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Understanding Estate Planning

One of the most important areas to organise while you are still alive is your estate. Planning in advance of one’s death or incapacitation is highly recommended. Our estate planners are based in Hampshire, UK but mainly serve clients in and around London. Estate planning is vital to make sure your wealth is protected for the future. Here we define estate planning and what the task of protecting your estate and therefore your assets entails.

If you would like to start your estate planning process, get in touch with our London estate planners now and we can help you protect your wealth today.

Is estate planning and asset protection the same?

No, estate planning is different from asset protection. Although estate planning is a form of asset protection, it serves many other important purposes as well. Estate planning is more focused on how assets are treated after a person's death. Asset protection, on the other hand, seeks to find ways to protect assets in a proactive manner during the life of the person.

What is asset protection?

Asset Protection is the mechanism that protects your assets and wealth (your Estate) after you have passed away or even during your lifetime from attackable events such as:

  • Marriage after Death

  • Future Divorce

  • Creditor Claims and Bankruptcies

  • Care Fees

  • Generational Inheritance Tax

Over the past 7 years, Strategic Asset Protection has helped hundreds of clients create bespoke estate planning and asset protection solutions and strategies for clients in London and across the UK. These solutions have helped preserve millions of pounds in assets that could have otherwise been lost to the mentioned attackable events.

Protecting your wealth with estate planning

Attackable events are simply ‘attacks’ on a person’s assets and wealth once they have been passed to the next line of beneficiaries, usually through a basic will. The reason these assets become attackable is that they are inherited directly into the beneficiary’s estate. Once they sit within the estate of the beneficiary, they then belong to the beneficiary and form part of his or her estate for inheritance tax purposes, thus creating unforeseen problems.

When you have a basic or simple will between a husband and wife, normally all assets pass to the surviving spouse first, then down to the children. But what happens if the surviving spouse meets someone else and then remarries? At this point, you run the risk of all the assets and wealth you created over your lifetime passing to the new spouse and potentially disinheriting your family altogether.

Inherited assets passing directly through a basic simple will mean they sit within the estate of the beneficiary. Potential life events such as future divorces, care fees, creditor claims, or bankruptcy could see potentially up to 100% of those assets being lost. How do you feel about that?

Writing a properly structured Will

To not have a Will in place is unfortunately a sign of financial immaturity. Having only a basic or simple will is, of course, better than not having a Will at all. View more about will writing.

If you choose not to write a Will, the government will decide where or with whom your assets are distributed by following prescriptive rules. Not having a will in place is referred to as dying “intestate.” There can be no challenge to these rulings, and you will lose your right to decide who will benefit from your estate as you had failed to write a Will in your lifetime.

Even if you don’t have many assets, you should still write a Will, even if it is just to name the guardians for any children. Having a correctly written Will is an essential part of putting together a strategy to protect your assets and your wealth.

Trust planning by Marshall Wills and Trusts

Trust Planning - Establishing trusts and loans

Trusts are legal concepts that have been developed over the centuries to become robust mechanisms used the world over. Having assets pass into Trusts is key to ensuring assets and wealth are fully protected and preserved for your future beneficiaries. View more about trust planning.

Each Trust has trustees and beneficiaries. The Trustees are responsible for managing the assets within the trusts for the benefit of the beneficiaries. These can be the same people. We always recommend having Professional Trustees added so that the trusts are managed correctly, and the right advice is given to ensure the assets and wealth are fully protected for generations to come. It’s all very well having Trust planning in place, but without Professional Trustees appointed, assets could still be lost.

Once a Trust is created, the assets and wealth pass into them, and by naming beneficiaries to those Trusts, it ensures the assets stay outside of the beneficiary’s estates. The mechanism of passing the assets to the beneficiaries, therefore, takes on the form of a loan. As the assets were loaned, they do not sit within the beneficiaries’ estate, which means they do not own the assets, and therefore, the assets cannot be attacked as they are not owned 100%.

Estate Planning

Severance of Tenancy (Tenants in Common)

As already explained, you never want to own assets 100% because assets owned 100% are attackable. So why do most people own their homes and other properties jointly with their husbands, wives, or partners?

The issue here is that jointly owned assets pass directly to the surviving joint owner regardless of what it may say within a will. This is because when you own something jointly, you both own it 100%. When it comes to property, this can cause massive issues later in life, especially if one joint owner passes away. This now leaves the survivor owning the whole property. If later the survivor needs to go into care and doesn’t have the physical cash to pay for that care, the care assessment team will look at the assets owned 100%, i.e., the home.

40,000 homes are sold every year to pay for care, and this could have potentially been avoided by the property being owned as tenants in common rather than jointly. With tenants in common, you own a defined share, normally as a married couple 50-50% split, but this can be any split. If you adopt this strategy, you will need to set up a Trust to hold your respective 50% upon death and have a Will in place directing this 50% into the Trust. Without the Trust and only a basic Will in place, you could potentially pass back the 50% to the survivor, thus putting the property back into an attackable situation.

If one of the owners passes away, their 50% of the house passes into their Trust, leaving the survivor owning just half a house, to which there is no value. This means the house cannot be used for the care assessment and ensures the home is fully protected from being sold to pay for future care costs. The survivor still has full control of the property because they are normally a beneficiary and Trustee of the deceased’s 50%. This also protects 50% of the value of the house should the survivor remarry.

If you own a residential property solely, there is a strategy to put the property into Trust during your lifetime. This strategy changes the ownership of the property to the Trust, but it doesn’t take the house out of the estate for Inheritance tax purposes because you still derive a benefit, i.e., you still live in it. There are, however, time restrictions on this strategy, and should you know, or be aware, you are going into care soon, this would be deprivation, and the planning could be unwound. This is a strategy that needs to be implemented years before the likelihood of care being an issue.

    Lifetime Planning Strategies

    When it comes to estate planning, there are two types of planning that need to be thought about:

  • Death planning - Protecting your assets and wealth after you have passed away.

  • Lifetime Planning - Reducing your inheritance tax liability during your lifetime.

    Everyone has a lifetime allowance of £325,000, and if you own a residential home with the intention of leaving it to lineal descendants (i.e., your children), you also qualify for the new Residence Nil Rate Band (RNRB), which is currently an additional £175,000.

    (There are some exceptions to qualifying for the residence nil rate band though).

  • You must have children or adopted children to qualify.

  • If your estate is valued over £2 million, the residence nil rate band tapers away at £1 for every £2 your estate exceeds the £2 million mark, meaning as a married couple, the RNRB will be lost on estates over £2.35 million.

    So, what can you do if you fall into this bracket? What options are available to you to enable you to reduce your potential IHT liability during your lifetime? Here are a few strategies to consider:

  • Gifting assets today to your children/beneficiaries, ideally through gift trusts to ensure the assets do not enter the beneficiary’s estate. Remember, it takes 7 years for gifts to be fully outside your estate as long as you have had no benefit from the gift.

  • Use your annual gifting allowance. Everyone can gift £3,000 each year, which sits outside your estate immediately. If you haven’t utilized last year’s allowance of £3,000, you can go back one year, therefore giving £6,000 in the first year individually.

  • Equity Release is a great way to reduce wealth in property by drawing out equity and gifting it. Again, after 7 years, the gift would be outside your estate (if you have not received any benefit from the gift). Speak to a qualified Equity Release Specialist if you are considering this option. We have professional partners we can introduce you to for this service.

  • Invest in (EIS) Enterprise Initiative Schemes investments (consult a financial adviser for these investments. We have professional partners we can introduce you to  this service.