Estate planning can be a difficult subject to think about, and can often be overlooked. But most of the decisions are relevant to everyone, not just older people with large estates.

Here, we look at the main steps of the estate planning process and explain why they are important.

Consider Your Wishes
The first step in the estate planning process is knowing what you would like to achieve. For some people, it’s simply a matter of avoiding the intestacy rules and making sure your loved ones receive their inheritance without delay. For others, the situation is much more complex.

Before you get started, consider the following:

• Who would you like to make important decisions for you when you are no longer able to? Are they prepared to take on this responsibility?
• Who would you like to benefit from your estate? You can make specific gifts as well as allocating a proportion of your assets.
• Do you have an Inheritance Tax (CAT) liability and is it important to you to reduce this?
• How much access do you need to your capital during your lifetime?
• Are there any charities or good causes you would like to support?
• If you have a business, do you plan to sell it or pass it on to the next generation?

Once you have clarity over your wishes, the next steps will be easier.

Make a Will
Making a will is a key part of your estate plan. This is a legal document confirming:

• Executors – the people you would like to administer your estate.
• Beneficiaries – who should receive a share of your estate. These may be individuals, trusts, or other organisations such as charities.
• Your wishes – how your assets should be divided.

To be legally valid, your will must be made in writing, signed by you, and witnessed (in your presence) by two other people. The witnesses (or their spouses) should not be beneficiaries.

Making a will is straightforward and inexpensive. Wills can also be changed easily, so it’s worth making a will even if you think your wishes might change.

Set up Powers of Attorney
A power of attorney allows you to nominate someone to make decisions for you if you are not able to make them yourself. This may be due to mental or physical incapacity, or if you are out of the country for a period.

Powers of attorney can cover two areas:

• Health and welfare – this covers medical treatment, long-term care, and end of life decisions.
• Property and financial affairs – this relates to managing assets and paying bills.

You don’t have to nominate the same attorney in both areas, although many people choose to.

If you don’t have a power of attorney in place, someone will be nominated by the Court, and this may not be who you would choose. The whole process is likely to take much longer.

A general power of attorney is valid only while the donor has capacity and can be used for a specific period or purpose. An enduring power of attorney, on the other hand, continues to be valid even if the donor loses capacity.

Arrange Life Insurance
Depending on your circumstances, you may wish to arrange life insurance to pay out a lump sum if you die. This is a good idea if:

• You have a mortgage or other debts that will need to be cleared.
• You have a family who are financially dependent on you.
• You have an inheritance tax liability (CAT) and wish to arrange a lump sum to pay the tax.

Make Lifetime Gifts
If you are already financially secure, you might want to think about making some gifts during your lifetime. Not only is this efficient from an estate planning point of view, but it also means you can see your loved ones benefit from the money.

You can gift up to €3,000 per tax year which is immediately outside your estate. Other exemptions are available, for example; gifts from regular income and all donations to charity.

Think About Trusts
A trust is a method of ringfencing money (or other assets) for your beneficiaries without giving up full control. Trusts can be:

• Bare/Absolute – beneficiaries, and their share of the trust assets are decided at outset and cannot be changed. This is treated in the same way as an outright gift for tax purposes.
• Discretionary – trustees have discretion over who benefits and when. This offers a great deal more flexibility, and can protect the assets if, for example, one of the beneficiaries gets divorced or is declared bankrupt. However, discretionary trusts can have additional tax consequences, such as entry, exit, and periodic tax charges, as well as paying higher rates of income and capital gains tax than most individuals.

To be effective for inheritance planning, you (as the settlor of the trust) cannot benefit from the trust’s assets. There are some exceptions to this, for example, a discounted gift trust can provide you with a regular income. Trusts are a complex area and advice is recommended.

Make a Plan for Your Pensions
As pensions are primarily for retirement planning, many people forget about them when it comes to their estate.

If your pension fund is in an approved retirement fund (ARF) it can pass after your death to your spouse or civil partner and become an ARF in their name. As a spouse or civil partner, they won’t pay any inheritance tax on the transfer, but will be liable to income tax on any money they withdraw from the fund.

Your ARF may also be passed on to your children. Children over the age of 21 will pay income tax but not capital acquisitions tax (CAT), and the inheritance of the ARF won’t affect their inheritance tax threshold.

Estate planning can be complex, particularly if you have a large estate and a substantial IHT liability. It’s a good idea to seek advice so that more of your estate can go to the people who are important to you.