What is estate planning?
It’s not just having a will in place….
You may have or plan to get a will to ensure you have a say on who inherits your assets after you die, but you may also need to consider inheritance tax planning, which needs to be paid by your loved ones relatively quickly after your death. Estate planning in your lifetime can help to keep your inheritance tax to a minimum and crucially helps you stay in control of your assets.
Q: What do i need to consider during the Estate Planning process?
For the majority of people, the main objective is to make sure your assets are passed on to your chosen loved ones.
Clearly, everyone’s situation is unique with different wants and concerns. It is important therefore at at the start of the estate planning process to have a in-depth discussion to talk through all aspets of estate planning, including:
An overview of your assets, including savings, investments, property, other assets you would liek to pass on to beneficiaries, or family/close friends
Your family background
Any existing wealth planning already in place
Q: What makes trusts a good Estate Planning tool?
Trusts are a good option to help safeguard your finances should anything happen to you.
In essence, a Trust secures a specific amount of money or assets until the beneficiary is able to receive it. Trusts are formal legal structure and Trustees are selected to care for the Trust, and in the best interest of the beneficiaries.
Trusts are therefore ideal if you would want to have some say or influence on how your assets are distributed and when. For example, if you are a parent and you wish to gift £50,000 to your child, by placing this money within a Trust, you can distribute the income to the child over time, in a managed way, and ensuring the longevity of the cash asset versus just handing it over in one lump sum.
What about inheritance tax, how does it impact me?
The amount of Inheritance Tax paid depends on the total value of all your assets known as your estate. When you exceed the 'nil rate band', which is currently set at £325,000, you will likely need to inheritance tax at 40 per cent on the remaining value above the nil rate band amount.
The good news is that if your will states leaving all your assets to your spouse or partner, then your estate is generally exempt from Inheritance Tax, as it is handover to them after your death. Your partner then has double nil rate band or £650,000, so when they die, inheritance tax is only paid above this amount.
Furthermore a 'residence nil rate band', tax relief exists which means that if you leave your main home to your children or grandchildren, each child/grandchild receives an extra £175,000 tax free on top of the original threshold. This nil rate band is only applicable if the total estate is under £2 million in value.
Why is it so important to have a tax adviser helping you during this process?
Along with solicitors, who can help prepare wills, input from a chartered tax adviser, like Mirandus Accountants, means that you will receive tailored tax advice based on your unique circumstances to help mitigate your overall inheritance tax liability. We can provide guidance and peace of mind from the early stages of consideration and Trust set-up if required.
