Death is a difficult subject for every family in the UK – but it is an unfortunate fact of life. More than half a million UK citizens die each year on average – yet many of us are still in the dark on the processes by which we manage our estates ahead of our death – and many do not know the difference between estate planning and writing a will. So what is the difference between will and estate planning, and how do they work?
What is a Will?
A will is a legal document you draw up with the help of a solicitor. It documents the assets and funds that make up your estate, including property, money in savings accounts, business assets, and physical belongings from heirlooms to furniture. The will designates how these assets and funds are disbursed: who they are to be given to, under what conditions and in what manner. The will also covers any arrangements you wish to be made regarding the care of children you might be leaving behind, or other dependents to whom you were a legal guardian.
What is Estate Planning?
Estate planning is a much broader, more complex process, which covers the general management of your estate – again, your collected property, assets and funds. Through estate planning, you will draw up a complete picture of your estate, including every asset and every debt. You might make arrangements for your own funeral to remove the burden from your immediate family; you might also create a plan for distributing any inheritances ahead of your death, in order to avoid the sting of inheritance tax on the disbursement of your estate.
How is Estate Planning Different from Drafting a Will?
Estate planning is a holistic process with several stages, which concerns the management of your estate in advance of, as well as following, your demise. This planning encompasses a wide range of things, including the writing of your will. The most important thing an estate plan provides is a framework for distributing your wealth without incurring a large inheritance tax bill, which can significantly reduce the amount of money your loved ones receive after your death. The inheritance tax rate starts at 40% on any value above a £325,000, with caveats for certain estate actions such as charity. By managing the disbursement of funds below a yearly exemption threshold of £3,000, and of any amount outside of 7 years prior to your death, you can minimise this tax bill and ensure your family get as much as they can from your estate.
Writing a will is part and parcel of the estate planning process, but has a more specific aim: the designation of executors to your will, and the dispersal of your effects to named beneficiaries after your death. Your will does not necessarily encompass funeral planning you have already made, being separate arrangements made as part of your larger estate plan; it will, however, include personal wishes as to the use of your estate.