What do you want your wealth to do?
If you knew you could maintain your lifestyle, meet possible care costs and still have money left over, would you spend more, help someone sooner, retire earlier or preserve it for others?
That is where estate planning should start. Not only with what happens when you die, but with what you want your wealth to make possible while you are alive.
You may want to protect a partner, help relatives or friends, support charities or enjoy more of what you have built. The right plan brings those choices together, then makes sure your financial plan, tax planning, Wills and Powers of Attorney all support them.
Start with the life you want
There may be no automatic answer to who should inherit, how much they should receive or when they should receive it. That gives you freedom, but it also means the important decisions are easier to postpone and more likely to be made by default.
You may want to leave a defined amount to a partner, relatives, godchildren, friends or charities. You might prefer to help people sooner, when the money could make a greater difference, or decide that more of your wealth should support your own life.
A Will can record who receives what remains, but it cannot tell you how much you can safely keep, spend or give away. That needs a wider financial plan built around the life you want.
Decide what enough looks like
A financial plan is not more successful simply because it leaves the largest possible estate.
If you want to leave a specific amount, that can be built into a financial cash flow plan. If you are comfortable leaving whatever remains, the same plan can show how much more you might spend, give away or use to retire earlier without placing your future security at unnecessary risk.
This is not about spending recklessly. The plan still needs to allow for longevity, inflation, lower investment returns, property costs and possible care. It can also include larger events that annual averages often miss, such as replacing cars, renovating a home, buying or selling property and making gifts.
Money mapping/ cash flow modelling brings your pensions, cash, investments, property and other income into one picture. It cannot predict the future or guarantee that you will never run out, but it can test different lifespans, spending levels and investment outcomes, show the margin available and identify what could change if circumstances changed.
In my experience, some people discover that they are on course to leave considerably more than they intended. Seeing that clearly can give them confidence to enjoy more of their wealth now, without feeling that they are gambling with their later life.
Protecting the person who shares your life
A couple may have two incomes or rely mainly on one. The important question is what would happen to the survivor if one person died or became unable to manage their affairs.
Which income would stop? Could the survivor afford to remain in the home? Would debts need to be repaid? Which pensions or insurance benefits might continue, and does each person understand where the household assets are held?
Marriage and civil partnership also make a significant legal and tax difference. Assets passing to a qualifying spouse or civil partner are generally exempt from UK Inheritance Tax. An unmarried partner does not receive that exemption, regardless of how long the relationship has lasted.
Unused basic nil rate band can normally transfer between spouses or civil partners, potentially giving the second estate up to two £325,000 bands under current rules. Unmarried couples cannot transfer unused bands between them. A Will can determine who inherits, but it does not recreate the tax treatment of marriage or civil partnership.
Marriage or civil partnership will not suit everyone, but couples should understand the financial effect of remaining unmarried. The Will, ownership of the home, pensions, life insurance and beneficiary nominations should then reflect that decision.
The £175,000 you do not have
You may have heard that an individual can pass on as much as £500,000 free of UK Inheritance Tax. This combines the £325,000 basic nil rate band with a residence nil rate band of up to £175,000.
The additional £175,000 is not available simply because you own a home. Broadly, a qualifying home must pass to direct descendants. Children, grandchildren and stepchildren can qualify. Siblings, nieces, nephews, godchildren and friends do not.
If neither person in a couple has qualifying direct descendants, there may be no residence nil rate band to use or transfer. Compared with a couple entitled to the full allowance, this could mean up to £350,000 less protection from Inheritance Tax across their estates. The allowance can also reduce where an estate exceeds £2 million.
The disadvantages can stack. If you are also unmarried, assets passing to your partner do not receive the spouse exemption and neither of you can transfer unused nil rate bands to the other. You may therefore lose both the protections attached to marriage or civil partnership and the residence allowance linked to direct descendants.
This is easily missed because the widely quoted figure of up to £1 million for a couple assumes both a marriage or civil partnership and a qualifying home passing to direct descendants. Your own position should be calculated using your actual relationship, assets and chosen beneficiaries.
The answer may involve spending more, making lifetime gifts, leaving money to charity, arranging insurance or accepting that some tax will be paid. The objective should not be to avoid tax at any cost. It should be to make deliberate decisions with the correct figures.
Would you rather help people now
Leaving money through a Will is not the only way to create a legacy. You might help a niece or nephew with a deposit, contribute towards a godchild’s education, support a friend’s business or give to a cause while you are here to see the result.
The first question is whether the gift is affordable. Cash flow modelling can show the effect of a one off gift or regular support while allowing for your own spending and later life needs.
You should also consider whether further requests may follow, whether you want to treat people equally and how the gift may be taxed. Larger gifts involving property, investments or more than one country should be discussed with the relevant advisers and properly recorded.
If you prefer to give on death, a letter of wishes can explain the thinking behind gifts and personal possessions. It does not replace a properly drafted Will, but it may help the people involved understand your decisions.
A gift to charity in your Will is normally exempt from Inheritance Tax. If at least 10% of the relevant net estate is left to charity, the rate charged on the relevant taxable part may reduce from 40% to 36%. The calculation is technical, but it can mean that increasing a charitable gift reduces what other beneficiaries receive by less than the amount given. If charity is part of your plan, ask your solicitor to calculate the figure rather than relying on a round percentage.
Who could act for you if you could not
A Will only takes effect on death. It does not allow someone to manage your finances or make care decisions if illness or an accident leaves you unable to do so.
Your spouse, partner, sibling or closest friend does not automatically gain authority over your accounts, investments, property or healthcare. A joint account does not give them authority over anything held in your sole name, and an executor’s role begins after death rather than during incapacity.
In England and Wales, separate lasting powers of attorney cover property and financial affairs, and health and welfare. Without a valid financial LPA, someone may have to ask the Court of Protection to appoint them as your deputy. This can involve an application, fees, a security bond, ongoing supervision and annual reporting.
That process can be difficult for a family dealing with someone’s affairs. It can be harder still for a friend or sibling who did not expect to take on the responsibility.
Choose attorneys who are willing, organised and capable of making decisions in your interests. Ask them before naming them and appoint suitable replacements. If you live or own assets abroad, check whether equivalent documents are needed there as well.
An attorney manages affairs during your lifetime. An executor deals with the estate after death. A health attorney may need to make personal decisions about treatment or care. These are different responsibilities, and the same person does not have to perform every role.
A close friend may understand your wishes but feel uncomfortable managing investments. A sibling may be capable but live in another country. As a general rule, do not appoint parents or anyone substantially older than you as your only attorneys or executors. They may be perfectly capable now, but could die, lose capacity or become unable to take on the work before they are needed. Longevity matters, so appoint replacements as well.
Professional help may be appropriate where the estate is complex, involves several countries or no one close to you is suitable for a particular role.
The people you choose should know what they are being asked to do and where to find the information they will need. This includes your assets, debts, advisers, important documents, digital accounts and arrangements for pets.
A Will may not control everything
Joint property may pass automatically to the surviving owner. Pensions, life assurance policies and trusts may follow nominations or scheme rules rather than the terms of your Will. An old nomination can therefore produce a different result from the one you intended.
From 6 April 2027, most unused UK pension funds and pension death benefits are due to fall within an estate for Inheritance Tax. This will make pension nominations, retirement income and estate planning more closely connected.
Create a simple record of what you own, where it is held, whether it is joint or sole and which document controls it. Include property, investments, pensions, insurance, debts, business interests and digital or cryptoassets. Passwords should be stored securely rather than written into a Will, which may eventually become public.
Review the Will, asset list and nominations after marriage, separation, relocation, a death among the people you have named or a significant change in wealth.
Cross border lives need one plan
Living abroad, owning property in another country or retaining overseas pensions and investments can bring several legal and tax systems into the same estate.
Residence, long term tax status, nationality and the location of an asset may all affect the result. Some countries restrict who can inherit, and a power of attorney prepared in one country may not be accepted easily in another.
Separate local documents can sometimes help, but they must be coordinated so that one does not accidentally revoke another. Your lawyer, tax adviser and financial planner should each understand the complete position.
Before You Speak to Your Advisers 10 Questions to Discuss First
- Who do you want to benefit from your wealth, and why?
- How much of your wealth would you prefer to enjoy during your lifetime?
- Would you like to leave specific amounts, preserve a minimum estate or simply leave whatever remains?
- Could your partner maintain their lifestyle if you died or became unable to manage your affairs?
- If you are unmarried, have you understood how this affects inheritance, tax and the transfer of allowances?
- Will your estate qualify for the residence nil rate band based on the people who will actually inherit?
- Would you prefer to help relatives, friends or charities now rather than through your Will?
- Who should act as your attorneys and executors, are they likely to remain able to act, and have you named replacements?
- Do your Will, property ownership, pensions, insurance and nominations all produce the result you intend?
- Will the arrangements work in every country connected to you and your assets?
You do not need perfect answers before speaking to your advisers. A current Will, a list of assets and debts, pension and insurance nominations, and an outline of the people or causes you want to benefit will provide a useful starting point.
As an adviser, I can use that information to show how much you may be able to spend or give away while protecting your future. A lawyer can then turn your decisions into valid documents, while a tax adviser can explain the consequences in each relevant country.
The objective is not simply to decide who receives your wealth. It is to make sure your money supports the people, experiences and causes that matter to you, both now and in the future.
Disclosure
This article is for general information only and does not constitute personal financial, investment, tax or legal advice. The suitability of any strategy depends on individual circumstances and professional advice should be obtained where appropriate. All figures stated are correct at time of writing.
