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If you are like many people Estate Planning is one of the most important things you will do as you approach later life. In this article we want to help you get things right and explain in some detail; inheritance tax and estate planning.
We will endeavour to explain why estate planning is important and show you how to get professional help with your estate planning.
Maybe you are already familiar with the legal aspects of making your will just need some straightforward advice? Or maybe you are a high net worth individual and have concerns about protecting your wealth from inheritance tax? In any event, we are here to listen and help guide you toward the best solution for your individual needs.
Many people who are approaching later life are concerned about the impact inheritance tax may have on their families and loved ones. It is a very real and important issue but not one that makes for a great dinner conversation.
Estate planning provides a secure and reliable way to prepare your financial affairs to ensure that your assets are protected for your loved ones once you’re gone.
In addition, estate planning also helps you to avoid or reduce the amount of inheritance tax your estate or benefactors will have to pay.
There are also several other benefits to estate planning and consideration of later life finance – such as arranging a will that is free from ambiguity and potential challenge being foremost among them. Providing for a clear understanding in your absence and outlining your wishes; making your funeral plans and finally providing a clear and comprehensive picture of your assets.
Here at Kaur Wills Bristol we are committed to providing friendly, sound, clear advice for individuals and their families who are considering their later life finance and the protection of your family wealth.
In this article, we have set out to explain how to prepare your financial affairs in order to achieve the best possible outcome for you and your family after you pass away. It is our aim to show you why estate planning and forward thinking are important as you approach your later stages in life.
To help you get a better understanding of inheritance tax (IHT), we have set out some inportant definitions as follows:
Inheritance tax threshold – Inheritance tax is a tax that is to be paid upon your death. It is calculated against the value of your remaining assets over the amount of £325,000 –including any property that you own, any valuable belongings and savings you may have.
Inheritance tax rate – This is the current rate of inheritance tax and it stands at 40%.
There are several concessions available to this rate, but it is important that you do not to count on those as they are often dependent on your situation, and the rules governing IHT, which can be subject to change with the budget.
You should plan for the future – Inheritance tax rates and rules can and probably will change over time. Each year more people become aware of IHT are looking to protect their assets against the impact of inheritance tax. Forward planning is enabling them to be in a position where they can leave more to loved ones when they pass away.
If your assets amount to £325,000 or more and you are concerned about how to protect property and finances such as savings and investments, organising estate planning as early as possible is essential.
Estate planning allows you to put together a clear plan that details your wishes regarding how you’d like your estate to be distributed in the event of your death.
This will ensure that when the executor of your will, looking after your estate applies for probate they will know what your wishes were.
This estate plan will be incredibly helpful for you loved ones, who can then arrange your affairs according to your wishes. Your estate plan also helps you to protect your family and any other beneficiaries from the impact of inheritance tax.
When provisions have not been made in advance inheritance tax can come as an unwelcome surprise for your family members. Fortunately, there are ways you can protect your assets. Provided you make the preparations far enough in advance for the possibility of having to pay inheritance tax, you may be able to mitigate or eliminate the IHT.
Without doubt, making an estate plan now offers you and your family complete peace of mind. The earlier you are able to start and make provisions for the future the better.
It’s never going to be pleasant to think about your death and how you will arrange your affairs after you’re gone. But it is crucial if you want to protect your assets from inheritance tax. You can never make a better plan from beyond the grave!
When you begin the process of estate planning early on you can be sure that your loved ones will be protected from inheritance tax. They will also have the freedom to carry out your wishes.
The process of making your will and estate plan can be broken down into four main sections. These will include:
1. Writing your will and making executors, family members and friends aware of it.
2. Making a complete and comprehensive list of your assets and any debts you may have. This list should include the property assets, any material assets and any savings or shares or business interests you will leave behind.
3. Planning and/or stating any cash gifts you plan to give to protect against inheritance tax.
4. Making the provisions for your funeral expenses and outlining your wishes so that family and friends can make the arrangements accordingly.
Making an estate plan is one of the best ways to avoid having to pay too much inheritance tax.
It may even help you to avoid paying inheritance tax altogether. This is possible because when you are able to review all your assets sufficiently early. You can outline your wishes, portion and divide the assets intelligently based on what is allowable under the legislation and current rates of tax. There are several main ways in which you can avoid paying inheritance tax:
Making gifts are one of the best and most efficient ways to avoid paying inheritance tax.
If you can afford to do so, distributing your money early on rather than waiting until after you pass and leaving sums in your will is very much a tax-efficient choice. This is because the overall amount of assets you leave behind (above £325,000) would otherwise be subject to inheritance tax. This is currently set at a rate of 40% – but it is possible that this could rise unexpectedly in the budget.
Under inland revenue rules, you are allowed to give cash gifts of up to £3,000 a year. So with a little forward planning you could give away a significant amount without having to pay any inheritance tax. If you choose to give away more than £3,000 per year the additional amount will be subject to capital gains tax.
There are certain types of gifts that are exempt from taxation altogether. These include gifts between spouses or civil partners, gifts to universities or charities and any gifts given over seven years before your death.
Traditionally trust funds are set up to ring-fence assets for children and young people who are not yet financially independent or in apposition to manage their own financial affairs.
But trusts are also a great way to reduce or avoid inheritance tax payments entirely. Trust funds are fully protected from any inheritance tax and can be set up at any time.
Trusts can be used to your benefit in a number of ways. Trusts can be set up to provide advance payments drip-fed to family members to allow them to receive their inheritance early. Trust funds also have tax benefits for those with life insurance policies, as they too provide a significant amount of tax relief.
Without having trust funds in place your life insurance pay out is added to your estate and will be taxed under IHT. When your life insurance is set up within a trust it can not be included in any inheritance tax calculation.
Live and spend within your means and enjoy your wealth. Yes it is important to be saving for necessary future expenses but allow yourself some spending on items and experiences you will enjoy.
You should not forget to factor in any necessary spending such as home improvements, mortgage payments and home maintenance. There may be other things you may need at some point in the future such as a new car.
Inheritance tax rules and regulations may vary depending on your personal situation. For instance, for married couples or those in a civil partnership the threshold can possibly increase to double that of an individual. That is currently £650,000 for a couple.
It is really important to write/make your will, even if you are young and don’t have any health issues because without one no-one can be know of your final wishes.
Being without a will also leaves your estate and assets open to taxation. It also opens up the potential of exploitation of your assets by relatives who may be entitled to take some or all of your assets against your wishes.
We are all time poor, and something like writing a will and making an estate plan may be low on your priorities. But taking the time to write a will provides you with an opportunity to consider what you’d like to happen to your assets once you pass away.
It also ensures that you nominate one or more executors to be in charge of carrying out your wishes. An executor can be a family member or friend. Some people select their solicitor to perform the duty of executor.
Death intestate.
If you die without making a will arranging your assets and affairs will become a very complicated matter for your family. This is known as dying intestate.
Intestacy rules really are incredibly complex. If a suitable beneficiary to your estate is not found, there is a risk that the government may be entitled to seize all of your property and assets upon your death.
Several factors will impact the outcome of this scenario including your marital status, next of kin, where you live in the UK and the value of your estate.
Writing your will is essential if you have determines and made clear how your assets are to be distributed after you pass away. You can leave property, money and personal items to named beneficiaries.
However it is important to be aware that without proper estate planning your relatives and assets may still be affected by inheritance tax. Any individual can be named as a benefactor in your will. They do not have to be related to you. You may also gift money or part of your estate to a charity that you wish to support.
Everyone’s financial and personal affairs are different. Some are quite simple and straightforward. Others are quite complex. You may need to take very specific estate planning advice depending on the complexity of your situation.
In many cases it is quite straightforward – but understanding the different options available to you and deciding which ones to choose can be a daunting and confusing task. Having an independant professional advisor to help and direct you can be really useful for this reason.
An estate planning specialist will conduct a thorough review of your assets and situation, taking into account any investments, business interests, property ownership or interests, pensions, business ownership, life insurance and savings.
This will enable them to construct an accurate picture of your financial status and determine the possible impact that inheritance tax may have on your estate. They will also help you to take into account your future financial needs and personal preferences for the end outcome of the estate plan.
An independent estate planner and financial advisor will then work with you to discover the most effective way to protect your assets against tax in order for you to be able to pass them on to those you love.
You should expect that they will put together a bespoke estate planning strategy that can include various trust funds, investment structures and policies to cover your assets completely and minimise or eliminate any inheritance tax liability.
It is important to remember that as legislation does change you will need to arrange regular reviews with your financial advisor to ensure that your plans are still up to date and can still deliver for you when needed.
You may be in great health now, but there is the possibility that you will need care later in life. It’s important to remember to consider the potential costs associated with your future care when estate planning.
If in the course of making your estate plan, you tie all your money up in trust funds or give it all away as gifts, you may find yourself without the funds to pay for your future care. There is a difficult balance to achieve between minimising tax and planning for care.
You should base your decision on realistic expectations, and assume that you may need some money set aside for care or additional support in the future.
If you have current health issues or have reason to believe that you are at risk from certain health conditions (cancer, Parkinson’s or Alzheimer’s for example). It would be prudent to get your finances in order now and make provision for future care needs, be that at home or in the form of nursing or residential care.
Depending upon your individual circumstances, making an estate plan can be quite simple and straightforward. Or your situation (personal or business) may be quite complex.
We, at Kaur Wills Bristol specialise in helping our clients make the most suitable estate plans that are tailored to their individual circumstances. As your personal advisor, we will be able to go through all available options with you and help you decide what is best for you. We also help you to understand which options will achieve the best outcome for you and your family.
At Kaur Wills Bristol, we will take the time to listen to you and learn more about your specific situation and your objectives before offering tailored advice. This can be particularly useful if your situation is complex or unusual.
For some people, that advice will be straightforward guidance on how to protect their family and assets against tax. For others, with more complex situations, we will help you explore the opportunities to protect your wealth and build a comprehensive estate planning strategy. It is important that you take professional advice if you have a diverse range of assets, and vital if you are a high net worth individual with high value assets.
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