Estate planning is an essential process that allows you to secure your legacy for future generations. Learn more about estate planning in our handy guideSpeak to an estate planning specialist
Estate planning is a crucial part of your broader financial planning strategy.
However, it is one that is often overlooked.
What will happen to your assets when you are gone? How can you reduce estate taxes to maximise how much you leave behind?
These are questions you need to ask yourself and plan for ahead of time. And just like making retirement plans, the earlier you start, the better.
This guide will provide a detailed breakdown of estate planning, its benefits and other key information.
What is estate planning?
At its core, estate planning is a proactive approach that allows you to plan today to ensure you are prepared for tomorrow.
Your estate is made of basically everything you own. This includes things such as:
- Savings accounts
- Investment accounts
- Real estate
- Retirement accounts
- Bank accounts
- Life insurance policies
Estate planning is the process of arranging and managing those assets that make up your estate to ensure they are distributed according to your wishes. It also helps to safeguard your wealth by minimising taxes.
Think of it as a plan of action. One that will help ensure a smooth transfer of your estate when you are gone or can no longer handle things on your own.
Importance of estate planning
Estate planning was once thought of as a service for high-net-worth individuals (HNWIs). Today that is no longer the case.
Estate planning offers numerous benefits for anyone, regardless of wealth and level of assets.
It can help protect your wealth and reduce taxes on assets you wish to pass on to your heirs.
Estate planning can also save time by avoiding lengthy probate proceedings. The probate process can be lengthy, meaning your beneficiaries may wait a long time to receive their inheritance.
But above all else, estate planning provides peace of mind knowing that your wishes will be honoured and your family and loved ones will be taken care of financially.
Estate planning for expats
British expats are often liable for UK inheritance tax (IHT), even if they have not lived in the UK for some time.
That is because IHT is not based on residency status. Instead, IHT could be based on your domiciled status. This rule applies to UK tax but may differ in other jurisdictions.
According to the UK government, those who were UK residents for 15 of the 20 years before the relevant year will be deemed UK domiciled.
For formerly domiciled residents:
From 6 April 2017, there is a new category of deemed domicile.
You’re a formerly domiciled resident if you:
- Are born in the UK with a UK domicile of origin
- Have acquired another non-UK domicile of choice
- Are a resident in the UK and were resident in the UK in at least 1 of the 2 previous tax years
Formerly domiciled residents who added any property to a trust when they weren’t domiciled in the UK can’t exclude that property for the purposes of IHT.
However, this doesn’t apply if you’re only deemed domiciled under the new rules.
The new trust protection measures make sure an IHT charge doesn’t arise when you’re no longer:
- A resident of the UK
- A formerly domiciled resident
The Inheritance Tax Manual provides technical guidance and examples of these changes.
Those liable for IHT can take steps to reduce or, in some cases, avoid an IHT bill.
For example, joint investment policies and bank accounts can make a big difference. That is because there is no IHT between spouses in the UK. Therefore, in most cases, there is no probate required.
Setting up a trust may help expats reduce estate and inheritance taxes. They may also provide other benefits, such as making it easier to manage assets.
Understanding domicile status can be complex. It is advised that you speak with an expert to better understand your tax situation and the best approach for estate planning.
Core components of estate planning
Estate planning is a broad term. In fact, it is made up of various different services.
Some of the core components of estate planning services include:
Last Will and Testament
A will is a legal document that outlines a person’s final wishes. This can include the distribution of your assets, guardianship of minor children, and other important matters.
Seeking legal advice from a lawyer or legal expert is essential to ensure the will is legally binding. Financial service companies such as Holborn Assets work with relevant legal experts for services such as will writing.
A trust is a legal structure that allows assets to be held and managed. Trusts can provide greater control over asset distribution, streamline the probate process and help with estate taxes.
There are different types of trusts. Speaking with a financial adviser is the best way to find the right trust for your needs.
Some of the more common types of trusts used in estate planning are:
- Revocable trust
- Irrevocable trusts
- Asset protection trust
Power of attorney
Power of attorney (POA) grants an appointed individual the authority to make decisions on your behalf. POAs can either be given general or limited power of attorney.
There are two main types of POA. They are:
- Financial power of attorney – those responsible for financial decisions
- Medical power of attorney – those responsible for healthcare decisions and other medical decisions
Advanced healthcare directive
An advance healthcare directive is another type of legal document. It provides guidance on an individual’s preferences for medical treatment and healthcare services.
Estate planning checklist
Everyone will have a different approach to estate planning, depending on their situation.
Our estate planning checklist below outlines some of the things to do and consider when building your estate plan.
A good first step is to make a list and take stock of all your assets.
This summary sheet is then filled away with your will. Things to consider include the following:
- Real estate
- Life insurance policies
- Any financial accounts
- Art or any other collectables that hold value
- Jewellery and other items that you may wish to pass along
At this stage, you may also want to make a list of any outstanding debts. This may include mortgages or other lines of credit you are still paying back.
Check your coverage
Life insurance can is a crucial financial component of estate planning.
A policy can provide vital financial support for your loved ones through lump sum payouts. Also, life insurance can be placed in a trust and used to pay an inheritance tax bill.
If a policy is not placed in a trust, any proceeds will be added to your estate.
There are two main types of life insurance – term and whole-life coverage. For those looking for more control and flexibility over their policy, there are products such as universal life insurance.
If you already have a policy, you may want to check that it provides adequate coverage and ensure your beneficiaries align with your wishes.
Writing a will
A will is a legal document that ensures your final wishes are carried out, and having one is essential.
If you die without a will, your estate is divided according to certain rules and local laws. It can also make the process a lot longer.
When writing a will, you can choose who receives your assets when you are gone, appoint guardians for children and more.
As an expat, you may need to write a new will, even if you already have one. That is because your will must comply with the laws in the jurisdiction where you hold assets.
For example, if you are a British national living in the UAE, your assets could be dealt with through Shariah Law if you do not have a will that complies with UAE laws.
It is best to speak to a specialist to ensure your will is valid and complies with the country’s laws.
Make use of trusts
A trust is a legal structure that can hold assets for your heirs. You can decide who gets what, when the assets are to be released to your beneficiaries as well as include other stipulations.
Trusts offer several benefits. When it comes to the estate planning process, the main benefits may include reducing estate taxes and making the transfer of wealth more straightforward and time-efficient.
For expats, trusts may drastically reduce their inheritance tax (IHT) bill.
Don’t forget your digital assets
We live in a digital age, so it is vital to account for digital assets as part of the estate planning process.
Your digital assets can include things such as:
- Social media accounts
- Digital media
- Cryptocurrency wallets
All of these accounts are likely password-protected. It’s important to consider who you wish to grant access to for these accounts.
Review you plans
As we go through life, situations and circumstances change. Your estate plan should reflect those changes.
It’s important to review your estate plan, especially when your circumstances change. Even if your circumstances have not changed, laws may have, so it’s worth revisiting.
Estate planning solutions with Holborn Assets
While estate planning is a vital component of any financial strategy, it’s one we often neglect.
It’s also important to remember that estate planning is an ongoing process. Regular reviews and updates to your estate plans are needed to reflect life changes.
Having a plan of action in place early is crucial, so don’t overlook the importance of estate planning. Speak to an expert and ensure your affairs are in order.
Holborn Assets is a leading, award-winning financial services provider. We specialise in the expat market, so we are well-equipped to help you overcome the unique challenges that come with living overseas.
Our financial specialists work with a team of legal experts, allowing us to offer a wide range of estate planning services.
Whatever tomorrow brings, make sure you are prepared. Contact Holborn Assets to book a free, no-obligation meeting and learn how we can help you.