Most people reach a time in life when they start to think seriously about what they will leave behind for their loved ones. The best outcomes are achieved by planning well in advance, but figuring out where to start can be daunting. This article aims to provide some guidance.
If you need help and aren’t sure who to approach, your financial planner is a good starting point. Their early involvement will help optimise outcomes, and they should also be able to recommend other professionals where required.
Step 1: define your goals
This is arguably the hardest step. You can appoint people to take care of everything else, but not until you have clear instructions to give them.
For some, the goal is simply to avoid inheritance tax, but others may have specific objectives, e.g. fund house purchases for grandchildren.
You have more chance of achieving goals that are clearly defined, so take the time to remove ambiguity and ensure your ambitions are clear.
Step 2: know your constraints
You need to establish what is likely to be available for distribution after you die. You should also consider your willingness to pay tax, make large gifts during your lifetime, and pay insurance premiums.
If your constraints are substantial then you may have to reconsider your goals to ensure they are realistic.
Step 3: find the gaps
Figure out the outcomes if you died today and your current arrangements came into force, and use this to help highlight and prioritise the gaps between your goals and reality.
Step 4: plan
Once you know the above, you can start to develop a plan. Remember, legacy planning is more than just death planning; many of the best planning opportunities are only available whilst you’re in good health.
If your goals are simple you can do much of this yourself, but the more complex your circumstances, the more you will benefit from professional help. You should always consult a financial planner too, as they have expertise that solicitors may lack regarding the planning options specific to different financial products.
You will also need to select trusted individuals to act as your executors and/or trustees after you die. You should consider whether they will be capable and willing to act in the required capacity, whether they’re likely to survive long enough to complete your wishes, and whether there could be a conflict of interest. Again, you could appoint professionals for these roles if desired.
Step 5: stress test
You need to ensure that your plan is sufficiently robust to survive changes, both during and after your lifetime.
For example, you may wish to consider whether your plan protects against the following:
- A beneficiary wasting their inheritance through lack of financial education or maturity.
- A beneficiary divorcing and losing a portion of their inheritance in the divorce proceedings.
- Your partner remarrying after your death (thereby invalidating their current will) and your children losing out (or another family gaining) as a result.
Step 6: implement and review
You should now have everything you need to implement a plan. Be sure to document everything clearly, and tell your loves ones where these documents are kept.
You should also review your arrangements regularly, and whenever you experience a significant change in circumstances. Things change over time, including legislation, so it is important to review and update things where necessary.