Why should families consider an early estate plan?

Despite a slight uptick in the number of will creations among UK adults, a surprisingly large number of people continue to eschew estate planning on these shores.

According to one particular report from Saga, an incredible 63% of respondents had failed to put a valid will in place, leaving the families involved at the mercy of potentially high and completely unnecessary inheritance tax (IHT) bills.

But what is an estate plan, how can you set about creating this on behalf of your family? Let’s find out!

What is an estate plan?

In simple terms, an estate plan refers to all the assets you own and intend to distribute before you die.

In this respect, it creates legally binding documentation that ensures your estate is distributed precisely as you intend, with the right people receiving their fair and correct share of the overall estate.

If no such plans exist at the time of your passing, the process of estate transition can be incredibly long and arduous, potentially extending the emotional pain of your death, increasing the tax burden and introducing the risk of litigation.

OK, so how do I set up the right estate plan?

Clearly, creating an estate plan is incredibly important, especially if you have a large estate and a selection of beneficiaries who you want to bequeath your assets to.

The question that remains, of course, is how do you go about setting up a viable estate plan? Here are some ideas to keep in mind:

#1. Inventory your stuff and consider your families needs

Most of us don’t really have a clear understanding of the precise value of our estate, either in terms of its tangible or intangible assets.

In fact, we have a tendency to undervalue our assets, which are most likely to include houses and real estate, vehicles, collectibles and other personal possessions of value.

Your estate inventory may also include intangible assets such as checking and savings accounts, along with investment holdings and life insurance policies.

Once you’ve created a comprehensive inventory and calculated the total value of your estate, you can balance this against your family’s needs to determine any potential shortfalls and plan the final distribution.

#2. Understand the impact of tax laws

Most people believe inheritance tax (IHT) to be unfair, primarily because it applies an additional levy to funds and assets that will have already had duty paid on them.

However, it’s important that you accept the reality of inheritance tax law and its impact on your estate, before understanding how best to factor this into your will or estate planning.

This will also help you to leverage IHT breaks, such as the so-called “seven-year rule”. This stipulates that no tax at all is due on any gifts that you proffer seven years or more before your death. It’s impossible to time this, of course, but being proactive and gifting parts of your estate earlier can minimise your tax burden placed on beneficiaries.

#3. Appreciate the value of professional help

Ultimately, organising your estate is one of the most complex aspects of financial planning, so you may well need some assistance to ensure this is organised and managed effectively.

Fortunately, there are a number of dedicated estate planners active in the UK marketplace, many of whom can offer detailed and bespoke advice pertaining to your individual circumstances.

Of course, this may cost an initial financial outlay, but this will pale when compared to a potentially higher tax burden to failure to plan your estate efficiently.