Safeguard your assets
Acquiring and increasing the value of assets is a long-term goal for many people. However, only a very small proportion of people treat the protection of personal and business assets as a priority. Failure to consider basic steps in the estate planning journey can mean your hard work in building and growing is wasted. Unexpected life events (early death, illness, bankruptcy and divorce) occur all too often and the havoc they can cause to the unprepared may be financially devastating.
So – where do you start and what needs to be considered? It may seem unappealing but adopting a step by step approach to estate protection will help you to prepare for life’s challenges – ensuring you lay down the right foundations to confidently focus on continued growth and maximisation of your assets.
Step 1 – Consider your will
A staggering 60% of people are estimated to be intestate (i.e. they do not have a will). Even more have an out of date will that has not been reviewed or, even worse, has been unintentionally revoked (perhaps by a subsequent marriage).
A carefully drafted will may, not only ensure you pick the right people to manage your assets after your death and administer them as you intend, but may also help to avoid conflict within families (conflicts that can very quickly deplete the value of the estate in legal fees). You may also be able to reduce inheritance tax obligations, or structure your estate so that assets are protected for beneficiaries whilst they are young or vulnerable.
A suitable will is essential for business owners who wish to ensure the correct succession of their business assets and to maximise available reliefs on inheritance tax.
Step 2 – Prepare for the unexpected
Have you ever considered what would happen to your personal or business assets if you unexpectedly lost the physical or mental capacity to deal with them? In this situation, without appointing an attorney under a property and financial affairs Lasting Power of Attorney (LPA), no-one can access your assets to care for you or your family.
In the absence of an LPA, a costly court application is required to appoint a deputy – a process which can take over six months. During that time your assets are effectively frozen and unavailable to you. Without effective management, serious loss can occur. By appointing an attorney, you can name the right person to act on your behalf, and they will be ready to do so immediately.
If you have business interests, it is advisable to set up a business LPA. This is especially important if the people to whom you would entrust control of your personal assets are different to those who you wish to make decisions relating to your business interests.
For owner-managed business, this is an insurance policy that you cannot afford to do without.
Step 3 – Protect your children’s future
Many people want to plan for and be able to support their children’s future, whether that be by paying for their education, or helping them to get a foot on the property ladder.
Taking sensible planning steps early can protect funds for your children before they are needed (perhaps by ring-fencing assets into a trust), and may minimise the tax take in the long-term.
It’s a good idea to consider your long-term aims as a parent, and then put together a road-map to plan out how you might achieve them.
Step 4 – Protect your business
Most business owners will have considered or taken out business protection insurance. Often this is where the planning ends.
In this situation, if the intention on death would be for your business partners to purchase your business interests (thereby giving cash to your family), you need to ensure the right structures are in place to achieve this smoothly, efficiently and at minimal cost and stress. Once the insurance policy has been taken out, it must be transferred into trust and the right agreements between the business owners should be drafted to ensure the correct mechanism is triggered for a smooth sale of the shares by the estate. Get this wrong, or fail to implement correctly, and you may well have wasted the cost of the insurance, increased tax implications and created a costly headache for your beneficiaries.
This article was published in the Travel Trade Gazette on 1 September 2016.
For more information please contact Eleanor Gadd, Associate, Private Client - Family.
Published: 1 Sep 2016