Personal finance: A guide to estate planning and wills

Discussing what will happen after your death is not an easy subject to approach. Yet, it is something that we all have to do at some stage. Having this discussion and laying out your wishes in a Will, gives you peace of mind that everything is taken care of and that your loved ones will not have to worry about sorting through your estate once you have passed.

From Estate Planning with Trusts to addressing Inheritance Tax and making a Will, this guide will help you get your affairs in order.

What is estate planning?

Estate planning is establishing what you want to happen to your assets upon your passing so that your loved ones are sufficiently taken care of. One of the most important aspects of estate planning is structuring your finances and assets so that any tax liabilities are minimised.

Estate planning usually involves:

• Letting your family or friends know where the Will is kept (e.g. with a solicitor, in a safe deposit box or with a family member)
• Listing all your assets and liabilities
• Detailing all the gifts you’ve given in the last seven years. This is important in making sure the correct amount of tax is paid on your estate

What constitutes an asset and liability?

In order to calculate an accurate value of your estate, you will need to include details of all your assets and liabilities.

Assets that usually make up an estate can include:

• Property (including the family home)
• Savings held in bank accounts and building societies
• Insurance, in particular, life insurance or an endowment policy
• Pensions, including ones that pay out a lump sum after death
• Investments, like stock and shares
• Vehicles
• Personal belongings, jewellery, clothing and antiques for instance
• Furniture and other household objects

A liability includes any money that is owed by you. This reduces the value of your estate, and typically includes:

• A mortgage
• Money owed on a credit card or overdraft
• Loans
• Equity release
• Tax liabilities

It’s important that you regularly reassess the value of your assets, as they can increase or decrease in value over time and this change needs to be reflected in your Will.
If you would like further clarification on assets or liabilities in the context of estate planning our specialist team will be happy to answer any questions you have. Give us a call on 0845 880 5678 or email us on website@wrightvigar.co.uk.

Inheritance Tax

Inheritance Tax is a tax that is charged against your estate (property, money and possessions) when you die. Effective estate planning can help you minimise the amount of Inheritance Tax that can be levied to your estate, meaning more can be passed on to your friends and family.

The amount of Inheritance Tax will depend on the value of your estate (after debts have been settled). The rules state that:

• The estate pays 40% Inheritance Tax on anything above the Inheritance Tax threshold (£325,000 for 2018/19)
• The estate pays 36% Inheritance Tax on anything above the threshold if more than 10% of the net estate is left to charity

If the value of the estate is less than the threshold (currently £325,000), Inheritance Tax is not applicable.

Married couples and civil partners – rules relating to Inheritance Tax

If you are married or in a civil partnership, you are allowed to transfer any unused portion of your Inheritance Tax allowance to your spouse or partner on your death. For example, if you don’t use any of the allowance, your partner could have an Inheritance Tax allowance of £650,000 (based on the 2018/19 allowance).

Residence Nil Rate Band – what it means

The Residence Nil Rate Band was introduced on 6th April 2017. The Residence Nil Rate Band is an extra Inheritance Tax allowance, where the home (or proceeds of a sale from a previous home) is left to children (including step-children, foster children and children who have been adopted), grandchildren or great-grandchildren.

Upon its introduction in 2017, the Residence Nil Band Rate added an additional £100,000 Inheritance Tax allowance. Over the forthcoming years, the rate rises to:

Tax Year	Residence Nil Band Rate
2018/19	£125,000
2019/20	£150,000
2020/21*	£175,000

*After this the rate increases in line with the rate of inflation based on the Consumer Price Index.

The Residence Nil Rate Band is tapered away for estates worth in excess of £2million (by £1 for every £2 excess).
Inheritance Tax is a complex area and before making any decisions you need to seek advice from a professional. Get in touch with our Personal Tax Planning team on 0845 880 5678 to discuss your individual Inheritance Tax needs.

Estate planning and tax-free gifts

You are entitled to give away gifts to the value of £3000 each tax year. This is referred to as your annual exemption. HMRC classes a gift as “anything that has a value, such as money, property or possessions, or a loss that is made when you transfer something e.g. selling your house to your child for less than it is valued.”

Inheritance Tax is not levied on gifts that have been made between spouses or civil partners. You can give them as much as you want during your lifetime if they permanently reside in the UK.

You can also give away as many small gifts (up to the value of £250) as you like during the tax year as long as you haven’t used another exemption on the same person.

Gifts that are classed as exempt include:

• Wedding or civil service gifts up to the value of £1,000 per person (£2,500 for a grandchild and £5,000 for a great-grandchild)
• Gifts like Christmas or birthday presents that come out of your income
• Gifts to help with a person’s living costs
• Gifts to charities and political parties

Over the years we have helped thousands of individuals with estate planning, our article ‘Putting your affairs in order’ explains how we can help you prepare for the future.

Estate planning and trusts

If you want to minimise your Inheritance Tax liability you could consider placing some of your estate in a trust. A trust is a legal arrangement where assets like property, money or investments are placed in the care of a third party for a beneficiary e.g. you place your property in trust for your child.

Assets that are placed in trust (and that meet specific conditions) no longer belong to you and are outside of your estate for Inheritance Tax purposes.

The use of a trust can be useful where a beneficiary is young or vulnerable. The trustee of the estate has a legal responsibility to manage the trust until the recipient reaches an age where they manage it themselves.
One of our Estate Planning experts will be happy to explain the use of trusts in estate planning in further detail with you. Email them on website@wrightvigar.co.uk or call them on 0845 880 5678.

Making a Will

Making a Will is extremely important as it tells others what you want to happen after your death e.g. if you want to be buried or cremated, and it details what you want to happen to your estate, who inherits what and what money (if any) is to be given to charity.

A Will is an important legal document and we strongly recommend that you seek the assistance of an experienced legal professional. If need be, we will be happy to suggest someone who can help you with this.

Your Will needs to be as detailed as possible. As a minimum it should include:

• Who you want to leave your assets to
• Details of gifts that you wish to leave to family and friends
• What is to happen with your estate after any debts have been paid
• What happens to the proportion of your estate if a beneficiary passes away before you
• Who the Executors of the Will are
• If any assets are to be left to charity

It is imperative that the Will is signed in front of two independent witnesses who also sign it in your presence. Failure to do so could render the Will invalid.

Thinking about you want to happen after your death is something that can be easy to ‘put off to another day’ but having plans in place will give you peace of mind that people you love are taken care, particularly if they are financially dependent on you. We have an experienced team who will be able to talk you through the process of estate planning. Give us a call on 0845 880 5678 or email them on website@wrightvigar.co.uk.