Planning your legacy
Unforeseen life events and circumstances can potentially impact your finances in a number of ways. Believe it or not, you have an estate. In fact, nearly everyone does.
Your estate is comprised of everything you own – your car, home, savings accounts, investments, life insurance, furniture, personal possessions – the list goes on. No matter how large or how modest, everyone has an estate and therefore shares something in common – you can’t take it with you when you die.
Ensure your wishes are carried out
When that happens, you probably want to control how these things are given to the people or organisations you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees and court costs.
An estate plan differs considerably from a Will. A Will is quite a simple document about the distribution of your assets and, potentially, instructions for the care of your children. An estate plan, however, goes much further than a Will, and aims to help your heirs pay substantially less in taxes and fees.
Let’s consider some key parts of an estate plan.
Your current circumstances
There are a number of key documents that together build a clear picture of your current circumstances. Aside from the Will, some key documents within an estate plan could include:
A lasting power of attorney
A list of all assets and liabilities
Deeds of any trusts created
Life policies (which should be included in an appropriate trust)
Pension Death Benefit Nomination forms
Records of any gifts made
Before moving on to the next part of your estate plan
Should any of the above be required but aren’t available, you should seek professional advice before moving on to the next part of your estate plan. For example, if you’ve made gifts from your estate but haven’t kept a record of them, it’s important to do so – this way, the executors of your estate have these details when administering your estate.
Key parts of an estate plan are your objectives and preferences. They could include details of whom you wish to benefit from your estate and when you’d like this to take place – either during your lifetime and/or upon your death. With Inheritance Tax (IHT) currently at 40%, many people are concerned about the amount of tax their estate may have to pay. And as anyone can access information from a probate court upon death, there could be delays, fees and a loss of privacy. You may also have a favourite charity you’d like to transfer your wealth to, or philanthropic goals you wish to include.
Structuring your wealth tax-efficiently
Once you have an accurate record of your estate and have clearly defined your objectives, the final part of an estate plan is to put it into place. You may need professional advice to help arrange your assets to maximise the legacy to your loved ones and minimise the impact of tax, fees and loss of privacy.
We can advise you on your options to make sure these are executed correctly. This may involve helping you invest in assets that are exempt from IHT, creating a trust for loved ones, putting a gifting strategy in place, or simply helping to structure your wealth tax-efficiently.
Reviewing your plan annually is sensible
Once the plan is in place, it’s important to keep it up to date. It’s usually sensible to review the plan annually or when there’s a significant life event, such as a birth or death in the family, a business sale or if your objectives change over time. It can also be good to seek a review of your plan when taxation rules change.
Inheritance Tax is levied at a fixed rate of 40% on all assets worth more than £325,000 per person (0% under this amount) – or £650,000 per couple if other exemptions cannot be applied
Parents and grandparents can currently leave property worth up to £850,000 to their children without them having to pay Inheritance Tax. This figure will rise to £1 million by 2020
The current allowance of £325,000 remains unchanged, but an additional tax-free band worth £175,000 per person on your main residence will be added to the £325,000, making it £500,000 per person. The new tax-free band was set at £125,000 in 2018, eventually rising to £175,000 in 2020
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.
THE RULES AROUND TRUSTS ARE COMPLICATED SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.