Estate Planning - time to review?
Posted on 04/06/2023 by Mark Dunning
I am sorry to point out the obvious, but we are all going to die at some point. We won’t be witness to the aftermath but peace of mind can be of great value in dealing with the inevitable.
Estate planning can play a pivotal role in helping you to organise a financially smooth transition through this delicate and emotive period for your loved ones. From writing a will, establishing a Power of Attorney, to investing wisely and minimising inheritance tax, there are potentially many variables to consider.
Generally speaking, no-one likes to think about dying but people do find themselves frequently talking about it – typically from a certain age (after one has retired for example).
Generally speaking, no-one likes to think about dying but people do find themselves frequently talking about it – typically from a certain age (after one has retired for example).
Discussions will mainly involve around who to leave one’s assets to or how can the assets be passed along in the most simple and straightforward way. As this conversation in many cases will involve not knowing exactly when you are going to die, timing can be somewhat of a sticking point because if you have money now, you will most likely have money when you die.
So, do you start gifting? And if so, what and how much? Contrarily, this may equally present a concern of not being left with enough money or income to support yourself for the remainder of your life. And just because you may not have liquidity, it doesn’t necessarily mean that you are not wealthy (asset rich/cash poor scenario). How many equity release adverts have you seen on television recently?
So, do you start gifting? And if so, what and how much? Contrarily, this may equally present a concern of not being left with enough money or income to support yourself for the remainder of your life. And just because you may not have liquidity, it doesn’t necessarily mean that you are not wealthy (asset rich/cash poor scenario). How many equity release adverts have you seen on television recently?
Inheritance tax is a popular topic within this conversation. Whilst there is no inheritance tax between married couples, less people now get married but do still live together, have children and embark on the same family journey as many of us have for decades. Blended families and re-marriage have also become more common.
This all means that it is potentially even more beneficial than ever to address your financial priorities now and consider who inherits.
This all means that it is potentially even more beneficial than ever to address your financial priorities now and consider who inherits.
So how do you do it? Where do you start?
Your Estate
Your estate is the total value of your assets you leave behind when you pass away. Essentially, these assets will include your home, any other property, savings, investments and collections e.g. works of art, jewellery etc. Some assets that you hold may not be included in this (e.g. a pension) or may have a ‘zero rating.’ The value of your estate is then measured against your inheritance tax threshold(s). There are currently two main inheritance tax thresholds that are potentially available to each individual – the nil rate band (£325,000) and the residential nil rate band (£175,000). Where the total value of your estate exceeds this, there may be a tax liability due – normally 40%. The residential nil rate band is also tapered by £1 for every £2 that the value of your estate exceeds £2m.
Considerations
When considering where you would like your assets to go and how you would like your estate to be managed, the following could be useful –
- Who do you want to inherit your possessions? Remember, there’s no inheritance tax between spouses but what happens when your surviving spouse passes away?
- Are there specific assets that you would like to go to different people or divided between more than one? And what if this asset is illiquid? e.g. a property.
- Who do you want (trust) to manage this process on your behalf – executor(s)?
- Do you want to start gifting assets now? Do you want to keep control of, or retain access to your assets?
- Do you want to make any gifts to charity?
- Is tax mitigation an issue/priority?
- If you have children, who would you want to take care of them if you passed away whilst they were still minors?
- Do you want to be involved with the detail of your funeral?
Some of these areas of discussion may be uncomfortable to deal with but could save potential heartache or deliberation for those who will be tasked with carrying-out your wishes upon your demise. Once completed, this should then give you and your loved ones the peace of mind knowing that your wishes are respected.
Helpful tasks
1. List your assets
2. Make a will
3. Consider setting up a Lasting Power of Attorney – Property and Financial Affairs, Health and Welfare
4. Understand inheritance tax – nil rate bands, potential liability, what is considered inside and outside of your estate and what is zero-rated
5. Gifting – how to make use of your allowances
6. Trusts – different types of trusts and how they work
7. Planning your funeral
8. Tell your loved ones your decisions
9. Get the right help – speak to an appropriate adviser
10. Regularly review your plans.
Estate planning largely revolves around two elements – (1) Making sure that your assets are passed over to your chosen beneficiaries and (2) When and how to do so in the most tax-efficient way.
The saying is that there are only two certainties in life; death and tax. What value, therefore would you put on peace of mind? That’s down to you. An advised, tailored approach can be very helpful in achieving your objectives.