Estate planning is often a task that gets pushed down the to-do list as more immediate concerns take priority.
Yet, thinking about how you want your wealth to be passed on after you’re gone is a crucial aspect of financial planning.
Keep reading to find out why estate planning is so important and learn four simple steps you could take now to start the process.
An estate plan gives you control over how your assets are distributed
A well-structured estate plan could ensure that:
- There is a lower risk of family conflict
- You receive the later-life care of your choice
- Your assets are passed on in line with your wishes
- Your dependants are cared for by someone you trust
- Your loved ones receive their inheritance as quickly and easily as possible
- Inheritance Tax is minimised, preserving more wealth for your beneficiaries
- Your health and finances are managed in line with your wishes if you become incapacitated.
In contrast, if you do not have an estate plan when you become ill or pass away, you may have little or no control over important matters such as your healthcare and the distribution of your wealth.
For example, if you die without a will, your estate will be passed on in line with the rules of intestacy, rather than your wishes.
Key components of an estate plan
Creating an estate plan involves much more than writing a will – although this is important (more on this below). There are several key elements to consider, each with its own purpose, including:
Writing a will
According to the Money & Pensions Service, over half of UK adults don’t have a will. Yet, this important legal document is a crucial part of effective estate planning.
Writing a will and keeping it up to date allows you to choose how your assets are passed on.
You can also:
- Nominate one or more “executors” to carry out your instructions
- Appoint guardians for your children
- Specify funeral arrangements
- Leave a charitable legacy.
Your will must comply with certain rules. For example, in England and Wales, it must be signed in the presence of two witnesses.
Today’s Wills & Probate has reported a rise in the number of will disputes between 2023 and 2024, with over 10,000 cases reported annually. So, it’s worth consulting a professional to ensure your will clearly reflects your intentions and is legally valid.
Registering a Lasting Power of Attorney (LPA)
An LPA is a legal document that allows you to appoint one or more people to make decisions on your behalf if you become unable to do so.
There are two types of LPA:
- Property and financial affairs – This LPA gives your attorney the power to make decisions about your money and property, such as paying bills and selling your home.
- Health and welfare – You can use this LPA to give your chosen attorney the power to make decisions about things such as your medical care and moving you into a care home.
You can register one or both types of LPA, and the process usually takes around 8 to 10 weeks.
Setting up trusts
A trust is a legal arrangement that allows you to place some of your assets under the control of a trustee for the benefit of another person (the beneficiary).
Setting up a trust could be a tax-efficient way to manage your wealth and ensure your loved ones are taken care of according to your wishes. This can be an especially useful estate planning tool if you have vulnerable beneficiaries to provide for.
There are several types of trust, each with its own rules, tax implications, benefits, and potential drawbacks. A financial planner can help you choose a trust that meets your specific needs and objectives.
Read more: Could trusts offer a tax-efficient way to pass on your wealth?
Inheritance Tax (IHT) planning
That standard rate of IHT is 40%, which is usually payable on any amount of your estate that exceeds £325,000 (2025/26). If you pass on your main residence to direct descendants, such as your children or grandchildren, you may be entitled to an additional IHT-free allowance of £175,000.
If your estate is liable for IHT, this could significantly reduce the inheritance your beneficiaries receive. That’s why IHT planning is an essential element of your estate plan.
A financial planner can help you make the most of IHT exemptions and allowances to mitigate a potential IHT bill. For example, gifting some of your wealth during your lifetime to reduce the value of your estate.
4 practical steps you can take now to begin creating an estate plan
As you can see, crafting an effective estate plan can be complex and time-consuming. So, it’s never too early to make a start.
Here are four simple steps you can take now.
- List your assets and debts – Gaining a clear understanding of how much your estate is worth and what assets you have could help you decide how to distribute your wealth and how to do so tax-efficiently. Any outstanding debts at the time of your death will usually be paid through your estate, so your executors need a clear picture of your liabilities too.
- Set estate planning goals – Having specific objectives in mind is key to developing an estate plan that meets your unique circumstances. For example, your priorities might include providing for your dependants or supporting a worthy cause.
- Choose key people – Once you have a good understanding of what you want to pass on and your goals, the next step is to think about who you trust to fulfil key roles, such as the executors of your will and attorneys for your LPA.
- Seek financial advice – A financial professional can help you navigate the complexities of estate planning, to ensure that your plan is legally sound, tax-efficient and accurately reflects your wishes. They can also support you in reviewing your plan periodically, if your circumstances change, or if there are amendments to legislation that could affect your position.
Get in touch
If you’d like help creating or reviewing your estate plan, we’d love to hear from you.
Please get in touch by emailing info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can assist you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.
Production