If you want to decide who inherits your assets and precious possessions when you pass away, you’ll need to do some estate planning.

Far from being the preserve of the super-rich, if you have young children or own a home, investments, family heirlooms or other assets, an estate plan will help provide clarity for those left behind.

Without an estate plan, it may be left to the courts to decide who receives your assets

What is an Estate Plan?

An estate plan is a plan for transferring your assets to others when you pass away. Without a plan in place, the aftermath of your passing could come with costly and unwelcome consequences for your loved ones. For instance:

  • Estate planning allows you to name your child’s guardian if you were to die prematurely. Without a plan in place, this may be decided by the courts.
  • It enables you to reduce potential inheritance tax on your estate, so you can pass on more of your legacy to your beneficiaries.
  • It may also help to avoid potential family disputes and legal battles. If you don’t make your wishes absolutely clear while you’re alive, it can lead to issues down the line.

1. An Estate Plan protects your beneficiaries

As the name suggests, a beneficiary is someone who benefits from your estate. The main component of estate planning is choosing your beneficiaries and what you want them to inherit when you pass away.

Without an estate plan, it may be left to the courts to decide who receives your assets. This is a process that can take years, become extremely expensive, and cause upset to those caught up in disagreements.

The most important part of an estate plan is drawing up a will. This gives you the opportunity to state how you would like your assets to be distributed. You can leave detailed instructions relating to heirlooms and valuables, as well as leaving money or items to the people (or causes) you care about.

These instructions can be very specific. For example, you may make extra financial arrangements for a child with health problems, or set up a trust for another who might be better off inheriting a regular income rather than a lump sum.

You may also choose to give more to a loved one who did most of the caring in your older years, or less to a child who has benefited from financial help in the past. It’s entirely up to you.

To find out more read our article on why making a will matters to your family.

2. An Estate Plan protects young children

If you have young children, an estate plan is essential. Nobody wants to think about dying young, but if you have people who depend on you, it’s important to prepare for the unthinkable.

Every parent wants to ensure their children will be appropriately cared for, and you will no doubt want to choose their guardians in the event of your death. You can document this within your will, alongside instructions on how you want your financial assets and valuables distributed.

If you don’t express your wishes in this way, your children won’t automatically be given to their grandparents or other family members to raise. The courts will step in to decide who should raise your children, and in the absence of a will, they will have the final say.

Without careful planning Inheritance Tax (IHT) can whittle away your legacy

3. An Estate Plan can reduce the inheritance tax burden

As well as leaving instructions about how your assets are to be distributed, a large part of estate planning is about how you transfer those assets to your beneficiaries tax-efficiently. Inheritance Tax (IHT) can whittle away your legacy without careful planning, so one key aim of estate planning is to create the smallest possible tax burden for them.

If you leave your entire estate to your spouse or civil partner, your estate won’t be liable for IHT. But if you leave elements of your estate to other family members or an unmarried partner, they may be subject to a 40% tax bill on everything above the ‘nil-rate band’ (currently set at £325,000).

You can take steps to reduce this burden, such as gifting during your own lifetime, putting your assets into trust, or taking out a life insurance policy to cover the IHT costs for your beneficiaries. But this all needs to be planned in advance.

Learn more about IHT & discover ways to reduce inheritance tax for your family.

4. An Estate Plan can head-off family disputes

If your family members are prone to the odd argument or bouts of sibling rivalry, a well-thought-out, clearly articulated estate plan could be an absolute necessity. It will help prevent conflict and ensure your assets are handled as you intended.

Deciding how to divide your estate is one of the main tasks you need to think through. And, of course, an estate plan is essential if you’ve had more than one spouse or have children from more than one family. It also allows you to explain your actions to your family, helping to alleviate any misunderstanding or potential resentment after you pass.

Read more: How to stop family disputes over an inheritance

It's important to start thinking about how you'll fund your care

5. An Estate Plan enables you to put later-life plans in place

An estate plan should also include plans for your later-life care. At some point, you may not be able to look after yourself in your own home and need to move into residential care. The cost of care is expensive. According to care home specialists Lottie, average residential nursing home fees now approaches £50,000 per year. Plus, you don’t necessarily want your children, or even the state, to decide where you go or what your care package should look like.

With that in mind, it’s important to start thinking about how you’ll fund your care, if you need it, and be clear about exactly what you want.

See Planning for care home fees

It’s also essential to set up a Lasting Power of Attorney (LPA) to ensure any wishes relating to your care needs are made clear. An LPA will also ensure decisions around your finances (and in England, Wales and Scotland, your healthcare) are made by someone you trust, if you can no longer physically or mentally able make them.

Read more Why everyone should set up a Lasting Power of Attorney

Amber River Financial Planning

You need an estate plan if you want to protect your assets and your loved ones, and ensure your wishes are respected when you pass away. Without one, you won’t get to choose who raises your children or who benefits from your estate – and your loved ones could be left facing a big tax bill or other financial difficulties.

An Amber River financial planner will help you put an estate plan in place that gives you peace of mind and ensures your family will be looked after when you pass.

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively send us a message.