Having wealth brings with it many advantages but also responsibilities. One of these is to ensure that after your death, any wealth that remains is a benefit to your family, other individuals or organisations you wish to support and not an expensive burden. If asked “what would you want to happen to your wealth after you die” most people will reply with a check list of quite reasonable wishes:-
- For those who I wish to benefit from my wealth, do so.
- Not to lose proportions of my hard earned wealth in the future to other parties who are not immediate bloodline family members.
- To avoid any of my family squabbling over the proceeds of my estate.
- Not to leave my children/those responsible for my affairs after I’ve gone with a big mess to sort out.
- For my affairs to be dealt with quickly.
- To mitigate inheritance tax if it’s possible and legitimate to do so.
This article will advise on how best to achieve some of these objectives. The good news is that all of these goals can be achieved with the correct planning in place. Yet the sad truth is the majority of people (60%) in the UK will achieve none of these goals when they die as they simply haven’t done any planning at all. Good planning creates certainty of outcome.
To create certainty of outcome following the death of a loved one, you need to have done the work well before death. Trying to create certainty of outcome after death can be very difficult and in some cases is simply impossible. It will be complicated, expensive and in the worst cases results in ongoing family feuds and expensive lawsuits that often end up costing more than the value of the wealth left in the first place. Creating certainty for clients is like doing a jigsaw, the job can’t be done effectively without the planner firstly having access to all the pieces of the jigsaw, secondly having the necessary knowledge of how the pieces should fit together and finally being able to use the correct tools to implement the plan. The jigsaw pieces a planner will need are as follows:-
- Detailed knowledge of the clients history, current circumstances and future wishes
- A need to have a planning strategy based on a contextual approach to understand what the client can actually afford to do – a cash flow
- Access to the correctly drafted documents to be able to utilise the available legislation and implement the plan
Together, if correctly structured and implemented, the Jigsaw pieces will create a Legacy Protection Plan which will achieve what you wish. To expand on the above and to achieve some the wishes stated in the first part of this article, the following areas should be addressed and implemented correctly. If this is done then you will have a very high level of certainty of achieving most of what you wish to.
Beware the Wrong Priorities
Most estate planning advice is given with the emphasis firmly on either the saving of inheritance tax or ensuring bloodline protection of the assets you leave behind. While these are clearly integral elements of your Legacy Protection Plan, very often the most important and simple arrangements are not advised on which would aid a bereaved person immediately after the death of a loved one such as a spouse or partner. These include simple pragmatic measures that need only cost modest amounts to implement yet will provide huge peace of mind in the period immediately after the death of a loved one. We will concentrate on these issues here.
When someone dies all the assets in their own name effectively become “frozen” and as such no one can access them, sell them, trade them or draw income from them except for the purposes of preparing the estate for probate. If assets are held in joint names then the surviving party immediately owns the rights to those assets after the death of the joint holder. As such you should ensure that:-
- You have a joint bank/savings account holding sufficient working cash for immediate expenditure needs post death before probate is granted. This can be up to 6 months or more family expenditure if the surviving spouse does not work. Any balance over this should be held in accounts in sole names so that the assets can follow the route set out in the will.
We often encounter situations where all liquid cash is held only in one person’s name for tax purposes, yet if that person dies the surviving partner will not be able to access those resources until probate has been granted.
- Most people should ensure the family home is owned in joint names either via joint tenancy or tenants in common to secure the certainty of an ongoing place to live.
We often encounter situations where people have moved in to one partner’s house together and then subsequently got married, yet the property remains in only one person’s name due to inertia. This then provides for ambiguity over what will happen to the family home if the party owning the property dies. The surviving spouse does not have a guarantee that they will be able to remain in the property. Also where the property makes up a large part of a joint estate or the marriage is a second marriage, the basis of the property ownership needs to be considered carefully.
- Ensure Wills are in place to avoid dying intestate with clear letters of wishes accompanying the Wills.
Without up to date Wills being in place there is little chance that what you want to happen to your wealth will happen and instead the laws of intestacy will apply on death.
- Ensure Lasting Powers of Attorney are in place to avoid the intervention of the Court of Protection if clients are seriously ill before death.
Unless Powers of Attorney are in place, dealing with assets held in either joint or single names is very difficult if the person becomes incapable of looking after their own affairs. For example, an elderly couple who need to downsize their property to raise capital for care purposes because one of them suffers from dementia will find it very hard to sell the property if a Power of Attorney is not held for the dementia sufferer.
- Ensure you have a detailed list of all savings accounts, insurance policies, pension plans, investment plans, ID documents etc., with this list and the documents being held in a single safe location.
Experience tells us that it is usually one party in a relationship who “does” the finances and the other partner is often blissfully unaware of where all the information is kept. If things are to work smoothly after a death it is imperative that both parties know where documents are kept.
- Ensure that your major services such as gas, electricity, water and general insurance policies for the house and cars are in joint names if the provider will allow it.
If such services are in a single name it is common for companies to refuse to deal with the surviving partner until they have received a copy of the death certificate and proof that the partner is resident at the address or a power of attorney. This provides unnecessary frustration and problems at a very difficult time.
- Existing life plans should be held in trust to avoid probate, providing almost immediate cash to repay mortgages and other debts.
Most people buy life assurance to protect their families but then don’t wrap a trust around the policy. This means that if they die the proceeds from the plan will not be available to the partner and children until probate is granted which can take a considerable length of time. Meanwhile the mortgage and other bills need paying. In addition to this you could lose 40% of the life assurance pay out in future inheritance tax.
- Ensure those who are responsible for the administration of your estate (your executors) have the contact details of your trusted adviser. This may be your Solicitor or wealth manager/IFA.
When someone dies the bereaved party usually reaches out to the trusted adviser for support and to begin the practical process of keeping the financial wheels turning. If they don’t know who deals with what and how to get hold of them, mistakes may be made and time will be wasted.
If the above basic points are addressed much of the practical immediate post death planning has been done and you can move on to the more technical bloodline protection and inheritance tax planning measures.
If you would like to talk about creating a Legacy Protection Plan for your wealth please contact Manse Capital and we would be happy to have a discussion.