Planning for the future and the unexpected isn’t always the nicest topic to discuss. However, planning for the future and ensuring that your affairs are in order is essential in guaranteeing that the people you care most about are not left with a more difficult situation than needs be.
Wills, Power of Attorney and Trusts are important parts of any estate plan and together these documents can provide a safeguard as you plan for the future. It is never too early to create these! It is almost always recommended that you create a Will and Power of Attorney together in order to provide an ongoing umbrella of protection for your assets.
What is a Will and why is it important to have one?
Making a Will is the only way you can be sure that your wishes will be followed after you die. If you do not make one, all or part of your estate may go to people who you never intended to benefit. Not only that, inheritance tax legislation means that, if you don’t prepare properly, a substantial part of what you leave behind may be payable in taxes.
Wills are not solely about passing on your assets. You can also include specific funeral arrangements and you may also want to appoint legal guardians to care for your minor children if you and your partner should both die before they are 18.
Another important consideration is the appointment of executors. These are the people who will deal with your estate in the event of your death. Ideally these should be business minded family or friends, or professional advisers. It is possible to appoint more than one executor, for example, a family member and a professional who can act jointly.
If you have business or farming assets Cavanagh Kelly can give the advice to ensure that these are dealt with in the most tax efficient manner. Inheritance tax is a tax that is paid on your estate when you die as well as on some assets that you may have given away during your lifetime. Under current legislation, if the estate you leave behind is less than the “nil rate band” (£325,000) your beneficiaries will not have to pay inheritance tax. However, if your estate is worth more than this threshold inheritance tax may be payable.
It is important to review your Will regularly – ideally at least once every five years. You should also review your Will after any major change in your family circumstances (such as death, divorce or bankruptcy) or any publicised change to tax legislation.
Another option to safeguard unexpected future events spoiling your final wishes is to set up a Trust.
Trusts are usually set up for one of the following reasons:
- To hold assets on behalf of a child until they reach the age of 18. Doing so allows for the property or money to be properly managed until the children are old enough legally to take possession of it. Some types of trust allow the beneficiary to receive an income from the property.
- To reduce the inheritance tax liability. Putting assets into trusts in life can in some cases reduce or even eliminate the inheritance tax liability for that asset; it can also help to keep the value of the estate within the nil-rate band. For example, you could set up a trust for your adult children, to pay for your grandchildren’s education, or support a family member with a disability.
- To provide for your spouse while keeping the estate intact to be passed to your children.
- To protect the family home from being sold in order to pay for residential care.
The key characteristic of a Trust is that it allows the separation of legal ownership and beneficial interest; the trustees become the owners of the trust property as far as third parties are concerned; and the beneficiaries are entitled to expect that the trustees will manage the trust property for their benefit.
What is a Power of Attorney and when should one be executed?
We all assume that somehow we will be able to manage our property and financial affairs throughout our lives. However, this does depend on having the mental capacity to understand our various transactions and their implications. Equally, we sometimes assume that we will always be physically able, for example to visit our bank.
These abilities may be unexpectedly lost through accident, injury or the on-set of illness such as dementia, so it is reassuring to know that there are procedures in place that can help you plan for the future. You can plan for these possibilities by taking the sensible precaution of executing an Enduring Power of Attorney (EPA) whilst still mentally capable.
An Enduring Power of Attorney is a Deed by which one person (the “Donor”) authorises another person (the “Attorney”) to act on his or her behalf in relation to all, or specified property and financial matters. This delegated authority will continue if the Donor loses mental capacity.
You are potentially sharing control with your Attorney. You can state the EPA is not to come into operation unless you become mentally incapable. Some prefer to make this stipulation. Others choose not to, as they wish their EPA to be effective if they become physically incapacitated and unable to manage their banking etc, yet remain mentally capable. This is an important choice which should be carefully considered with our team at Cavanagh Kelly.
The kind of activities an Attorney can carry out on your behalf include:
- signing cheques and withdrawing money from savings accounts;
- buying or selling shares or property; and
- using your assets to finance your residential or nursing care.
At all times your Attorney must act in your best interests. Your Attorney must apply to register the EPA with the High Court, through the Office of Care and Protection, if you have become or you are becoming mentally incapable of managing your financial affairs. During the registration process the authority given to your Attorney is effectively “on hold” until the process has been completed and the original Deed is issued bearing the court registration stamp.
If you do not have an EPA, a court proceeding is necessary to prove you are mentally incompetent and have an Attorney appointed. By executing a Power of Attorney, you can make your own preference as to the appointment of the Attorney and there is no delay between the time you select someone to handle your affairs and the time they can do so.
If you would like to discuss preparing a Will, creating a Trust or executing a Power of Attorney, please contact us.
Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.