10 tips for tackling estate planning

Category: News

Last month, we looked at the importance of having a will and listed the reasons why Globe IFA think you should have one in place. But a will is only one part of your estate planning and only one way in which you can pass wealth onto the next generation.

A recent report from Schroders Personal Wealth has found that nearly 80% of over-60s have no estate planning in place, despite wanting to pass wealth onto the next generation during their lifetime or on death.

At Globe, we can help you put a plan in place to pass on your wealth in the most tax-efficient way possible. It is a process that begins with you and your wishes.

Keep reading for 10 top tips for tackling estate planning.

1. Be prepared to talk about it

Schroders’ Family and Finances Report found that 84% of respondents were expecting to pass wealth onto their children.

And yet, 78% do not currently have a strategy in place to do so, and 65% admitted that they rarely or never spoke about the subject with their children. Breaking this taboo is an important part of putting a functional plan in place.

Talking about the money you have and what might happen to it when you die, is the best way to start putting a plan in place. It allows you the time to sit down and think about it, while also giving loved ones an honest idea of what they can expect.

2. Put a will in place

Once you’ve spoken about your wishes and formulated a plan, be sure that you have a will in place that accurately reflects that plan.

An up-to-date will makes distributing your estate easier, reducing the stress for those you leave behind.

3. Leave a charitable legacy

While most of your wealth might go to loved ones, you could also opt to gift some of your estate to a cause that means a lot to you. Not only does this help the charity you choose, but it has two added benefits for you too.

Inheritance Tax (IHT) is paid at 40% on the value of your estate above the IHT threshold of £325,000.

Gifting to charity removes the gifted amount from the value of your estate for IHT purposes. On top of that, if you donate more than 10% of your net estate to charity, the rate of IHT payable reduces from 40% to 36%.

4. Make use of the small gifts exemption

HMRC allows gifts to be made tax-free in some circumstances.

The small gifts exemption means that you can give gifts during your lifetime, of up to £250 to the same individual, in a given tax year.

This exemption can be used for Christmas and birthday presents, for example, and takes the gifted value outside of your estate for IHT purposes.

5. Make a gift using your annual exemption

You also have an annual exemption of £3,000 for the 2021/22 tax year (the small gifts exemption does not count towards this).

This means you can gift £3,000, removing that value from your estate. Not only that, but the limit applies per individual and any unused amount can be carried forward for a year.

That means that if you and your partner both have an unused exemption from last year, you could gift up to £12,000 this tax year.

6. Make a gift from income

HMRC’s gifts from income exemption allows you to make regular gifts, as long as you can prove that they come from your regular income, form part of your normal expenditure, and that making the gift doesn’t detrimentally impact your standard of living.

If you have disposable income and would like to give a living inheritance, this exemption could be perfect for making regular contributions to a loved one’s pension or ISA, for example.

7. Make gifts to your spouse

Remember too, that if you are married or civil partnered, you can pass your entire estate to them when you die without them having any IHT to pay.

It is also possible to pass on any unused allowance. If you die and leave all your estate to your spouse, for example, they can take your £325,000 allowance and add it to theirs.

8. Remember your pension

Unused pensions can be passed on tax-free in some cases so you might consider taking your pension pots last if you can afford to.

On death before age 75, your unused pot remains outside of your estate for IHT purposes. This means you can pass 100% of it to your chosen beneficiary.

If you die after age 75, your beneficiary can still receive your unused pension, but they will pay tax on the amount they receive at their marginal rate.

Beneficiaries are chosen via your pension provider, rather than in your will, so contact your provider and request an Expression of Wish form to ensure you have a beneficiary in place.

9. Think about trusts

Although trusts can be complicated, they can also be a fantastic way to pass on your wealth in a tax-efficient way.

Money held in trust is usually not considered part of your estate for IHT purposes (at once if the money placed in trust is an exempt gift, or after seven years if not).

A bare trust is the simplest form of trust. It could be used to pass money to a child when you die, for example. The trustee will look after the money, in line with the rules set out in the trust deed, and the money will be available to the beneficiary from age 18.

Speak to us if you think you’d like to set up a trust.

10. Spend it

Remember that your estate is your accumulated wealth. Leaving money behind to loved ones when you are gone (or during your lifetime) is a great way to provide a legacy but be sure to use your money for the things you enjoy too.

Get in touch

We can help with any aspect of your estate planning, from limiting your IHT liability to putting a will in place through our partnership with the will-writing firm, Penrose Wills. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss any aspect of your estate.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.