Estate Planning Solutions for Retirement

As the end of your working life draws closer, you are likely to have built up property and other assets that make up your ‘estate’.

One of the most important aspects of planning for retirement is considering how you plan to protect your estate. Making sure that what you want to happen to your estate after you’re gone does happen is to safeguard your family.

In this article we will cover what estate planning is, what it requires, why a legally compliant will is important, what happens if you lose mental capacity and what documents you should have in place to protect your estate and your family if the worse happens.

What is Estate Planning?

Estate planning is essentially creating a ‘plan of action’ for transferring your assets to your beneficiaries or next of kin.

It will allow you to confirm what you wish to happen to your estate after your death.  This will include deciding what happens to assets within your estate, such as:

– Property

– Investments

– Vehicles

– Life insurance policies

– Pensions

– Savings

– Debt

An estate plan will usually include:

– Gifts and trusts

– Donations to charities

– A final will and testament

In recent years, legislation have changed, which means that you may not fully understand what will happen to your estate if you do not have certain legal documents in place.

You should ensure that you have nominated a family member or friend to inherit your estate and review any existing nominations to ensure that they meet with your current wishes, or indeed, family circumstances.

A properly structured estate plan will ensure that your wishes are fulfilled and there are no unintended consequences for your loved ones.  Also, due to a rise in property prices and investment values, your estate may be liable to Inheritance tax, and you may wish to plan for this.

Why should estate planning be a part of retirement planning?

A key part of retirement planning is estate planning. Many people ignore estate planning or put it off until the last minute. But having your affairs in order early can establish a stress-free retirement life, knowing your loved ones are protected and safe guarded.

Additionally, creating a comprehensive estate plan will allow you to name a Power of Attorney who can ensure your retirement plan is followed to your wishes even if you are not of sound mind to do so yourself.

Why You Need a Will

A Will is one of the most important documents that you prepare during your lifetime, yet nearly half of over 55’s living in the UK don’t own one.

Your Will acts as key component of any retirement and estate plan and as it sets out how you want to provide for your loved ones if the worse was to happen. It will make sure that decisions you have made about regarding your estate are actioned.

Making a Will can ensure:

– Your family are protected, and they receive your estate

– Your children’s welfare is taken care of – If you have young children, you can appoint a guardian to look after them in the event of both parents dying. Rather than leaving this to the Court to decide, or risk the children being placed in care until the court decides the best place for them, you can choose someone you trust to take care of your children.

– You will decide who receives your estate, not the Crown via the rules of intestacy 

– Reduced risk of inheritance disputes

– There will be less stress for your executor/next of kin after you’re gone

– Your funeral will be how you want it to be

– Safeguard the preservation and future of certain aspects of your estate with ‘trusts’

– You may pay less Inheritance Tax

– Protect your pets by deciding what happens to them

– Protect your investments, such as monies in shared bank accounts and joint tenancies on property

– Protect a business or the shares in a business you own

– For those with more complex families, whether this involves 2nd / 3rd marriages and/or children from previous relationships, a Will provides certainty that your wishes will be carried out and no members of your family will not be overlooked

– It can protect your digital assets such as photos, websites, online purchases, emails and social media accounts

– Usually, without a Will, your estate will be left with your next of kin due to the rules of intestacy. If you are estranged from your next of kin or have not had the conversation about what you want to happen with your estate, what you want to happen may not happen.

– There is also a misconception of a ‘common law marriage’ – If you are unmarried but are in a long-term or co-habiting relationship, your partner would not automatically be entitled to anything.

DIY Wills

As a Will is such an important aspect of your family’s infrastructure and future, it’s crucial that the document is legally binding and has your family’s best interests at its core.

To achieve this the following needs to happen:

– The Will needs to be written correctly and clearly and contain no errors

– The Will needs to be witnessed correctly

– You need to be in a correct state of mind when creating the Will

– The Will needs to be stored safely

– The Will needs to be officially altered when major changes in your life area made i.e., marriage, children, large purchases etc

– You need to seek legal advice

Avoiding any of the above can risk the validity of the Will.

Whilst creating a Will yourself may appear a more cost-effective option now, a DIY Will may cause various issues later for your family. These issues can include:

– Errors can cause delays and additional costs after you’re gone, leaving your family additional stress

– The Will may not be correctly signed and witnessed, making the Will invalid

– Contents of the Will being challenged, which could include your state of mind whilst creating the Will being challenged

– The Will does not reflect changes in your personal circumstances

– Your family may pay additional inheritance tax

– Your family situation is complicated, and this has not been reflected correctly in the Will resulting in your wishes not being fulfilled

– Your Will is complex and therefore a DIY kit is not sufficient for the purpose

– If you use a DIY Will kit, the company that supplies it won’t take any responsibility for your will being correctly made.

Trusts

There may be circumstances where you would prefer that your estate doesn’t go directly to the beneficiaries when you die, but rather, that it is held on behalf of those beneficiaries. This is known as a trust and can be included as part of your will.

They are most seen in the following circumstances:

– You wish to protect your estate against possible care fees in the future

– You have a spouse or partner but children from a previous relationship

– You wish to leave some of your estate to a vulnerable or disabled person

A trust can include:

– cash 

– property

 – shares

 – land

Tax Planning

Without seeking advice, it can be difficult to know whether a particular course of action is the most tax efficient way to achieve your retirement goals.

For example, many clients will start their estate planning to reduce the tax burden on their children. Others make substantial gifts to their family, often in the belief that they can reduce the care fee burden.

Any gift needs careful consideration as there may be unforeseen tax implications or consequences for future care funding.

Power of Attorneys

Nobody can predict the future, and there may come a point where you no longer have the mental capacity to make important decisions and carry out your retirement plan.

A Property and Financial Affairs Lasting Power of Attorney will enable you to choose who should be responsible for your legal and financial affairs if needed.

A Health and Welfare Lasting Power of Attorney will enable you to select who should make health and social/welfare decisions if you could not make these yourself.

If you have not set up a Lasting Power of Attorney whilst you were able to do so, and have since lost your mental capacity, others may need to step in to look after your financial affairs.

Without either a Lasting Power of Attorney or a Deputyship order no-one has any rights to access your bank accounts, deal with any benefit claims (including a state pension), pay any bills on your behalf or generally deal with your financial affairs.

If you take the time to think about these considerations, it will put your mind at rest and allow you to enjoy your retirement.  And once you have dealt with getting your financial and legal affairs in order comes the fun part – planning what you are going to do with all the free time you are going to have.

Lindsey Rawson, head of our Wills, Trusts & Probate department, can help you create an estate plan and get all your affairs in order ready for retirement. She specialises in Wills, trusts, powers of attorney and inheritance tax planning.

Lindsey acts for clients in South Yorkshire and beyond and can be contacted by calling 0114 249 66 66 or emailing enquiries@howellsllp.com