What is the definition of estate planning?

Stated simply, Estate Planning is a process through which an individual, whilst alive and able, prepares for the management, care and disposal of their estate should they become incapacitated or die. Typically, this will include the bequest of assets to heirs, the settlement of estate taxes and debts, and considerations for the guardianship of minors and/or pets.

What is included in my estate?

Your estate comprises many things. It fundamentally refers to everything that you possess or have a share in, including:

  • Real estate
  • Investments
  • Bank accounts and savings
  • Insurance policies
  • Pensions
  • Stocks
  • Annuities
  • Luxury assets
  • Collectibles
  • Digital assets – cryptocurrency, NFT, tokens etc.
  • Personal possessions – jewellery, vehicles, antiques, household furnishings etc.
  • Debts

How does estate planning protect my assets?

If you don’t have an estate plan, you will be considered intestate which means that your estate, comprising all of your assets, will be distributed according to the rules on intestacy. This means that certain parts of your estate may be given to people you don’t intend or want them to go to. Instead, the law will dictate the best people to receive your inheritance, whether that’s your partner, children or another.

One of the best ways to protect your assets is a trust. With a trust, you can distribute your assets in the way that you desire plus assets are not subject to estate taxes, so are a tax effective way of providing for and dividing your estate and assets to your designated beneficiaries.

Who needs estate planning?

There is one thing that is certain in life and that is death. For this reason, it is important that you give thought and action to estate planning to ensure that your wealth, assets and information are looked after and/or distributed in the way that you desire when you die.

So many people think that estate plans are for the ultra-wealthy but they couldn’t be more wrong. Everybody needs an estate plan.

Do I need an estate plan if I have no heirs?

Even if you are single and have no children or family to inherit your estate, estate planning is still important. Creating an estate plan gives you control of who will receive your assets; whether or not you are married or have children, you will likely still wish to leave your inheritance to someone. Without an estate plan, your next of kin, who is determined by the state, will decide for you, even if they are a distant relative that you don’t know or perhaps even dislike. So, rather than let the state decide on how your assets should be divided and distributed, you can specify a partner or friend, or even a charity should you wish to go down the philanthropic route and consider setting up a charitable trust.

Furthermore, an estate plan goes beyond your financial assets and personal belongings. It should also be used to appoint an appropriate individual who will be responsible for making critical decisions should you become incapacitated i.e. regarding financial and legal matters, and healthcare and medical decisions.

You may also wish to choose someone to take possession of your beloved pet(s) and put money in a trust for their subsequent care when you are no longer around.

Do I need an estate plan as a single person?

The short answer is yes! Whether you are single, married or divorced, you will still have some form of estate.

The need for an estate plan is not determined by your relationship status. As a single person you will still need to consider a power of attorney for your financial and legal affairs, a healthcare directive and a living will.

If you are a single parent you will also want to ensure that your children are protected and cared for when you are gone, and that your assets are passed to your children as you want and see fit. If you do not have children, you may have siblings, nieces and nephews or godchildren that you wish to benefit from your assets.

When should estate planning begin?

There is no specific age for when you should create an estate plan however, it is recommended that you should start estate planning when you become a legal adult.

An estate plan is important irrespective of your wealth status. Most young people have a bank account, personal belongings, other financial accounts, a life insurance policy and even a home, all of which should form part of their estate plan.

Furthermore, an estate plan dictates an individual’s wishes in respect of end-of-life medical care, guardianship of any children and may even include desired funeral arrangements.

Do I need a lawyer for estate planning?

Drafting a will or a living trust are two key ways of legally forming an estate plan.

A will is a legal document that details exactly what you wish to happen to your estate when you die. Whilst you can set up a will yourself, it is recommended that you engage the help and advice of an experienced professional to ensure that all considerations are covered and that it has been done in a legal and effective way.

A trust is a legal arrangement by which you transfer legal ownership of your assets to Trustees to hold and administer subject to the defined terms of a Trust Deed and in accordance with the governing law, for your chosen beneficiaries. It is advisable to engage either a lawyer or a licensed trust service provider like Sentient International, who can coordinate the drafting of a Trust Deed, establish the Trust and act as Trustees of the same.

Who will make my decisions if I cannot?

When putting an estate plan in place, it is important to think about who you wish to make important decisions on your behalf should you become incapacitated and unable to do so yourself.

Powers of attorney in respect of financial and legal affairs and medical decisions should be given to someone that you know and trust to ensure that when making any decisions they are acting in your best interest at all times and according to your wishes.

What is a Power of Attorney?

A Power of Attorney provides legal permission for a designated individual to act and make decisions about another individual’s property, finances or care.

What is a living will?

A living will provides written instructions on how you wish to be treated in respect of end-of-life medical care should you be unable to communicate or make that decision for yourself.

If you don’t have a living will, the decision will sit with your family and your medical team.

What happens if I die without a will?

It is estimated that 2 out of 3 adults in the UK do not have a will. Without a will, intestacy may result in your loved ones not being provided for in the way that you desire nor will your personal possessions go to or be gifted to family, friends of favoured charities as you might like them to.

Should you die without a will and have no respective next of kin, you will be considered to have died ‘intestate’ which means that your affairs are transferred into the hands of the law, which can lead to a court case and become complex if there are no obvious beneficiaries.

For more on this topic, check out our blog post ‘In Respect, Don’t Die without a Will’.

How often should I review my estate plan?

It is recommended that you review and update your estate plan every three to five years.

You should also review and update your estate plan after any major life event, i.e. marriage, divorce, death of a spouse, birth of a child/grandchild, moving house etc.

Reviewing your estate plan is a must. Check out the slideshow for more on this topic.

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