What are the benefits of estate planning?
If you’ve spent a lifetime prudently investing, building up a business, own a property or simply have a nest-egg, you need to consider what happens to those assets after you die. One of the key benefits of estate planning is that it helps you to control exactly what happens. Consider where you want the money to go and who you trust to take care of it. By planning ahead, you can ensure continuity, you can make sure your affairs are handled smoothly, and you can reduce the stress and burden on your loved ones.
Ultimately, you might have a number of goals for your finances, and estate planning lets you achieve them all. Do you want to split it evenly between your children? Your significant other? Your siblings? Do you want to make sure there’s something there for your grandchildren? All of this and more is part of the intergenerational planning picture, so grab yourself an appointment with an estate planning consultant so you can talk about how best to meet your needs.
When should I transfer my wealth?
Many people transfer their wealth upon their death, via their will. But that’s not the only option in play. It may be that you have more money in retirement than you anticipated, and you want your beneficiaries to benefit from that. There can be benefits to transferring a portion of your wealth while you are still alive, and a qualified estate planning solicitor or inheritance tax law professional can walk you through these.
What are the thresholds for inheritance?
It may change with time, but currently the standard threshold for inheritance tax sits at £325,000. Below that threshold, no tax is payable by your beneficiaries. They will be taxed for every pound above that threshold. This being tax law, it’s not all that simple, however.
There are also exemptions for civil partners and spouses, the additional transferable allowance, the nil rate band for property and taper relief. You can see why it’s essential to have an inheritance tax solicitor on speed dial.
What is the inheritance tax 7 year rule?
If you wish to donate some or all of your estate while you’re still alive, the seven year rule comes into play. Put simply, if you make gifts from your estate, and you personally live for seven years after making them, no inheritance is due on them. And that’s whether they’re property, land, stocks and shares, money or personal items. But, you knew there was a but right? If you continue to benefit from the gift - for example gifting your home to a relative but continuing to live there - then different rules apply.
You can read up about this here, it’s definitely worth getting some advice from an inheritance tax professional in this area. After all, you wouldn’t want to leave your nearest and dearest with a nasty tax bill instead of a house.
What is Taper Relief?
When thinking about gifts it’s worth understanding taper relief as well. Taper relief is a sliding scale that decides how much inheritance tax is paid if you die before seven years are up. If you pass away within the first three years, full tax is due. Beyond that, the tax payable declines until it reaches 0% after seven years.
IHT Taper Relief Calculator
Years between gift and death:
0-3 years = 40 % IHT payable on gift
3-4 years = 32% IHT payable on gift
4-5 years = 24% IHT payable on gift
5-6 years = 16% IHT payable on gift
6-7 years = 8% IHT payable on gift
7 or more = 0% IHT payable on gift
Should I set up a trust?
It may be that a trust is a sensible thing to arrange if you want to leave some of your estate to beneficiaries who aren’t able to manage the assets - notably children under 18. By leaving part of your estate in trust, you can ring-fence some money for your own younger children, or for your grandchildren, with them coming into it at a set age.
Again, seek out expert advice on setting up trusts, as they come in various shapes and sizes. For example, you may want a simple one that bequeaths money at a certain age - a ‘bare trust’ - or you might want to set up a ‘discretionary trust’ that pays a regular income and may have conditions for the beneficiaries.
Do I need to make a will as well?
Yes. A will is really the clearest way you can make your intentions known. It’s a chance for you to set in stone what you want to happen to your estate. It can encompass your money, your property, but also items that have emotional value. You can also consider bequests to other individuals and charities outside of the family circle.
What’s the best approach to a will? A solicitor-drafted one that leaves no room for misinterpretation. You don’t want your children or loved ones to end up in dispute over who gets what because of a lack of clarity. You’ve seen Succession, right? Wills can also be updated over time, to reflect changes in circumstance such as new marriages, so make sure those who stand to inherit something - and your solicitor and executor - know which is the latest version.
