best meets your needs. Which brings us to the next question you must 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. The size of the likely bill will tell you whether want to take action - if it’s an amount your family would struggle to pay within six months of your death, you’ll need advice on reducing it or making it go away.
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. By age 65 you’ll have a 1 in 12 chance of getting dementia. By age 80, it’ll be 1 in 6. You can easily work out how much your children could lose from their inheritance because of care costs. It’s the difference between your net worth and £16,500. If you’re uncomfortable with this, a Family Trust Will is likely to be the solution for you. But if you don’t mind, opt for a Traditional Will.
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 OK with that risk, then a Traditional Will is fine for you. But if not, a Family Trust Will is the 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. If you’re not comfortable with that, you can divorce-proof your child’s inheritance with a Family Trust Will. But if you’re fine with this, opt instead for a Traditional Will.
6. “If I get dementia when I’m elderly, would I mind my money being frozen if I couldn’t manage it myself?”
If you no longer have the capacity to 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. If you don’t like the sound of that, you can protect yourself with a Lasting Power of Attorney for Property and Financial Affairs.
7. “If I get dementia when I’m older, would I mind if strangers made decisions about me “in my best interests” without consulting me?”
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 protect yourslef with 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 shall I invest in making the right estate plan?
When you’re clear about the ultimate outcomes you want to achieve, and what risks you want to manage or disregard, set a sensible and proportionate budget. Decide how much you want to invest in creating an estate plan that’s fit for the purpose you have in mind. That’s about keeping things in proportion.
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 choosing most suitable estate plan for you, look for the estate plan that achieves your aims and eliminates the risks you’re uncomfortable with as far as possible within the budget you have set. The cost of each individual estate planning tool and each estate plan is transparently published on this site, to help you set the right budget.
Family Trust Deed
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8 Things to Consider Before You Begin…
How to decide on the future you want, consider what could get in the way, and set a proportionate budget.Read more...
Family Trust Will
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Memorandum of Wishes
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Deed of Severance
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Advance Directive, or Living Will
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Lasting Power of Attorney for Health and Welfare
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Lasting Power of Attorney for Property and Financial Affairs
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Traditional Estate Plan
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Traditional Plus Estate Plan
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Family Trust Estate Plan
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Family Trust Plus Estate Plan
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