When it comes to planning your estate, it’s tempting to push it to the bottom of the to-do list. Let’s face it, nobody enjoys pondering life’s inevitable end. But the truth is, estate planning isn’t just for the wealthy or elderly. It’s for anyone who wants to make sure their hard-earned wealth doesn’t end up in the hands of the taxman or cause a family squabble. It’s about taking control of your legacy – and making life that bit easier for those you’ll leave behind.
Why Estate Planning Matters
Some folks think estate planning is only for those who own sprawling mansions or have a few millions stashed away. But here’s the rub: whether you’re a homeowner, have a bit of savings, or even just a prized collection of antiques, estate planning is crucial. It ensures your assets are distributed as you wish, keeps potential headaches for your loved ones at bay, and, with the right approach, can help minimise hefty inheritance tax bills.
Planning isn’t just for the elderly either. An unexpected illness or accident can happen to anyone, at any age. If you don’t have a plan, you’re essentially letting the law decide who gets what – and that might not go down well with your family. It’s best to take matters into your own hands while you can.
Make a Will
First things first, if you don’t have a will, make one. If you’ve already got one, dust it off and make sure it’s still fit for purpose. Life has a funny way of throwing us curveballs – marriages, divorces, new kids on the block – and your will should reflect any changes. Without a valid will, your estate could be divided according to the strict rules of intestacy, meaning your assets might not end up where you’d like. The peace of mind that comes from having a legally sound will in place is priceless.
A will is also the best way to reduce inheritance tax (IHT). You can make the most of tax exemptions by leaving assets to your spouse or registered civil partner. Plus, you can even include charitable donations to lower your IHT rate. This way, your loved ones get more, and your favourite cause gets a boost too.
The Big, Bad Wolf of Inheritance Tax
This spectre looms over every estate worth over £325,000. If you’ve got a family home and some savings, you might find your estate creeping over that threshold, meaning 40% of anything above it could go straight to the taxman. Luckily, there are ways to reduce this burden.
For example, the Residence Nil Rate Band (RNRB) adds an extra £175,000 allowance when passing on your main home to direct descendants, potentially lifting the tax-free limit to £500,000 per person or £1 million for couples. But watch out – this extra allowance reduces if your estate is worth over £2 million. The rules can get a bit fiddly, but don’t let that put you off – a chat with a financial adviser can help you navigate the fine print.
Lifetime Gifting
Who says you can’t enjoy giving while you’re still around? Lifetime gifting allows you to transfer wealth to loved ones tax-free, provided you live for at least seven years after making the gift. This way, you are spreading your assets out over time, rather than dropping them all in one go.
But be careful – not all gifts are created equal. If you’re still benefiting from the asset in some way (say, living rent-free in a house you’ve ‘gifted’ to your children), it could still count towards your estate. Known as a ‘gift with reservation of benefit’, it won’t escape the clutches of IHT, so make sure you’re giving without strings attached.
Trusts are a Safe Pair of Hands
Setting up a trust allows you to decide how and when your beneficiaries receive the assets. It’s especially handy for making sure an inheritance isn’t squandered too soon. If you’re worried about leaving a large lump sum to a young adult or want to protect assets for future generations, trusts can be the way forward.
Trusts can also help in reducing the IHT liability on your estate, but the rules around them are complex, and not all types of trusts are treated equally. It can be a bit of a minefield, so it’s wise to get some expert guidance before plunging in.
Power of Attorney – Planning for the “What Ifs”
We don’t like to think about it, but what if you lose the ability to make decisions? A Lasting Power of Attorney (LPA) allows someone you trust to manage your financial affairs and make health decisions on your behalf if you can’t. It’s an extra layer of protection that ensures your best interests are looked after, and it keeps things running smoothly during tough times.
Remember, it’s better to have an LPA in place and never need it than to be caught out when you do.
Don’t Let Pensions Be an Afterthought
Pensions can often be overlooked in estate planning, but they shouldn’t be. Most pensions can be passed on outside of your estate, potentially avoiding IHT. If you die before the age of 75, the pension pot can be transferred to beneficiaries tax-free. If you’re over 75, beneficiaries will pay income tax on the withdrawals.
Make sure your pension nominations are up to date – it’s a small step that can make a big difference to your loved ones’ financial future. If you have any questions, contact us as we are professional pension advisors.
Chatting About Wealth
Talking about money can feel awkward, but it’s a conversation worth having. Being open about your plans can help manage expectations and avoid nasty surprises down the line. It can also ensure your heirs are prepared to handle their inheritance responsibly. If you’re planning to leave significant assets to your children, a bit of financial education can go a long way.
Wrapping It Up
Estate planning doesn’t have to be daunting or complicated. It’s simply about ensuring your wishes are honoured, your loved ones are looked after, and as little as possible ends up in the taxman’s pocket. If you need a hand, don’t hesitate to get in touch. Together, we can map out a plan that gives you peace of mind and keeps your legacy intact.
For more advice on estate planning or to book a consultation, visit True Advice Financial Services.
Disclaimer
This guide is for informational purposes only and does not provide tax or legal advice. The tax implications for individuals can vary based on personal circumstances and may change over time. For specific advice, it is recommended to consult a qualified professional.
Please note that the Financial Conduct Authority does not regulate advice on taxation, estate planning, inheritance tax planning, wills, or trusts. Trusts are a particularly complex area of financial planning and require expert guidance.
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His qualifications include the LIBF Level 3 Certificate in Regulated Equity Release, IFS Level 4 Diploma for Financial Advisers, and several other certifications. Tony prides himself on delivering professional, efficient, and thorough service, helping clients navigate financial challenges with confidence.
Outside of work, he enjoys traveling and exploring new places with his wife.
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