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 may be ways to minimise tax in certain circumstances
  • 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. Whilst we do not provide the service of will writing ourselves, we can put you in touch with a local top legal professional to do this for you and give all of the relevant legal advice.

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. 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.<//li>

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 in jurisdictions where this may arise, 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 where that might apply.
  • The source of funds for the Trust, whether this is a gift or a life insurance policy.

Consider Making an Enduring Power of Attorney

An Enduring Power of Attorney is a document which provides you with the opportunity to select who would look after your personal and financial affairs in the event that you were temporarily or permanently unable to manage your own personal and financial affairs by reason of mental disorder.

These documents are extremely important documents and ensure that the people you have appointed as your attorney’s will be in control of your personal and financial affairs in the event that you should no longer be capable of managing such affairs by reason of mental disorder.

These powers can also be useful in the event of a long-term illness or other incapacity.

Without an Enduring Power of Attorney in place, in the event of your mental incapacity your family would need to apply for a Mental Health Receivership through the Courts which is complex, costly and can cause significant stress to your loved ones.

Unless there are extenuating circumstances, only one person can apply to be your appointed “Receiver” and they must be resident on the Isle of Man. That person must also submit accounts to the Court every year showing exactly what monies have been spent on the patient. This can be incredibly difficult for partners / married couples with joint accounts as the assets effectively must be severed to enable ease of accounting each year.

The Court ultimately has discretion as to the appointment of your receiver and if your assets are of a significant value the Court may insist that a professional is appointed as your Receiver. This can cause unnecessary cost and can result in a person you would not have wished to manage your affairs on your behalf being appointed.

Osborne Financial does not provide legal advice and the information within this article does not constitute legal advice but for information purposes only. We can put you in touch with a local top legal professional to provide this advice for you and make sure you are looked after in-sync with your financial plan.

Please don’t hesitate to contact a member of the team if you would like to find out more about wills, trusts and powers of attorney.

The information provided on the pages, blogs and articles contained within this website are solely for information purposes only and do not constitute financial advice. Professional advice should always be sought from a financial adviser.

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