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Protect and pass on your wealth with an estate plan

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Households headed by persons aged between 55 and 74 own almost half of the country’s wealth. Sometimes described as the “baby boomers”, the nearly and newly retired generation is Britain’s wealthiest. But, as we know, we cannot take it with us – so what can we do with our wealth instead?

This is your “estate plan” – a plan to protect and ultimately pass on your wealth to your chosen heirs, whoever they are, with the minimum amount possible going to people whom you would rather it did not.

A good estate plan involves thinking through a series of interconnected legal and financial matters:

  • Who will inherit?  Deciding who will inherit your wealth may be straightforward, or more complicated, depending upon your family circumstances and overall objectives. For example, married couples with children and grandchildren may have the most straightforward plans, but if one half of the couple has children from a previous relationship, the plan will need to cater for the interests of all the relevant family members.
  • When will they inherit? While most estate plans envisage the transmission of wealth from one generation to the next following death, there are many examples of this taking place many years before or after that time. Much wealth passes by means of lifetime giving – often through the desire to help out the next generation or others at particular times, or to implement inheritance tax planning. In some cases, the transmission is suspended until sometime after the death – perhaps when assets are intended to pass to younger persons and the magnitude of wealth involved might be a distraction to them making their own way in life.
  • Your Will – having a Will in place is the best means of ensuring that your wealth passes to the people whom you want to receive it. It can be used to protect the wealth for them – for example until they attain a specific age. It will also include the appointment of Executors and Trustees to manage the process, and any arrangements that continue after your death. Once in place, ensure that your Will remains fit for purpose – review it after major life events and perhaps every five years.
  • Pension nominations – while some pensions end on death, in many cases the value can be passed on. It may be possible to “nominate” who you wish to receive this as a “death benefit”, or to pass your pension entitlements to family members in the form of a tax-free pension for them.
  • Life assurance – if you have life assurance in place, this should normally be “written in trust” as that can keep the value of the policy outside of the inheritance tax net. If you already have a policy “in trust”, keep it under review to ensure that it still reflects your overall wishes.
  • Inheritance tax – payable on death, inheritance tax can be a major frustration to succession plans. With so much wealth concentrated in the hands of the “baby boomer” generation, inheritance tax may become a focus for tax-raising governments of the future. Whether you have an exposure to inheritance tax on death will depend on the value of your estate, the type of assets that you own, who you wish to pass the wealth to and whether you have made any lifetime gifts, typically in the seven years before death. An estate plan involves assessing exposure and ascertaining what planning can be done during lifetime to mitigate the tax. This might involve reconsidering your overall investment strategy or giving assets away.
  • “Legal rights” – in many countries it is possible to leave all of your wealth to whoever you wish, by means of your Will. Scots law has a distinct succession law, notably different from the law in the rest of the UK, whereby certain family members (broadly a surviving spouse and surviving children) have a fixed entitlement in your estate at the time of your death, regardless of what provision you make for them in your Will. These are known as “legal rights” and again can prevent your estate plan. With careful planning, much can be done to mitigate their effect.
  • Power of Attorney – if you become incapable of making decisions about your assets and your welfare in the future, it will be necessary for someone to make those decisions for you on your behalf. A power of attorney is a document whereby you choose now, who will make those decisions for you, if required, in the future.

Getting your estate plan right can mean that all of your wealth passes to who you want it to go to, at the right time, and in the right way.

Mark Stewart is head of personal and family at Brodies LLP.