Estate planning in Scotland is a complex but crucial affair that will allow you to pass on exactly what you want to your loved ones. To make sure that happens, though, you need to avoid some very common pitfalls. Here are the key considerations to keep in mind.
1: Not understanding the importance of a will
One of the biggest and simplest mistakes someone can make when planning their estate is failing to make a will, which they do because they don’t understand the importance of having one.
In Scotland, if you don’t have a will, your estate – all your money, assets, property, etc – will be distributed according to intestacy laws. This could mean that your estate won’t align with your wishes if you don’t have a will, as your assets could be divided among relatives in a manner you wouldn’t have chosen. For example, if you’re cohabiting but not married, your partner may not receive anything unless you’ve specified them in your will.
2: Not updating your will
The beginning of any estate plan should be creating a will – but these documents can become outdated and fail to reflect your wishes when circumstances change or after major life events such as births, deaths, marriages, and divorces.
Therefore, you should arrange and conduct regular reviews of your will, ideally annually or after significant life changes, to ensure that it remains up-to-date and reflects your current wishes.
3. Not considering all assets
When planning your estate, it’s easy to focus on large, tangible assets like property and savings accounts. However, other assets such as investments, pensions, family heirlooms, digital assets, and insurance policies also require attention.
Be sure to evaluate all your assets comprehensively and discuss them with an estate planner to ensure they’re appropriately accounted for in your estate planning.
4. Ignoring or misunderstanding tax implications
In the 2020/21 tax year, less than 4% of estates paid inheritance tax. Figures like these may cause some Scottish taxpayers to think that they don’t need to worry about inheritance tax, but nobody should blindly make that assumption.
In Scotland, the threshold for inheritance tax is £325,000, meaning estates valued above this amount may incur tax. There’s a separate threshold for property, which protects the first £175,000 of its value from inheritance tax. You should, therefore, work to reduce your estate’s value to reduce your tax bill as much as possible.
You can do this by giving gifts – they may still be taxed if you pass away within seven years after the gift is made.
5. Neglecting to appoint an executor
Choosing an executor is a critical step in your estate planning. This person will be responsible for carrying out your wishes, so it’s important to select someone you trust and who understands your intentions. They could be someone close to you or a professional who offers executor services.
Neglecting to appoint an executor or choosing someone who may not be up to the task can complicate the administration of your estate. Ensure your chosen executor is willing to take on this responsibility and understands the legal obligations involved.
7. Neglecting to consult with estate advisers
One of the most critical missteps in estate planning is failing to seek professional advice. While you may feel confident managing your own affairs, the complexities of estates law require expertise that only seasoned estate advisers can provide.
We’re estate planners ourselves, and we can help you navigate nuances like trusts, taxes, and wills to ensure that your estate plan aligns with your wishes and complies with current regulations. We’ll also help you and your heirs save considerable time and stress in the long run.
Key takeaways
Estate planning in Scotland requires careful thought and regular reviews to ensure your wishes are fulfilled. Here are the main points to remember:
- Make a will: Without a will, your estate may be distributed according to intestacy laws, which may not align with your wishes.
- Keep your will updated: Life changes such as marriages, births, or deaths can impact your estate. Regularly review and update your will to reflect your current circumstances.
- Consider all assets: Don’t overlook intangible or less obvious assets like pensions, digital assets, or family heirlooms. A comprehensive approach is crucial.
- Understand inheritance tax: Estates over £325,000 may incur tax, so explore ways to reduce this through careful planning, including gifts.
- Appoint an executor: Ensure your chosen executor is trustworthy, capable, and fully understands the legal responsibilities involved.
- Seek professional advice: Navigating estates law and tax can be complex. Professional guidance ensures your estate plan is compliant and reduces future stress for your heirs.
By addressing these key areas, you can avoid common pitfalls and ensure your estate is distributed exactly as you intend.
We’re here to help. Talk to us about estate planning in Scotland.