Where there’s a will, there’s a way
The following article is going to make you think about your death. That’s a striking opening line, but deliberately so, because the topic is such an important one.
As much as we might like to block out thoughts of mortality, it is in fact impossible to escape from. We will all pass away at some stage, and therefore it makes sense to have a financial plan in place that reflects that.
As we mentioned in our recent article on financial protection, if you delay planning for worst-case scenarios, you risk compounding your loved ones’ pain should something bad unexpectedly happen to you. Leaving them without support in your absence can cause stress which is entirely avoidable.
In the following article, we explore some of the key things you might consider when thinking about the future of your estate. We also break down some of the common – and potentially costly – misconceptions and unknowns about wills.
Please note: This article does not constitute advice and is written with a UK audience in mind. Barclays Private Bank does not provide tax advice and you should always seek independent tax advice. Your tax circumstances are unique to you and subject to change.
Recent research showed that approximately 60% of adults in the UK do not have a will1. While this leaves the vast majority of people – or rather their estates – exposed in the event of death, it doesn’t mean the other 40% of adults can assume they’re done and dusted.
According to Nick Bearne, a Director at Barclays Private Bank, estate planning is not a one-and-done activity: “A common misconception is that you only have to write a will once,” he says. “In reality, your estate planning needs to keep up with your life. As an example, if you write a will aged 30, it’s highly likely that your circumstances will have changed by the time you’re 60. Perhaps you’ve had children, started a business, or even gone through a divorce. If you’ve not amended your plans in the meantime, then they’ll be out-of-kilter with the estate they’re supposed to represent.”
Given that each person’s circumstances are different, there isn’t a typical time frame for when you should review your plans. That said, there are so-called ‘trigger events’ which are worth keeping in mind. These are the type of moments in life that could substantially change your assets, and they include things such as marriage, having children, selling a business, and divorce (to name a few).
And with regards to divorce, there’s another misconception to be aware of – if you thought that getting divorced automatically changed your ex-spouse’s entitlements, then you would be wrong. It is only by changing a will after a divorce that you undo the previous arrangements. The divorce alone will not untie your ex-spouse from your estate.
Similarly, it’s worth keeping in mind that marriage doesn’t automatically determine that your spouse inherits your estate on your death. As Nick explains, if you die intestate and leave behind young children, it can lead to an unexpected outcome: “When there are minor children involved, and if you hold assets in a single name as opposed to joint names, then you’re potentially looking at a 50-50 asset split between your spouse and your children. And for the children, those assets might automatically go into a structured trust which they can access when they turn 18 years old.”
You may want to ask yourself how you feel about your 18-year-old child having access to a potentially large sum of money, at such a young age. (There are inheritance tax implications to be aware of too, and professional tax advice should always be sought.)
Power of attorney
Having covered death and divorce so far in this article, we’re afraid it doesn’t get much lighter at this point, because we’re about to raise the issue of incapacitation.
While it’s an uncomfortable theme, there’s value in not shying away from it, because you never know if it could become a reality for you. In the UK alone, it is estimated that one in 14 people has dementia over the age of 65, and that stat worsens to 1 in 6 people over the age of 802.
With that in mind, a Lasting Power of Attorney (LPA) is worth having on your radar. It’s a documented process formalised by the courts that allows you to appoint one or more people to act on your behalf, if you’re suddenly unable to make decisions yourself (for example due to mental incapacity).
Since 2007 in the UK, there are two different LPAs that you can apply for:
- Health and welfare
- Property and financial affairs
George Hill, an Assistant Vice President at Barclays Private Bank, provides some context: “Without an LPA in place, it can be very difficult to keep finances in good working order. Once a person has lost their mental capacity, it's no longer possible to make a power of attorney. Instead, an application to the Court of Protection is required for a decision to be made on a particular matter. If there is a continuing need to make decisions on the person's behalf, it is possible to apply to the Court to appoint a deputy.”
He continues, “As an example, if you hold assets in joint names with your spouse, and you want to sell them while your spouse becomes mentally incapacitated, it means going to court to get permission. And you’ll either have to keep going back to court if you need to make further decisions about those joint assets, or apply to become an appointed deputy.”
The administrative burden of applying to the courts may be unwelcome at an already difficult time in your life. As George concludes: “Planning for worst-case scenarios can lighten the emotional load in challenging circumstances. And with regards to LPAs, they can also ease the burden on busy courts,” he adds. “It’s certainly food for thought when you’re thinking about your future.”
What’s in scope? And what’s your impact?
By this stage, we may have busted a few misconceptions for you, but there is one more to mention before we conclude – did you know that pensions and trusts are not covered by wills? They are typically transferred to inheritors via a ‘a letter of wishes’ or ‘nomination form’ that the deceased will have written in parallel with their will. Don’t therefore assume that your will covers assets held in these structures.
Lastly, it’s a good idea to think about the overall impact of your estate planning. If you’re leaving significant wealth to a few different people, will you be causing a storm if there’s a sense that one inheritor has been favoured over another? Perhaps there’s a particular property that means more to one person than another? Or maybe you’ve got philanthropy in mind?
We’re going to cover the latter topic in a future article, but there are merits in thinking about your impact more broadly. It may even help to stave off the threat of a family fallout further down the line.
Whatever you decide to do, there are a number of options on the table, and regularly reviewing them makes a lot of sense.
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