The bucket list your family wish you had written...
Whilst most people will plan for more interesting activities than estate planning during their life, such as their next holiday, moving house or having children, many people are failing to plan for when they are no longer around. There are many things which could be considered to ensure that matters are as straight forward as possible during this difficult time and that your assets are passed onto the people who you would like to benefit in the most tax efficient way. There are, therefore, the matters that your family would like you to address whilst you have the chance; when you are gone it will be too late!
The following list gives you 5 top estate planning tips which you may wish to consider:
1. Make a Will
This is perhaps the single most important document for you to consider. You should make sure that you have a Will and that it is kept up to date with your wishes. An up-to-date Will can make sure that your intentions are carried out and your assets are passed to the people who you would like to benefit after your death. Contrary to popular belief, without a valid Will a spouse does not necessarily inherit all of your estate and a partner maybe entitled to nothing at all!
2. Get Married!
Whilst many couples may live together for a number of years without getting married, the tax system treats married couples very differently. Assets passed to the surviving spouse are exempt from Inheritance Tax (“IHT”), whereas assets passed to a partner are subject to IHT. This could result in the same assets being subject to IHT on each death.
3. Get IHT advice
Your estate will be subject to IHT at 40% if, broadly, the value exceeds £325,000 (or £650,000 for a married couple). You should consider how much tax your estate may have to pay and if there are any planning opportunities available which could reduce your tax liability. This could be to simply to make gifts to family and friends during your lifetime, make certain IHT friendly investments or undertake more bespoke planning.
4. Donate to Charity
As well as the personal satisfaction of giving to charity, all gifts to charity will reduce the size of your chargeable estate, so for each £1,000 you give to charity, it will only cost your beneficiaries £600. In addition, if you give 10% of your estate to charity in your Will, the IHT rate on your whole estate is reduced from 40% to 36%. In some cases, due to the reduction in the IHT rate, increasing a charitable donation can result in more money going to your family and friends.
5. Make gifts to family and friends
You are able to make gifts to family and friends totalling £3,000 in a tax year which will reduce your estate. Gifts above this amount would only reduce your taxable estate if you were to survive for seven years after making the gift. Additional allowances are available if you were to make a gift in respect of a marriage.
If you would like to discuss the options available to you, please contact Rachael Dronfield.
