Your Six Point Estate Plan:Protect your Assets and Mitigate IHT

If you want to leave a legacy to your children, it is a good idea to have an estate plan in place. An estate plan encourages you to actively review the value of your assets and consider who you would like to inherit them after you have gone. Crucially, an estate plan also ensures you are mitigating your inheritance tax liability, where possible.

Your Six Point Estate Plan

1.Write a will and keep it updated

Writing a will is an absolute must as it means you can distribute your assets according to your wishes but it is also a essential estate planning tool to ensure you mitigate any potential inheritance tax (IHT) liability for your loved ones after you are gone.

Without a will, your assets could be distributed not as per your wishes but according to ‘intestacy’ rules and may be subject to IHT.

Does Inheritance Tax Impact you?

When writing your will, the key is to be as specific as possible and consider different scenarios. For example, what if one of your beneficiaries dies before you?

Keeping your will up to date in line with life events is also essential. Marriages, divorces, new grandchildren and deaths, are just some examples where a review and amendment to your will may be necessary.

2. Power of attorney

A power of attorney is someone that you entrust to look after your finances and/or healthcare in the event you are unable to, for example, you fall ill and cannot make decisions on your own anymore.

It is a legally binding position and therefore you need to consider carefully who you choose and discuss with them your wishes so they are clear.

You can have a power of attorney for your finances and for your health separately; it is a good idea to have both, and they can be the same person.

If you are looking for help to set up your will and power of attorney, please get in touch.

3.What are your assets worth?

During the process of writing your will, you will likely list your assets and their value. For example, your home, cash in the bank, other high value assets, such as jewellery, art etc. This will give you a rough idea on the value of your estate and the IHT implications.

If the total value of your assets as an individual is above £500,000 or £1 million as a married couple, then there is a likely to be an inheritance tax liability after your death. There are actions you can take now, in your lifetime, to limit or eliminate a potential IHT liability.

Estate tax planning for you and your family

Introduction to estate planning and inheritance tax

We strongly recommend that independent valuations are carried out on your high value assets at the time of writing your will and/or estate planning, as the temptation to undervalue your assets in your lifetime could cause serious issues for your loved ones after your death. Being chased for an unexpected IHT bill is not ideal, and could lead to loved ones needing to sell off the assets to meet the hefty 40% tax levy.

4.If you think you have an IHT liability, how can you mitigate it?

At this point in your estate plan, you have a good idea on the value of your assets and who you would like to inherit them and you have both formally and informally let your wishes be known via your will and discussions with loved ones.

The next step is to consider how you give away your assets without incurring an inheritance tax liability, where possible. Although there are lots of options in your lifetime to start the process of handover to loved ones, it really is a balancing act between mitigating a tax liability but still having access to your assets or cash whilst you are still alive.

For example, there are many gifting options available to you in your lifetime.

Inheritance Wisdom: Copying Anne Robinson’s Lifetime Giveaway.

There are also some assets that are currently IHT free, such as your pension. In theory, you could live off your other assets and pass on your pension IHT free to loved ones. Furthermore, if you die before 75 years old and pass on your pension to loved ones in your will, there is no income tax to pay, otherwise usual income tax rules apply when drawing down the pension.

The tax rules around IHT and related assets, such as pension, could change twice a year formally as part of the government’s financial updates at the Spring Budget and Autumn Statement. We may also see changes to tax rules across the board when a new government comes into power. It is therefore really important to make sure you seek advice on IHT planning.

5. Is a trust right for you?

A trust is vehicle that many people use as part of their estate planning to both protect their assets and mitigate a potential IHT liability.

A trust is also a great way to gift or help loved ones with specific needs. For example, you may want to ensure a vulnerable person in your family is well looked after financially after your death, or perhaps you want to help grandchildren with a house purchase when they get older.

Crucially, trusts gives you control on how and who receives a financial benefit from your assets.

What is a trust and is right for you?

6.Seek professional advice

Professional advice is key if the total value of your assets as an individual exceeds £500,000 or as a couple, £1 million. Many of us now fall into this category due to rising house prices over the last decade.

An estate plan is an opportunity for you to pass on your hard earned assets to loved ones and to who you wish, in the most tax efficient manner.

Estate planning requires ongoing monitoring in line with changes to tax law and personal circumstances.

Please get in touch if you would like to start your estate planning journey now.