A simple, jargon-busting guide to Estate Planning

By May 27, 2019Financial Planning

Power of Attorney. Executors. Wills and Probate. Words and phrases like these can be confusing when you’re trying to make arrangements for your property and possessions.

Or perhaps you are having to help deal with the wealth of a family member who has passed on and find yourself facing this complicated language.

Regardless, it is often helpful to have a short, accessible guide which gives you the essential definitions you need to start navigating your way through it all.

We have compiled a list of some of the most commonly queried words and jargon when it comes to Estate Planning.

The list below is not in alphabetical order but we have instead tried to follow a logical progression so that the definitions “build” on one another. If you are looking for a particular phrase, then you can look for it by typing CTRL + F (on Windows) or Cmd + F (on the Mac).

We hope you find this resource helpful, and if you need any assistance then please get in touch:

Beneficiary

Someone who has been left something in the Will of the person who has passed on.

If there is no Will, then the property and possessions of the deceased will still likely pass on to a beneficiary or beneficiaries, but under a different set of rules (see Intestacy, below).

Estate

The deceased’s property and possessions are typically referred to as the “Estate”, and usually include things like the family home, car(s), investments and personal items (e.g. jewellery).

The “value” of the Estate refers to how much all of this is worth, and it is important to determine for the purposes of Inheritance Tax. Some things are not necessarily included when adding up the value of the Estate, such as pensions.

Inheritance tax

Sometimes shortened to IHT, Inheritance Tax refers to the amount that must be paid to the Government out of the Estate when it is passed on to the beneficiaries.

In 2019-20, IHT is set at 40% on the value of the Estate after £325,000. This threshold is sometimes referred to as the Nil Rate Band (NRB).

Note, however, that IHT can get quite complicated and it is not always straightforward what should be paid, so you should seriously consider speaking to a financial planner well ahead of time.

For instance, in 2019-20 there is a rule called the Additional Nil Rate Band (ANRB) which allows you to pass on an extra £150,000 of your home’s value to a direct descendant, on top of the £325,000 NRB.

Will

A legal document which stipulates how, when and to whom you want to distribute your Estate.

Codicil

Another legal document which amends and “updates” your Will.

Intestacy

This refers to the set of rules which govern how an Estate will be dealt with, and distributed, in the event that someone dies and leaves an estate without a Will.

Quite often, this results in your wealth going to people and places that do not comply with your wishes, so you should make sure to prepare a Will. It is never too early.

Executor

This refers to someone, or a group of people, who are appointed to sort out the Estate in line with the deceased’s Will. Executors could include an appointed professional or company, trusted friends or family members.

Lasting Power of Attorney

Sometimes shortened to LPA, Lasting Power of Attorney refers to a special legal document. This allows you to specify a particular person (i.e. the “attorney”) to make decisions about how to handle your property and finances in the event that you want to relinquish those decisions, or in the event where you are no longer able to make decisions about your Estate due to mental capacity. You can also prepare a Health and Welfare LPA, giving an attorney the ability to deal with decisions affecting your medical or care needs, should you lose the mental capacity to do so.

Domicile

This usually refers to your country of birth, although in rarer cases, the deceased’s domicile might be in another country. This will be determined after the person has died, and it can have a big impact on the amount of Inheritance Tax due.

Probate

This refers to an official process, which finds out whether the deceased has left a legally-valid Will, and if so, who the Executors are. Once this is determined, this process should hand authority to the Executors to start sorting through the Estate.

Residue

This refers to what remains of an Estate after all debts, expenses and taxes (etc.) have been paid.

Trust

In some cases, a deceased person might have left some of their wealth or possessions in a “Trust”, a legal arrangement whereby a group of people manage the assets.

Trusts are set up for a number of reasons. Sometimes they can be used to reduce Inheritance Tax liability, and many people like to use them to pass on an Inheritance to their children or grandchildren at a later date and under particular circumstances.

Trustee

A trustee is one of the officially-recognised individuals who manage a particular Trust.

Guardian

Someone who is legally responsible for another person who is aged under 18 years old.

Dependent

Someone who is financially dependent on someone else, such as a child or sick relative.

Bequest

A gift which is left to a beneficiary in a Will. This is not normally land or property, but usually takes the form of personal items or cash.

Chattels

An old-fashioned, legal word referring to physical items which belong to you such as jewellery, cars and furniture. Similar to “Bequest” (above) it does not usually encompass any property or land, but it also excludes various non-physical assets such as bank accounts.