Wedding season is upon us! Estate planning may not be as exciting as choosing the perfect wedding venue or tasting cake samples, but it should be on the agenda for all couples who are entering into a marriage or civil partnership as you think beyond the big day and into your future lives together.
The below is a helpful estate planning checklist for couples who are getting married or entering into a civil partnership.
1. Till death do us part: wills, death/pension benefits and life policies
It is often assumed that your spouse or civil partner will automatically inherit your estate on death but that may not be the case depending on your circumstances. It is vital to have a will in place which directs how your estate should be distributed on death and who should be responsible for administering your estate. If you die without a will, the law will dictate how your estate is to be divided and what your spouse or civil partner is entitled to receive, which may not align with your wishes. Scotland has a unique form of forced heirship provisions that apply to spouses/civil partners and children which you should take advice on when drafting your will after getting married, particularly if you have children from a previous relationship and you wish to protect their inheritance. If you already have a will in place, ensure that you review it after getting married or entering into a civil partnership as marriage does not revoke an existing will in Scotland (unlike in some other jurisdictions).
You should also ensure that your nomination forms for life insurance policies, pensions and death in service benefits are up to date and reflect your current wishes.
2. In sickness and in health: powers of attorney
Another common misconception is that your spouse or civil partner would automatically have the right to deal with your affairs and make decisions on your behalf should you be unable to do so yourself, such as due to an accident or illness – but a power of attorney is required. A power of attorney gives those you trust the authority to be able to act on your behalf in the event that you lose capacity. Everyone should have a power of attorney regardless of age and circumstances as we never know what lies ahead. If you were to lose capacity without a POA in place, your family may need to apply to the court for a guardianship order which is often a lengthy and expensive process.
3. For richer for poorer: inheritance tax ('IHT') planning
An added bonus of getting married or entering into a civil partnership is the generous IHT relief available to married couples or civil partners. Everyone has a nil rate band of £325,000 which they can pass on free of IHT on their death. The value in excess of that threshold is taxed at 40% (subject to other reliefs and exemptions being available). You can however leave assets of an unlimited value to your surviving spouse or civil partner IHT free. When the second spouse or civil partner dies, you can utilise both allowances, meaning married couples can leave £650,000 IHT free. In addition, if you leave your home to your children (or remoter descendants) you each get an additional allowance up to a maximum value of £175,000 known as the residence nil rate band. This means that married couples or civil partners can pass on £1million IHT free. It is important that your estate planning is structured in a way that will maximise the benefit of this exemption.
4. What's mine is yours (or is it?): Asset protection
Admittedly not the most romantic of conversations, but a very important one to have prior to tying the knot, is how financial matters will be dealt with in the relationship. Married couples or civil partners have greater legal rights than unmarried couples in the event of a relationship breakdown. A prenuptial agreement can be prepared which regulates how financial matters will be dealt with in the event of separation in the future. This can provide that that the assets held by each of the spouses prior to the marriage will not form part of the matrimonial 'pot' to be divided on divorce. If the marriage has already taken place, a postnuptial agreement can be prepared or a trust could be used instead to protect specific assets if an agreement cannot be reached. This is a particularly important consideration where one spouse may be lined up to inherit their family business, for example, or if there are children from a previous relationship who you wish to protect assets for.
As you plan for your big day, don't overlook the importance of planning for your future together. Taking the time now to get estate planning in order can provide peace of mind and protect you and your loved ones in the years to come. For more information on these services, please get in touch with our wills and estate planning experts. For information on pre or post nuptial agreements, please get in touch with our family law experts.
