Estate planning can seem confusing and complicated. It’s often misunderstood, and there are plenty of myths about how it works. From Wills to Lasting Powers of Attorney and Funeral Plans, find out the truth behind the misinformation below.
1. Estate planning is only for people with high net worth
Everyone needs to put plans in place for later life, regardless of your age, wealth or situation. You need to ensure that your legacy goes to the people you want, your dependents are cared for when you’re gone, and the right decisions are made if you lose capacity. By planning ahead, you’ll also reduce the burdens on your loved ones due to issues such as probate, Inheritance Tax (IHT) and funerals.
2. I don’t have a Will, but my estate will automatically pass to my family
Without a Will, the government will decide how your belongings, money and property are divided under the rules of intestacy. They could go to the wrong people, and you also won’t be able to give gifts to others, like close friends and charities. If your estate is worth less than £250,000 – or more and you have no children – your spouse inherits everything. If it’s more than £250,000 and you have children, your spouse inherits your personal property, £250,000 and half of the rest of the estate, while the other half is shared between your children – and grandchildren if a child has passed away. If you’re single, your estate passes to your children – and grandchildren if a child has passed away. Without children, your legacy could be inherited by your parents, then siblings, and so on.
3. Plans don’t need to be revisited
It’s recommended to update your Will every five years, and after life events such as marriage, the birth of a child or grandchild and changes to your Executors. If they’re not altered appropriately, Wills can be deemed invalid. Tax laws and financial markets also change over time and may affect what you’ve put in place, so it’s important to account for them.
4. All married couples have a £1 million IHT allowance
This will only be possible from April 2020, and only under certain conditions. The standard IHT allowance in 2019 is £325,000 per person and £650,000 per couple. When one spouse dies, they leave their assets, and unused allowance, to the other. This can be added to the residence nil rate band – which is £150,000 per person and £300,000 per couple – if the family home is left to children or grandchildren.
The residence nil rate band will increase to £175,000 per person and £350,000 per couple in 2020, so if you meet all the criteria, you could then reach the £1 million allowance. A Tax Planning Report can help you make the most of this and further reliefs.
5. Assets abroad aren’t affected by IHT
If you live and are domiciled in the UK, you have to pay IHT on assets worldwide. Being domiciled means that you have either lived in the UK for 15 of the last 20 years, or have had a permanent home in the UK at some point in the last three years. But, if you’re not UK domiciled, you only have to pay this tax on your UK assets.
6. Children who are Executors can’t also be beneficiaries
This is actually quite common. As long as they’re over 18, your children can be both Executors and beneficiaries.
7. My family can take care of my affairs if I develop dementia
If you lose the capacity to make your own decisions, your loved ones can only make them for you if you have a Lasting Power of Attorney in place. Without one, doctors could overrule health-related decisions, the courts may appoint someone to manage your finances, and your family may need to apply to the courts to become a ‘Deputy’ if they want to take over.
8. If I take out an Equity Release plan, I could lose my home and be forced to move out
You’re still the legal homeowner in a lifetime mortgage, so you don’t need to worry about this. In a home reversion plan, you sell part or all of your home in exchange for a cash lump sum, and you live there rent-free for as long as you wish, until the house is sold. This is usually when you pass away or go into long-term care.
9. My family will know what I want my funeral to be like
Talking about death with loved ones can be tricky, so many people avoid it completely. You can never be sure that your funeral will be as you want it without discussing your wishes, writing down requests with your Will or making a Funeral Plan. This will reduce stress for your family in an already emotional situation, and buying a Funeral Plan means that they won’t have to pay anything when the time comes.
10. I have a Joint Tenancy agreement, so my children will inherit my property share through my Will
Holding property as Joint Tenants means that both you and your partner own its full value. Your share automatically passes to the other owner when you die, because you can’t transfer ownership of your share in your Will through this tenancy type. If you hold property as Tenants in Common, you each have a separate share of the property, and you can pass on yours to whoever you wish in your Will. Changing your ownership to Tenants in Common is called a Severance of Tenancy, which can be useful if your partner has lost capacity.
If you want to make plans for the future, contact us today for more information and to arrange your free, no-obligation consultation.