What are the 5 most common mistakes in succession planning that prevent families from inheriting?

 

Is it because no action has been taken? Is it because mistakes have been made in the planning or in the documents? Or is it because of changes in legislation?

 

Not entirely. Certainly, these will create issues. But even for those that believe that everything is in place then there are other problems that can prevent their wishes from being fulfilled.  

 

Mistake 1: People tend to focus on what happens AFTER they die and very often overlook what happens BEFORE, i.e. when they perhaps can’t look after themselves.

If there is no instruction in place by the time a person has become incapacitated and if the right criteria are met, the Court of Protection will look to appoint a Deputy. In this case, the ONLY way a person’s finances or wellbeing can be managed is by an application (by a relative or someone close to them) being made to the Court of Protection for Deputyship. This process costs a considerable amount of money and can take anywhere between 12 weeks and 10 months. This will impact the inheritance they may have wanted their beneficiaries to enjoy. The Judge has the power to decide who to appoint, and this could be someone who they would never have trusted or wanted to manage their affairs.

 

Mistake 2: People may be unaware of the impact of Long-Term Care on their Estate and specifically their main home.

Long Term Care funding is means tested which means that anyone with assets in excess of £23,250 will be expected to pay for their own care. This can hugely reduce the value of their estate, with average residential care fees now between £700 and £1000 per week (and likely to rise). People don’t realise that they may be left with no choice but to sell their main property to fund the care or that the Local Authority may put a charge on it. This means that their beneficiaries won’t inherit the estate as they originally intended.

 

Mistake 3: People don’t protect their bloodline.

When people plan their legacy, they give a lot of thought to whom their beneficiaries are going to be (usually their children or grandchildren) and what they will inherit. They imagine that their hard-earned assets will go to their loved ones and a legacy will be passed on. The truth is that by distributing their assets directly to their chosen beneficiaries they then become part of the beneficiary’s estate. This means the assets that have just given are at risk of attack from any future divorce settlements, creditors or taxation. In short, the beneficiaries may get their share of the deceased’s estate as intended, but they can lose it very quickly after if nothing is in place to protect it. This also goes for leaving assets to vulnerable and/or disabled beneficiaries.  They may be at risk of losing means tested benefits or being taken advantage of by the unscrupulous.

 

Mistake 4: People don’t secure their documents

When someone dies with a Will, one of the executors’ tasks will be to locate the Will. What happened if it can’t be found? It’s one of the most ignored, overlooked and misjudged mistakes that prevent families from inheriting. The law is crystal clear on this: only an original Will can be submitted for Probate/Confirmation. Without the original document, an estate is dealt with as if a person has died intestate, i.e. without a Will. This means that the estate will be distributed according to the rules of intestacy, which could be very different from how people would want their families to inherit.

 

Mistake 5: People may not understand Inheritance Tax Rules and Deliberate Deprivation of Assets

Many people believe that by giving the house to their children during their lifetime they are saving both inheritance tax and avoiding potential care fees. Unfortunately, this is not compliant tax planning. Firstly, with regard to saving inheritance tax (IHT), should someone still live in the property or even just have access to it, it could be deemed a ‘Gift With Reservation’ meaning it would remain in their estate for IHT purposes even if it was put in their children’s names more than 7 years before.  In terms of avoiding care fees, the law is very clear… The Local Authority can go back as far as they want in terms of time and if they believe someone has given away their assets to avoid paying care fees then they can claim it is a “Deliberate Deprivation of Assets”. This means they can claim the money back from whoever received the money/assets.

 

Here are 4 useful tips when planning:

 

Tip no 1: Executors. They need to be chosen carefully. People don’t always know that Executors are legally and financially liable for the distribution of the estate and personally liable for mistakes. People can and do underestimate the amount of work and time that will be needed, for no benefits!

 

Tip no 2: Legislation changes. They might affect individual planning. It is important to have an eye kept on this and a regular review of existing legal documents will ensure they are still valid and doing the job they were meant for.

 

Tip no 3: The effect of marriage/remarriage on a Will. In England and Wales marriage or remarriage after making a Will revokes it. This is not the case in Scotland where the Will remains valid.

 

Tip no 4: Funeral Plans. Whilst having a pre-paid funeral plan will save the estate/the beneficiaries money, it will more importantly lift a huge load off the family/executors’ shoulders at a time when they are in a such an emotional turmoil.

 

The good news is that these issues can be overcome with good planning and professional advice. There is no one size fits all and every family’s needs will be individual to them. So, if you have any questions about any of the above or if you want to start planning your succession, please fill in the from below to get in touch! Given the current circumstances we can offer remote consultations via various forms of media platforms.