If COVID-19 has taught us anything, it is the importance of being prepared for any eventuality. At the present time, many individuals are understandably worried about their business, property, savings, and personal assets. Having worked incredibly hard during your lifetime to build up your estate, it is entirely reasonable to worry about what Coronavirus may mean for you and your loved ones. The important point to remember through all of this is that you can put in place measures to protect your estate at any time, assuming you have the capacity to do so. The peace of mind afforded by making even small steps towards effective estate planning cannot be underestimated. Remember too, specialists in estate planning law are here to help and guide you through the process of working out a suitable strategy and then putting it in place without delay. In this article, we will explain just three of the estate planning mechanisms you should consider and implement to mitigate the potential effects of Coronavirus.
Create a Continuing and/or Welfare Power of Attorney
Given the serious health risks posed by COVID-19, it is vital that we all have a Power of Attorney nominated and ready to take over decision making when we most need it. Unfortunately, too many people do not draw up an Power of Attorney (POA) due to the common misconception that our partner, whether through marriage, cohabitation, or civil partnership, can make choices for us if we are unable to. Unfortunately, this is often not the case.
A POA can be put in place for your property and financial affairs (referred to as a 'Continuing attorney'), and your health and care (referred to as a 'Welfare attorney'). A Continuing POA can ensure your bills are paid, banking is managed, property and other assets are sold according to your wishes, business decisions are made, and services are sought on your behalf. Welfare POAs may cover matters such as the medical care you receive (e.g. treatments and medications), where you will live, your activities of daily living, and even what you eat.
Even a short period of illness or time spent in hospital may mean that it is impossible to make decisions regarding your health and care, business, and finances. It may be that you can't make effective decisions because you are physically incapacitated or start to lack sufficient mental capacity, or you may decide that you would simply prefer to defer matters to your nominated attorney for a limited time or permanently.
Always remember, when drawing up your POA, you are fully in control. The powers that you give to your attorney can be limited if necessary. In addition, you can define one or more (you can nominate as many as you like, but it is common to name no more than four individuals), which means you have peace of mind that someone you trust will be making the best possible choices for you when you need them most.
In the current context of COVID-19, it is also important to ensure that your nominated attorney is ready and prepared to take action when you need them to. For Continuing attorneys, they will need to have a clear picture of your financial affairs, including the assets in your estate, any liabilities, and regular outgoings and expenditure. Without this information, they cannot carry out their duties. A Solicitor will be able to help ensure such factors are considered, and a suitable plan of action is put in place.
Succession planning for your family business
Business succession planning ensures that a long-term strategy is put in place for your business for when you are no longer involved. If your choice is for your business is to be passed down to future generations within your family, succession planning will allow future stakeholders to 'learn the ropes' and gradually take increasing amounts of responsibility. While we may not want to think of such an eventuality, where before COVID-19 we expected to have years to transition a business to a family member, the speed at which the virus can take hold may mean this opportunity is taken away. It is vital, therefore, that you agree now who will take over your business interests and that they have the resources and legal mechanisms in place for them to take over at a moment’s notice. This may involve making sure they are registered as a director, they have access to the business bank account, other stakeholders are aware of the succession plan, training is put in place where necessary, they have the support and guidance they need, processes and procedures are documented and, critically, other family members are aware and supportive of the arrangement.
Gifting and tax planning
Gifting property during an economic downturn provides certain advantages. When the pound's value has fallen, and share and property prices are low, transfers at this time can lead to savings in Capital Gains Tax and Inheritance Tax.
Gifts can attract Capital Gains Tax (CGT). The current rates of CGT for higher rate taxpayers are 28% on gains from residential property, and 20% on gains on everything else. The current CGT tax-free annual allowance is £12,300. Given that the market value of many assets could reach historic lows, it may be possible to make gifts whilst attracting little or no CGT.
Regarding Inheritance Tax, any gifts you make may be subject to the tax if you die within seven years of parting with the asset or property. However, Inheritance Tax applies to the value of the asset or property at the time the gift is made, not at the time of death. Therefore, if you make a gift of property at a time when house and land values have bottomed out, any Inheritance Tax owed will be on today's value, not what it would be worth in a few years' time when a recovery is likely to have occurred.
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