Why do I need estate planning, inheritance tax and asset protection advice?


6th May 2022

It is important to take time to make plans for what you would like to happen when you die. There are a number of things to consider when it comes to estate planning, which can make the process simpler for your loved ones and ensure you are content with how you leave things.

Making your Will

Leaving a Will is an important step in estate planning, ensuring your loved ones know what you wish to happen to your assets after you die. You can identify to whom you wish to leave certain assets and who you want to deal with the administration of your estate, paying your liabilities, etc.

If you do not make a Will, when you die your assets will be distributed in accordance with a set of rules, known as the rules of intestacy. These rules dictate who inherits your estate when you die. The rules do not take into account who you were most close to or who is most in need. You have no control over who benefits and people may be left out.

In addition to deciding exactly who inherits what, making a Will allows you to leave assets in a strategic manner, potentially limiting the amount of inheritance tax your estate might have to pay.

There are other benefits to making a Will. For example, it allows you to set out your wishes for your funeral or to decide who should look after your children if they are aged under 18 when you die.

There are strict legal formalities regarding how a Will is made to ensure it is valid. It must be in writing and signed in the presence of two adult witnesses, who must then sign the Will themselves. It is important that witnesses are independent and not due to inherit under the Will, as if they are, the Will is still valid but that person will not receive anything. If a Will does not comply with the rules, it may be invalid and the estate will be distributed in accordance with the rules of intestacy.

You can update your Will throughout your life, to reflect any changes to your circumstances or to the law. We would advise that you review your Will at least every 5 years or when there are any significant changes to your circumstances. Any changes would usually be effected by making a new Will, but you can simply expressly revoke your previous Will (whereby you would then be intestate), or you can make a codicil if the changes are very straightforward.

Inheritance tax planning

It is important to think about the amount of inheritance tax that may be payable from your estate after you die. There are steps that you can take in your lifetime which can reduce the amount of inheritance tax your family pay out of your estate.

As a general rule, your Executors pay 40% inheritance tax on the value of your estate over £325,000 (known as the ‘nil rate band’) on your death. There are other rules and allowances to consider but this is a starting point.

Some assets do not become part of your estate, and as such are not liable to inheritance tax. This may include a life assurance policy or pension policy written into trust. You have no beneficial interest in the lump sum payable on death, so it is not part of your estate for the purposes of inheritance tax. Ensuring these assets are written into trust is an easy way to minimise tax due.

You can also give away some of your assets during your lifetime to minimise an inheritance tax liability. You can give away up to £3,000 per year, but beyond this, you must be aware of the risk that a gift may later attract tax. It is sensible to keep a list of all lifetime gifts for your Executors. You must survive 7 years beyond the date of the gift for it to drop out of your estate for inheritance tax purposes and it is essential that you do not retain any sort of benefit in the gifted asset or it is still deemed to be within your estate for tax.

There are other exemptions and reliefs to consider in your estate planning:

  • Spousal exemption – gifts to a spouse or civil partner are all free of inheritance tax.
  • Transferable nil rate band – any unused nil rate band (tax allowance) can be transferred between spouses. On the death of the surviving spouse there could therefore be potentially up to £650,000 to offset against the value of the second estate.
  • Business property and agricultural property relief – these are valuable reliefs which generally apply to agricultural assets or unquoted interests in trading businesses held for at least two years.
  • Charities – gifts to charity (or certain sporting clubs and political parties) are exempt from inheritance tax. It is also possible to reduce the inheritance tax rate from 40% to 36% if you leave at least 10% of your estate to charity.

There is a lot to think about for estate planning, and seeking the advice of a solicitor can help guide you through the process.

If you need advice on succession and tax issues

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