Estate Planning: How Has COVID-19 Changed Our Outlook on Life?
2020 — The Year the World Went on Hold
At the beginning of the COVID-19 pandemic, we all hoped that there would be a short interruption to our everyday life and then we would very soon be back enjoying our lives as we always had. However, over months of lockdowns, tiers and a multitude of restrictions, we soon realised that things might never go back entirely as they were before.
In recent weeks, we have started to see some optimism that our lives can start to get back to the “new normal” we hear a lot about. Like many of us, this has caused me to reflect on ways in which, over the past few months, we might have permanently changed our collective mindset.
Since the new year of 2021, we have begun to see the impact that the COVID-19 pandemic has had on our approach to estate planning.
How has COVID-19 affected our attitude to estate planning?
It has been heartbreaking to hear the number of people whose lives have been affected by COVID-19, either because they have been ill with the virus or they have lost a dear friend or relative. This has led to a lot of soul searching from all of us. We have all begun to realise that life isn’t a guarantee, and over this last year, I have seen clients suffer the consequences of a sudden loss when estate planning had not been considered. Other clients turned their minds to their own futures and what would happen to their assets if they were to pass away suddenly.
The most common questions I ask in conversations with my clients are:
- Have you made a will, and is it up to date?
- Do you have lasting powers of attorney in place if you become incapacitated by illness or accident?
- Could anyone access your online accounts if you were no longer around? Where are those passwords kept?
- Would there be inheritance tax to pay on your estate? If so, what can be done to reduce or eliminate this?
A recent client, a couple in their mid-70s, were concerned that a large chunk of their estate would be lost to inheritance tax. We used a series of actions to reduce the tax burden, including:
- Changing the will to replace an unnecessary and tax-inefficient will trust.
- Assigning a bond to a daughter-in-law with low income.
- Making a lifetime gift of cash held in bank accounts that wasn’t required to boost the couple’s income.
- Taking out life insurance to cover the inheritance tax liability that remained.
The net result of the planning reduced the combined estate from £2.7 million to £2 million and the resulting tax liability from £820k to £400k. So by removing £700k capital value from the estate, the couple will save £420k in tax! Needless to say, this made the clients very happy.
I’ve had some really interesting conversations where people are thinking not only of their own affairs but of those around them, like elderly parents, grandparents, aunts or uncles. The truth is that there is much that can be done to lessen the burden on your loved ones when you pass. This could be showing clear intentions of where your assets should pass in a will, allowing easy access to your online accounts or reducing or wiping out any inheritance tax liability as demonstrated above. All of these areas can be tackled in a straightforward way and at an affordable cost