May 2, 2024

The Importance of Estate Planning

This post was written by: Emma Wallace

Are you ready to delve into the world of Estate Planning? Here, at Aston Bond, we’re passionate about making sure that you and your loved one’s futures are secured. Estate planning may sound intimidating, but we’re here to simplify it into simple language and bite-sized chunks. From clever Will drafting, to efficient ways of reducing inheritance tax, we’ve got you covered. Whether you are completely new to estate planning and only just starting to consider it, or whether you are wanting to adjust existing plans, read on so that we can navigate this process together.

What is estate planning?

Estate Planning is the process of arranging how your assets will pass on your death. Your assets can be anything you own, such as property, vehicles, money, shares, or even personal property, such as jewellery. It allows you to decide where and who everything will pass to, including ensuring that your loved ones are taken care of financially in the future.

What is the process of estate planning?

  1. The first step of estate planning involves creating an inventory of all your assets, including its value. You can do this by simply writing a list of everything you own, taking extra care to include more obscure assets like digital assets, cryptocurrencies, or shareholdings.
  2. After you have done this, it is essential that you consider making a Will, to clearly state how your estate should be distributed on your death. If you don’t make a Will then your estate will pass under the intestacy rules, which is a statutory order of priority, and may not align with your wishes.
  3. During the process of making your Will you should consider the following
    1. Executors – this is who will deal with the administration of your estate on your death.
    1. Guardians – this allows you to decide who would look after any of your children if you died whilst they are under 18.
    1. The possibility of including and utilising Trusts to best protect your estate for your loved ones. A trust is a legal arrangement where you give control of your assets to trustees to manage and distribute for the benefit of your chosen beneficiaries.
    1. Potential claims against your estate – although it is quite legal to make a Will in whatever terms you wish there is in existence a statute which allows certain categories of persons to make a claim against your estate on your death if they feel that you have failed to make sufficient provisions for them. It is therefore essential you take legal advice to minimise any potential claims against your estate.  

Inheritance Tax Planning

Inheritance tax (IHT) is the tax on the estate of someone who has passed away and is calculated based on their total assets minus liabilities on the date of death. There are various ways of reducing IHT by tax planning during your lifetime and by having a Will that is drafted in a tax.

There are various inheritance tax allowances that you should be aware of. For example, the spouse exemption allows your estate to pass to your spouse or civil partner entirely tax free no matter how large the estate. Another allowance is the charitable exemption which allows money left to charity under a Will to pass entirely tax-free, which can reduce your overall inheritance tax liability.

The above exemptions are only two of many, so it is very important to seek legal advice when it comes to estate planning to avoid missing out on tools available to you.

One of the most efficient ways of decreasing the value of the estate is the use of lifetime gifts. This is the process of giving away assets during your lifetime, rather than waiting until death to leave them to beneficiaries under your Will. This can reduce the overall value of your estate and potentially lower the amount of inheritance tax owed. There are several ways you can do this.

  • You may transfer any amount to a spouse or any UK registered charity that is free of the inheritance tax.
  • You could also gift non-exempt beneficiaries up to £3,000.00 total annually. This is called an annual exemption. If you haven’t used your annual exemption for the previous tax year, the unused portion can be carried forward for one tax year.
  • If a gift is made to an individual but doesn’t fall within any of the exempt categories, it falls within potentially exempt transfers. This means that, providing that you survive for seven years from the date of the gift, the value of the gift will fall out of your estate. If you don’t survive for seven years, the gift is added back to your estate for inheritance tax purposes. However, the longer you survive after making the gift (subject to surviving a minimum of three years), the lower the inheritance tax payable. It is crucial that you also do not retain any benefit from the gift whatsoever or HMRC will not regard it as being outside of your estate no matter how much time has passed.
  • You are also eligible to make gifts from your income to any person without affecting your inheritance tax position. This is only if your gifts form part of your normal expenditure and do not affect your quality of life. There must also be a clear, consistent pattern of giving, for example, paying the premiums on a life policy for another person’s benefit or payment of school fees.
  • Another way to use lifetime gifts is by making small gifts to any one person. You are allowed to make gifts up to a maximum of £250.00 to any one individual during a tax year. Unlike the annual exemption, however, it is not possible to carry forward any unused portion to the following tax year.
  • You may make gifts on the occasion of a marriage or civil partnership, but this has limitations depending on your relationship to the person married. This means that; each parent can gift a maximum of £5,000.00, each grandparent (or remoter ancestor) can gift £2,500.00, either of the couple can gift each other £2,500.00, and any other person can gift £1,000.00. The gift must take place before or on the ceremony and must be conditional on the ceremony taking place.
  • Another way to reduce inheritance tax liability is to make inheritance tax efficient investments. We are unable to provide investment advice but can recommend local Independent Financial Advisors who can assist.
  • Charitable donations are another efficient way to decrease inheritance tax liability. The Finance Act of 2012 introduced a lower rate of the inheritance tax for individuals who leave a minimum of 10% of their net estates to charity.

Estate planning is not just about securing your assets; it is about securing your loved one’s futures as well as your own. At Aston Bond, we understand that starting this process can be tedious (and daunting!), which is why we strive to simplify it for our clients as best as possible. We tailor our advice based on your individual needs and deal with issues in a considerate and sensitive manner.

So, if you’re ready to take control of your family’s financial future, please book an appointment with our friendly private client department. Just call us on 01753 486 777!