Ensuring the future security of our loved ones ranks high on the priority list for many individuals. While we cannot foresee what lies ahead, there are proactive measures we can take to guarantee the protection of our assets and the provision for our families in the unfortunate event of our passing. Whether it involves putting a will in place, establishing a trust, or designating guardians for our children, understanding the legal avenues available is important. In this insight article, we explore wills, trusts, and powers of attorney, offering practical guidance on utilising these to safeguard the future of your family.
Wills
Making a will ensures your estate is distributed according to your wishes after you die. Failing to do so can pose challenges for your loved ones, for example, by resulting in them paying more tax than is needed. Without a will, your estate is distributed in accordance with a legislative order rather than your wishes. A will contains several provisions, but here are a few key aspects to consider when planning for your loved ones' future.
Trust Provisions
A trust safeguards and manages assets effectively, and trust provisions can be incorporated within your will.
Guardianship
If you have children under 16, it's advisable to appoint a guardian in your will to care for them if you die. This enables you to designate your preferred caregiver and avoids the need for court intervention.
Blended Families
Referred to as 'legal rights', your children and spouse have a claim on your estate regardless of your will. Children often waive these rights when their surviving parent inherits everything, as typically they'll inherit later. Issues may arise however if you leave assets to a second (or subsequent) spouse or civil partner before your children. To address this, your will can protect your assets, allowing your spouse or civil partner access while you control their ultimate destination.
Trusts
A trust is a legal relationship allowing assets to be owned by one party (the trustee) while benefiting another (the beneficiary). In practical terms, a trust can protect your family in the following ways:
Asset Protection
While creating a trust doesn't automatically eliminate Inheritance Tax, it can decrease the amount payable upon your death. Transferring assets into a trust means giving up ownership. Upon your death, these assets won't factor into your Inheritance Tax ("IHT") calculations if you survive the requisite period after setting up the trust. Instead, they become part of the trust, exempt from your estate for IHT assessment. Trusts can also provide protection from claims on divorce, by creditors or from legal rights.
Managing Assets
Setting up a trust is useful when beneficiaries are too young, lack financial skills, need protection from reckless spending, or have a disability. We often see trusts for these purposes incorporated into wills and set up during lifetime.
Powers of attorney
A power of attorney ("PoA") can be granted to give your chosen attorney/s authority to deal with financial matters, welfare matters or both. It gives your attorneys the ability to do everything you could do yourself, so it is really important that you appoint individuals that you trust.
Granting power of attorney over your affairs offers numerous advantages, and we advise everyone to establish one. For example, a financial power of attorney allows your family to urgently access your bank accounts to cover essential expenses if you become incapacitated. Additionally, granting power of attorney spares your loved ones from navigating the court system to secure guardianship during an already challenging period if you become incapacitated.
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