UK News: The first 5 steps of estate planning

HNWIs are more likely to need wills that deal with assets across multiple jurisdictions and, therefore, must consider the complexities this brings.

UK News: The 5 first steps of estate planning

Long before any will comes into play, individuals need to consider if they wish to undertake other planning, such as: how and when to pass on assets during their lifetime, how to protect bequests from unnecessary tax bills and how to make the administration of their estate easier for bereaved family members and the executors to the estate.

Despite the crucial importance of estate planning, more than 56 per cent of Britons haven’t written any form of will, leaving their estate subject to rules of intestacy1. It’s tempting to think that the majority of this group may be at the younger end of the age spectrum, but while it does indeed apply to 71 per cent of under-34s, a third of adults over the age of 55 also don’t have a will in place. This is all the more surprising when you recognise that a will is only the foundation stone of well thought through estate planning.

All too frequently, it takes the trigger of a brush with mortality or a family member or friend falling ill to make people realise that their affairs need to be put in order. Even then, they tend to put into place simplistic structures that fail to recognise the complexity of their estates.

Here are five things everyone needs to think about when they start estate planning:

1. Do you want to lose control?

The first step in estate planning is often to look at passing on assets while you’re still alive. Making gifts of assets and cash before you die can be a great way to ensure that the majority of the assets you had intended to leave to beneficiaries in any event (i.e. that in excess of your anticipated needs) is received tax-free (gifts do not currently attract any immediate charge to inheritance tax) or, should you die before 7 years have passed, the gift could be subject to a reduced rate of Inheritance Tax (IHT). However, you also need to carefully consider if you really want to relinquish control of certain assets.

You may have passed shares in a company to a child in the expectation of retaining a family voting bloc, again, that control may pass over in the event of a divorce if not properly protected by a shareholders’ agreement.

2. Can you afford to pass it on?

It’s equally important to be sure about how much you can afford to give. You will need to have sufficient assets in your own name to fund your lifestyle as you get older and to take care of any long-term care you may need. The cost of care is already expensive – and growing as we live longer. You need to budget for an extended lifespan and keep enough in reserve for any unanticipated healthcare needs.

3. Who do you trust?

HNWIs are frequently advised to put their money into trusts for the next generation and that requires naming trustees to administer their wishes. Once, only large estates would consider a professional company as a trustee, and smaller or less complicated matters were left to individuals or family members.

However, it is a huge responsibility to put on any one person, particularly a family member. Apart from the potential personal effect on family relationships, a trustee will have legal duties to carry out, such as reporting obligations and meeting tax liabilities. It is increasingly common to turn to professional, experienced companies, whose expertise comes at a price, but can carry out trustee duties and relieve part of the burden on those who are grieving.

4. Where are your assets?

Those that do get around to making a will often write one legal document here in the UK and don’t realise that assets overseas may be subject to different rules and regulations. Many HNWIs have assets abroad, in Europe and beyond, and many others are living in Britain but have a different or dual nationality. They must be aware of the complexities that come with owning assets somewhere that is likely to have a very different legal system to the one that they are used to. Many common (English) law concepts would be alien to say a French or Italian legal advisor. Without well thought through planning, their estates could be tied up in different legal systems for many years before passing to either their chosen heirs, or in certain circumstances, unintended ones.

All of these factors need to be addressed and coordinated to ensure that, where possible, assets are distributed according to your wishes. If you simply write wills in each jurisdiction, you may end up in a scenario where one becomes the final testament and cancels out the others. The preference may be for a single will to be prepared, although personal circumstances for HNWIs are rarely that simple. Each legal document needs to be composed with reference to the others and you will need legal representation in every jurisdiction to comply with taxes and regulations.

5. Does your family know where your assets lie?

Even then, they assume that once the legalities are taken care of, everything else will run smoothly. But frequently, surviving spouses and/or executors are left with directions on what to do, but not how to do it.

Whether you have a number of wills and legal documents covering your estate, or a single will, family members and executors need to know where these documents are stored. They will also need to have access to all the documents relating to your assets – they can’t allocate shares without the share certificates, as a simple example. It’s very helpful if all your wills and documents relating to all your assets are stored in one place. In the modern age, that should include a digital bible – a record of all pertinent logins and passwords for online accounts and email, potentially held by a solicitor or other trusted party or in a safety deposit box. This can help families to easily locate and access all aspects of your estate.

To find out more about estate planning that suits you and your family’s needs, speak to your Relationship Manager.

1 Direct Line Group, Not all wills are created equal: just 39 percent of Brits plan to divide their assets equally, November 2018

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