Planning for the inevitable

Thinking about death is something most of us would rather avoid – or at least delay as long as possible. But whether we like it or not, our own mortality is one of the few certainties in life, so it makes sense to have a financial plan in place around it. Preparing for the worst now can help protect your loved ones from additional pain and stress in the future.

Here we explore some key estate planning tools and considerations, which can help put your mind at ease.

Where there’s a Will, there’s a way

Writing a Will is perhaps the most obvious place to start your estate planning, yet many do not even get that far. Research has shown that nearly two-thirds (65%) of UK adults do not have a Will,¹ leaving their estates exposed in the event of their death. For those that do, the process doesn’t end there.

There is a common misconception that writing a Will is a one-off task. However, it’s equally important to review your plans as you move through life. A Will written in your 30s may be well out of date by your 50s, as your circumstances change. Life events, such as marriage or divorce, the birth of children or grandchildren, and starting or selling a business, can leave your Will out-of-sync with your current situation. Reviewing, and potentially updating, your Will after one of these so-called ‘trigger events’ is essential to ensure it accurately reflects your current position.

Another misconception is that divorce automatically removes your ex-spouse’s entitlements to your estate. You can only reverse any pre-divorce arrangements by changing your Will. Similarly, marriage does not automatically mean your spouse will inherit your estate. If you die intestate, i.e. without a Will, and you have children, there may a different outcome.

For example, without a Will, if you hold assets in a single name and have children who are under 18 at the time of your death, your estate may be split 50-50 between your spouse and your children. The children’s share may be automatically put into a structured trust until they turn 18 – at which point they would have full access. There may also be inheritance tax implications to consider, so it’s important to seek professional advice before making any decisions.

Finally, it’s worth noting that Wills do not cover pensions or trusts. The transfer of any assets held in these structures is covered separately, by a ‘nomination form’ or ‘letter of wishes’, which you would need to arrange alongside a will. Again, it is worth reviewing these documents periodically.

Understanding power of attorney

Another important topic that is often equally difficult to confront is incapacitation. While it’s uncomfortable to think about, it is increasingly common as we live longer. In the UK alone, one in 11 over 65s has dementia, and it’s estimated that by 2030, one million people will be living with the condition.² Meanwhile, strokes, falls and other sudden medical events can leave us unexpectedly unable to manage our finances.

Making plans while you’re still in good health can make all the difference. One option to consider is a lasting power of attorney (LPA). This allows you to nominate one or more people to make decisions on your behalf if you’re unable to do so (due to an illness or injury for example, which causes what’s legally known as ‘mental incapacity’). There are two different types of LPA you can apply for in the UK: one for health and welfare, and one for property and financial matters.

Importantly, an LPA must be put in place before a person loses mental capacity – and without one, it can be more difficult to manage their financial affairs. If you were to lose capacity without an LPA, your loved ones would need to apply to the Court of Protection to make a decision on your behalf.

Planning for worst-case scenarios, and putting robust plans in place, can help ease the administrative and emotional burden for family and friends in challenging times.

Consider your impact

When it comes to estate planning, it’s worth thinking about the overall impact of your decisions. Inheritance can be a highly emotional topic, and unwelcome surprises can lead to conflict within families.

If you’re leaving wealth to different people, and/or in different ways, consider how your choices might be received by beneficiaries. Could there be a sense of favouritism, disappointment or confusion around your decisions?

Whatever you decide, it can help to discuss your plans with loved ones in advance, to reduce the risk of fallout further down the line. Regularly reviewing those plans will ensure they accurately reflect your wishes, and give you peace of mind in the process.