You may have already given extensive thought towards your estate planning. Indeed, you may have reviewed your potential Inheritance Tax (IHT) liability, registered a Lasting Power of Attorney (LPA), and carefully considered who will inherit what.
While this is all well and good, you may have overlooked the benefits of speaking openly with your beneficiaries about your plans and the risks of not doing so.
Having open and honest conversations with your next of kin can be one of the most straightforward ways to reduce the possibility of future disputes and ensure a seamless transfer of wealth.
Continue reading to discover the true value of open communication in estate planning.
Talking about estate planning could potentially prevent disputes later down the line
Speaking about your passing is rarely easy, and discussing how you will distribute your assets can seem uncomfortable.
Yet, shying away from this vital conversation could end up causing more distress for your loved ones later down the line.
In fact, research from Canada Life shows that 24% of survey respondents believe that future disputes are likely due to a lack of open conversations about an inheritance.
Moreover, a study published by the Guardian found that as many as 10,000 people in England and Wales contest wills each year. In 2021/22 alone, individuals brought 195 inheritance disputes before judges, a rise from 145 in 2017.
Discussing your estate plans now can give your loved ones the opportunity to understand your decisions and ask any questions they may have.
This could be practical if some of your choices seem unexpected – for instance, if you plan to divide assets unequally between children.
Families with more complex dynamics may be particularly at risk. If you have a blended family – that is, if you or your partner have children from previous relationships or have remarried – your spouse may inherit the majority of your estate unless specified.
In this instance, if you intended to leave a share to your children from a previous relationship, they may miss out on an inheritance altogether, which is known as “sideways inheritance”.
You could make your reasoning clear with an honest conversation with both your new spouse and any other children in the relationship, helping to prevent misunderstandings while offering clarity around your intentions.
You may be able to understand your beneficiaries’ needs and temper their expectations
Understanding what your beneficiaries might need, as well as what they expect, is valuable, and a conversation could reveal some preferences that you hadn’t previously considered.
Some beneficiaries may plan to use an inheritance for a specific purpose, such as purchasing a home or supporting a child through higher education.
Others might instead benefit from support later in life. If that is the case, you could decide to gift during your lifetime, allowing you to witness the benefits of your generosity while reducing the overall value of your estate.
Moreover, these honest conversations could temper unrealistic expectations. For example, if a beneficiary is relying on an inheritance to fund their retirement or pay off debt, it’s essential they understand precisely what you’re intending to leave behind.
Doing so could help prevent disappointment, or even resentment, and ensure they don’t make any significant financial decisions based on assumptions that might never materialise.
A discussion might maximise the efficiency of your legacy
It’s important to remember that there isn’t a “one-size-fits-all” approach to distributing your assets. Comprehensive estate planning can encompass several different options that could help you structure your legacy in a way that meets your loved ones’ needs.
For instance, you could set up a trust, a legal arrangement that allows you to retain some control over how and when your beneficiaries receive their inheritance.
You could stipulate that a child or grandchild only receives funds when they reach a certain age, after they complete their higher education, or purchase their first home.
Doing so could be practical if you’re concerned about their financial responsibility or if your family has complex needs.
If you don’t communicate this decision with them, however, you could simply cause confusion in the future as your beneficiary won’t understand why their inheritance has been delayed.
Additionally, it’s also prudent to speak with those who will play their part in administering your estate, such as your executors and trustees.
These people will hold significant responsibility when you pass away, so it’s vital they understand their duties and are adequately prepared.
You could even reduce stress at an already difficult time by giving them the chance to ask questions and clarify their expectations.
A financial planner can play a key role in estate conversations
As mentioned, a conversation regarding your estate and mortality can be difficult to broach, especially if you believe it will result in tension.
This is where professional guidance can be particularly helpful.
A financial planner from Barwells Wealth could act as a neutral third party, helping to guide conversations and ensure they remain constructive and productive.
Our team of independent financial advisers in Lewes could also offer comprehensive insight into the implications of any decisions you make while answering any technical questions from your loved ones.
For example, if you’ve chosen to leave certain assets in trusts or make gifts during your lifetime, we can explain how this might affect the long-term financial wellbeing of your family.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.
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