Taking the time to properly plan your estate involves balancing the goals of ensuring you have sufficient funds to live on, as well as organising your finances so your assets are protected for your loved ones when you are not around anymore.
Obtaining a comprehensive view of your assets is a good place to start; this will enable you to properly value your estate, whilst checking you have the right documentation in place.
Dot the i’s and cross the t’s
Detailing your wishes about how you want your estate managed upon your death, once you’ve valued your estate, will ensure that when the person looking after your estate applies for probate, they will know exactly what your wishes were. Having a valid Will in place and setting up trusts to manage money or other assets on behalf of beneficiaries are vital components of successful estate planning. Different trusts provide an alternative to direct inheritance or transfer of certain parts of an estate, giving you control over who receives what and when. Lasting Powers of Attorney (LPA), covering ‘property and financial affairs’ and ‘health and welfare’ are worth establishing sooner rather than later.
Reducing your IHT liability
With careful planning, the amount of Inheritance Tax (IHT) payable on your death can be reduced, enabling assets to pass to your family or other beneficiaries as intended. The current IHT nil-rate threshold is £325,000 for individuals and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. Beyond these thresholds, IHT is usually payable at a rate of 40%.
A main residence nil-rate band applies if you want to pass your main residence to a direct descendant; certain forms of trust may mean disqualification, so take expert advice. This allowance is currently £175,000; when added to the existing threshold of £325,000 this could give rise to an overall IHT allowance of £500,000 for individuals, or £1m for those who are married or in civil partnerships. Larger estates will find that residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m.
A relatively straightforward way of passing money on during your lifetime, is gifting from surplus income. Conditions apply, and advice would be needed to ensure that the gifts are made in the right way.
Advice you can trust
To ensure your money ends up with the people you want, for the reasons you choose – we can help, so you pass on assets in the most effective, tax-efficient way.
The value of investments and income from them may go down. You may not get back the original amount invested.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.