If you want to plan for your future and have everything in place in order to take care of your loved ones after your death, then estate planning is one of the smartest moves you can make.
So, what is estate planning?
Estate planning involves assessing the value of your estate in order to ensure that the right documents are in place in order to transfer your property and assets to your family after your death.
Continue reading to learn more about estate planning and saving for your future.
The Value of Your Estate
In order to assess your assets and determine the value of your estate, the first step is calculating the total worth of said assets. Assets can include:
- Business equity
- Personal possessions such as electronics
A realistic selling price should be used to determine the value of nonmonetary assets. Any type of gift that incurs inheritance tax should be added to the value of the assets. Liabilities and debts will then be deducted from the total in order to establish the value of your estate.
Deductions that can be made include:
- Funeral costs
- Credit cards
- Any bills that are outstanding
- Funeral costs
Drawing Up Your Will
The most important and basic part of estate planning is drawing up a will. Drawing up a will typically consists of the following steps:
- Establishing guardianship of children under the age of eighteen
- Appointing a caretaker for animals
- Detailing how you want to divide up your estate, naming who will receive specific assets.
- In the event the listed beneficiary dies you must also provide an alternate
- Aside from ensuring the will is correctly drafted, you must also have a witness present at the time you sign your will so that it cannot be contested after your death.
The lasting power of attorney will allow you to grant someone in your family or a close friend the power to make important decisions on your behalf, in the event that you are unable to make your own decisions. There are a couple of different types of lasting power of attorneys.
The first is the lasting power of attorney for property and financial decisions. This type of LPA can take effect when you’re still mentally competent. It can also be invoked in the event you are deemed no longer mentally competent. This lasting power of attorney will allow the appointed person to make a variety of important decisions regarding your property and finances. The amount of power given to the LPA is up to you, during the drawing up of this document. You may give them power over the fate of your home, or it can be as simple as monitoring your savings account.
The other lasting power of attorney option is for health and care decisions. This type of LPA can be used only if you’re no longer mentally competent. It involves making important medical treatment and care decisions.
Planning for Business Succession
If you own your own business, then you will also need to determine how to pass down your business to your beneficiaries. If the business is already family run, then this can be as simple as dividing up the equity and determining who will take over certain responsibilities. But if the business has been kept from the beneficiary then you must consider several factors, including:
- Who will run the business after your death?
- Is the appointed beneficiary able to exercise control over the business?
- Should any shares from the company be held in a trust?
- Will your death impact your partnership agreement?
- Should a portion of the company’s profits be divided up amongst the beneficiaries or put back into the business?
Should you decide to sell the business once you have passed as opposed to passing it on to a beneficiary, then you must put in place an executor who is capable and understands how to handle the sale.
Trusts are basically a way to manage assets and money on the beneficiary’s behalf. There are many different types of trusts to choose from, some of which provide a direct transfer of a certain part of the estate or an alternative to direct inheritance.
Did you know that there is a type of individual savings account that will allow your beneficiary to inherit your savings account? Since 2015, beneficiaries can now inherit your ISA with a tax-friendly status. In the past, when a person died, the savings account immediately lost its tax-free status. This meant that the beneficiary would immediately be required to pay tax on any income earned from the account.
To learn more about ISAs and how to pass down your savings after death, click here to read our extensive ISA guide.
To answer your question regarding, what is estate planning, it involves many steps toward protecting your loved ones after your death, ensuring that your property and assets are passed down to your beneficiaries. But there is so much more to learn about transferring your property and assets to your beneficiaries, such as what is inheritance tax and the type of fees your beneficiaries can expect to pay upon the transfer of your property, ISA, and belongings. Planning for your death can be very difficult and challenging. But by taking these steps you will ensure that your family is well taken care of.