Give the gift of love and security: estate planning as a Valentine’s present
As Valentine’s Day draws near, many of us are engrossed in the festivities of love and devotion. It is a season for romantic dinners, chocolates, red wine, and beautiful flowers, but it is also a reminder to value and appreciate the people we care about. In the spirit of Valentine’s Day, it only seems appropriate for couples to consider planning their estates together.
Hear us out: we are well aware that estate planning may not seem like a particularly romantic conversation but if you and your partner are genuinely committed to each other, it only makes sense to discuss how you would like to plan for your future together as it a sign of your love and care for each other.
Marriage may not be the right step for everyone and in the modern world that we live in today, many couples are choosing to not exchange vows at the altar and instead just focus on building a life together. There is absolutely nothing wrong with taking the unconventional path, however it would be a serious misstep to not plan for how it will affect your futures.
While it may seem like an awkward conversation at first, it is crucial to openly discuss financial and health matters, along with who you would like to appoint as Executors of your Wills or possible guardians for your minor children.
Wills
It is a frequent misconception that your assets will automatically transfer to your unmarried partner upon your death. However, the rules of intestacy are rather explicit and intended to guarantee an order of priority for the distribution of your estate among your family members. This only includes your children, parents, siblings, aunts, uncles, and cousins, and does not consider your unmarried partner, even if you are cohabitees.
In the absence of a Will, your assets may be inherited by a distant relative who you have never spoken to rather than your significant other. Making a Will guarantees that your assets will be distributed to your partner and other important people in your life who you truly wish to benefit.
Your Wills can also be utilised to maximise the available Inheritance Tax (IHT) exemptions and allowances efficiently. Every individual has a Nil Rate Band (NRB) allowance of £325,000 and as long as your estate is within the allowance, it will be IHT exempt. Married couples have an additional spousal exemption if everything is left to the surviving spouse on first death and the entire estate will be tax-free. This means that the NRB will not be used up on first death and can be transferred to the surviving partner’s allowance upon their death.
Unmarried couples, on the other hand, do not enjoy the same exemptions so you will have to carefully consider your estate plan to ensure that your tax planning if efficient. Something worth considering to minimise your tax liability would be to leave your property to your children instead of your partners, as they may benefit from the Residence NRB allowance of £175,000.
It goes without saying that estate planning is essential for unmarried couples, especially if you have kids in order to protect their future. To guarantee that your minor children are looked after by someone you trust and to also prevent any legal disputes among family members in the event of your untimely death, it is crucial to appoint a guardian in your Wills. Furthermore, establishing a trust can cover your children’s financial requirements, including medical or educational fees.
It is crucial that couples have an honest conversation about who they want to appoint as their Executors and guardians for their young children. You want to be confident that they are trustworthy individuals who will make the right choices and support your loved ones throughout the extremely difficult period of your death.
Lasting Power of Attorney
Unmarried couples may additionally consider Lasting Powers of Attorney (LPA). In the event that you are unable to manage your own financial and medical affairs, a Power of Attorney gives someone else, usually your partner, the authority to do so. Establishing an LPA guarantees that your significant other can continue to manage your joint assets and make important decisions regarding your health if you are not married.
There are two types of LPAs that you can make: Health and Welfare LPA and Property and Financial Affairs LPA.
When you lose mental capacity, a Health and Welfare LPA gives your Attorney the authority to make decisions on your behalf. The ability to consent or refuse life sustaining treatment on your behalf is the most significant decision that your Attorney can make with this LPA. Without a doubt, it is crucial to discuss with your partner and family members what medical treatments you would want them to consent to and whether or not you would want to be resuscitated as this can help them make the right decisions.
The Property and Finance LPA allows your Attorney to deal with things like selling your house and using your investments and bank accounts to pay off debts or cover medical expenses. This guarantees that your partner can effectively manage and protect your individual and joint resources.
Financial Planning
An estate plan can also help you and your partner plan for your joint financial security by covering matters such as joint investments, pensions and life insurance. During unforeseen circumstances, this can be a vital lifeline.
A great deal of unmarried couples opt to maintain their financial independence by owning individual investments rather than joint investments. While it is reasonable, and sometimes even preferable to own individual investments, you and your partner should strive for transparency when planning your estate.
It could make sense in some circumstances to gift your partner some assets. This can help to maximise various tax advantages, including capital gains exemptions and personal savings allowances, in addition to utilising the NRBs for both partners.
Final thoughts
It is impossible to always account for unforeseen circumstances in a relationship. Anyone who wishes to safeguard their assets and ensure their loved ones are taken care of after their death should consider estate planning, as it is not only limited to married couples. Having an extensive and effective estate plan in place guarantees that your wishes will be respected and your loved ones, including your unmarried partner are taken care of.
Blake Morgan’s Succession & Tax team is made up of experts with a wealth of estate planning knowledge who are able to help you navigate the process by providing legal advice relevant to your personal circumstances, and preparing your Wills and LPAs.
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