How to Integrate Your Financial Plan with Your Will

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While many clients understand the potential of an investment plan, or the tax-efficiency of a pension, estate planning is a less exciting prospect. No one wants to think about their own mortality, and taking steps to plan for death can seem like tempting fate.

But rather than dwelling on the negatives, this article focuses on the opportunities. The main benefits of estate planning are:

  • ·       More of your money will go to those you have intended
  • ·       There are ways to minimise tax
  • ·       Comfort in knowing that your loved ones are taken care of
  • ·       Realising that the money you have worked for will leave a legacy for many years beyond your own lifetime

When creating a financial plan for our clients, one of the key points we address is the need for a Will.


Why You Need a Will

Making a Will is one of the easiest financial decisions to put off, but it is also very simple to complete. The assumption that your estate will be distributed according to your wishes, even without a Will is all too common.

If you die without a Will, this is known as intestacy. The rules of intestacy are complex and depend on your family situation, as well as where you are in the UK. More information can be found at:

A number of factors would indicate that settling for intestacy is not the best course of action. For example:

  • ·       You would like your spouse to inherit everything in the first instance, with assets only passing to your children on second death.
  • ·       If your spouse is financially independent, you may prefer for your estate to pass directly to your children.
  • ·       You do not have a spouse or children and would like to nominate relatives, friends or charities to receive your assets.
  • ·       You are in a common-law relationship. Without a legal marriage or civil partnership, your partner has no automatic right to inherit.
  • ·       You would like your step-children to benefit.
  • ·       You would like to have some control over what happens to your money after you die, for example by setting up a Trust.
  • ·       You would like other wishes to be taken into account, for example, care arrangements for children or funeral arrangements.

Making a Will is particularly important if you have a less than straightforward family situation, as it is very unlikely the rules of intestacy will suit your circumstances.


How a Financial Plan Can Help

The main purpose of a financial plan is to determine how much money you need, either from existing assets or future income, to achieve everything you wish during your lifetime.

When you have worked hard for this money, it is worth thinking about the kind of legacy you would like to leave behind. Depending on where you are in your financial journey, this may involve:

  • ·       Arranging life insurance to make sure your family are provided for.
  • ·       Making regular gifts during your lifetime. Not only does this help to minimise inheritance tax, but also allows you to see your loved ones benefitting from the money.
  • ·       Setting up Trusts, using either existing capital or life insurance benefits.
  • ·       Making gifts to charity, or even setting up your own Charitable Trust.

When you have decided what is important to you during your life, this can help to inform the bequests you make within your Will.


Making Use of Trusts

Trusts can be set up during your lifetime, or be created on your death as directed by your Will.

Lifetime Trusts should be undertaken as part of your wider financial plan. They should take into account:

  • ·       How much money you can afford to give away.
  • ·       Your wishes, and the level of control you would like to have over the Trust.
  • ·      Whether you need to retain any access to the Trust funds. A few Trust structures allow this, but in general, the more access you have to the money, the less effective the Trust is for Inheritance Tax purposes.
  • ·       The source of funds for the Trust, whether this is a gift or a life insurance policy.

You can also set up Trusts via your Will. You might want to do this for the following reasons:

  • ·       To set aside money for children who are not yet of age.
  • ·       To control who has access to the funds. This may include your spouse, children, grandchildren and anyone else you specify. If all of your assets pass to a spouse and they then remarry, this places your children at risk of not inheriting anything if their surviving parent dies. A Trust can also protect funds if any of the beneficiaries get divorced or are declared bankrupt.
  • ·       To control when the money is received by the beneficiaries and if any conditions apply.

You can write a Letter of Wishes to direct your Trustees how the money should be dealt with.


How Your Pension Can Help

While pensions are not specifically designed for estate planning, they have the following benefits from a legacy perspective:

  •  Most pension plans sit outside your estate and aren’t taken into account for inheritance tax purposes (there are exceptions, so the position should always be checked)
  • ·       Pensions can be paid out to your beneficiaries free of income tax if you die before age 75. After age 75, the beneficiaries will pay income tax at their own personal rate, and can often withdraw the money flexibly as required (with money purchase pension plans).
  • ·       You can create an Expression of Wishes nomination to inform your Pension Trustees what should happen to your pension fund if you die. While the Trustees are not bound by this, they will usually follow your wishes unless there is a strong reason not to.
  • ·       Your Expression of Wishes can either follow the provisions in your Will, or be entirely separate.
  • ·       A good financial plan will combine retirement income planning and estate planning. For example, by drawing on assets within the estate first (which would be subject to Inheritance Tax) and preserving the pension, this can reduce the amount of tax paid and increase the amount available for your beneficiaries.


Top 5 Tips When Writing Your Will

When creating your Will, consider the following:

  • ·       Make sure your Will is securely stored, and that your Executors know what to do in the event of your death.
  • ·      If you leave at least 10% of your net estate to charity, as well as the gift to charity being free from inheritance tax, the rate of Inheritance Tax payable on the taxable part of your estate reduces from 40% to 36%.
  • ·       Ask your adviser if a Trust would be an effective way of administering your estate.
  • ·       Be aware that nominating your solicitor as Executor can work out more expensive.
  • ·       While you are dealing with legal matters, you should also have Powers of Attorney completed. This allows you to appoint others to make decisions about your finances and care if you become incapacitated.


Please don’t hesitate to contact a member of the team if you would like to find out more about your estate planning options.


The Financial Conduct Authority does not regulate estate planning, Inheritance Tax Planning, tax advice, wills or trusts

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