Estate planning is an important part of your financial plan. It allows you to think about the money you want to leave behind and helps to ensure you do so as tax-efficiently as possible.
And yet, a recent report from Schroders Personal Wealth has found that nearly 80% of over-60s don’t have any estate planning strategy in place. This despite the fact that over 70% intend to leave at least some money to loved ones.
According to the survey, 65% of over-60s rarely or never discuss inheritance with their children.
Keep reading to find out how and why you should start putting an estate plan in place, and why discussing inheritance is so important.
1. Talking about your plans can help you to formulate them
You might be in the category of respondents who have every intention of leaving an inheritance but who don’t yet have a plan in place to make that happen.
That might be because of the taboo of discussing money, but it might also be because you don’t yet know exactly what your plans are, or how your wealth will be distributed.
Sitting down and talking to loved ones about your estate might present a great opportunity for you to think seriously about your wishes, possibly for the first time. Once you know, you’ll need to talk honestly to your loved ones about what those wishes are.
Your plans might meet with opposition from your family, but better to discuss these now, rather than waiting until it is too late.
2. You’ll understand your potential liability
Once you have talked about how you would like your estate to be distributed, you should also have a better idea about the liability you will leave behind.
Inheritance Tax (IHT) is payable at 40% on anything above the £325,000 threshold, although the £175,000 residence nil band rate may also apply.
There are ways to pass on your wealth tax-efficiently and the sooner you put a plan in place, the longer you will have to manage your liability.
We can help with this so be sure to get in touch.
3. You’ll be able to discuss the possibility of giving while living
You might decide to give away some of your wealth during your lifetime. This has the benefit of lowering the value of your estate – and therefore the IHT liability you leave behind – on death. It also means you will still be around to see the positive impact your gift has on those who receive it.
There are several HMRC gifting rules that you could use to pass on wealth in a tax-efficient way during your lifetime.
Annual Exemption
You can gift up to £3,000 a year tax-free. Any unused amount can also be carried forward for up to one year.
The allowance applies per individual, so if your partner hasn’t used their allowance, you could gift up to £12,000 in a single tax year.
Normal expenditure out of income
If you would prefer to make regular gifts, you can do so using the normal expenditure out of income exemption.
You’ll need to be able to prove to HMRC that the gifted amount is part of your normal expenditure and that you are making it out of income. Making the gift must also not affect your ability to maintain your normal standard of living.
4. You might find room in your plans for charitable donations
Planning to give money to charity – either during your lifetime or via a charitable legacy in your will – can have several advantages. You can support a cause you care about, and it is tax-efficient too.
Gifts to charity take that value outside your estate for IHT purposes and therefore there is no tax to pay.
You can even use charitable giving to lower the rate of IHT payable. If you donate at least 10% of the net value of your estate at death, the IHT rate reduces from 40% to 36%.
5. Having a will in place
Once you have had a frank discussion with your family about how you intend to pass on your wealth, be sure that these discussions are reflected in the will you have in place. A will allows your estate to be distributed in line with your wishes, but only if it is up to date.
Breaking the taboo around money should mean that your wishes are understood, and a will can cement that, avoiding undue stress or conflict for those left behind when you are gone.
Get in touch
Whether you need help managing your estate, planning your retirement, or mitigating a potential IHT liability, please get in touch and find out how our team of expert financial planners can help you.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
See our recent post that discusses a financial advisor vs financial planner