Look at the state of your estate

Why do I need to think about passing on my assets now?

Planning ahead can make life much easier for your loved ones during a difficult time. If you have 40 different cash ISA accounts, for example, it will mean a lot of administration. There’s also the potential to reduce your tax bill, and you can make sure your money and possessions go where you want them to. 

When should I start planning?

The sooner, the better. It’s never too early to start planning, but you don’t have to do everything on day one. It’s very much a marathon rather than a sprint.  

What sort of things should I think about?

Take some time to think about where you want your assets to go. What are you passionate about? How will your family be affected? Gifting to charity? We can make sure your assets go to the right people.  

It’s also about looking at what you want to do with your retirement. You don’t want to give away so much that you’re then not able to enjoy your retirement as you would like to, or pay for any care you may need in later life. We find cash flow planning a really useful tool to help keep things on track. 

What is inheritance tax and why is it controversial?

After you’ve passed away, the government may charge a tax based on the value of your assets (your estate). It’s paid on estates worth more than £325,000 and left to someone other than your spouse, a charity, or a community sports club. There are special rules applied to your home and gifts. More people are paying increasingly more inheritance tax than in previous years, probably because property prices have gone up so much and the tax thresholds haven’t. 

What are your top tips for paying less inheritance tax?

There are many ways to reduce your inheritance tax bills, and annual gift giving is one of the most popular. Each individual has an annual gift allowance of £3,000 per tax year. This can be a gift to one person or split between several people.  

Gifts of £250 can be made in the same way, but not to a recipient of the original £3,000 gift.  

Here are some other top tips: 

• Weddings or civil partnerships gifts can be made and their value depends on the relationship to the person getting married.
• You can make tax-free gifts out of ‘excess income’, but you must provide details of income and expenditure.  
• You could also set up a trust. There are different types available to suit different situations. Some gifts into trust are chargeable lifetime transfers and may attract an immediate tax charge. Always speak to your financial adviser before setting up a trust to ensure it is right for you.
• Exempt transfers can potentially be used if an individual wants to make a gift of unlimited value. These gifts will form part of the overall estate for seven years.  
• Some people may want to put money away for their children, but they’re worried about how they may spend it. You could set up a pension for them, so they’ve got something for their retirement.  

Can I pass on my pension?

You usually can, and it doesn’t tend to count towards your estate for inheritance tax. It is a case of ‘usually’, so you may want to ask a financial adviser to help check the details. In most pension schemes, the administrators have discretion over who receives the money, so it’s important to complete the ‘expression of wishes’ form.

My colleague David Birden has more insights about pensions in his article. 

What else should I do to prepare my estate?

Make sure you’ve written a will, so that everyone knows what you want. It could save your loved ones a lot of admin time.

If you have children, particularly if you have them with different partners, inheritance can be especially complex. If you’re divorced, your first family may not receive anything. Sometimes, you get a contentious probate, and nobody wants that for their family.  

Finally, remember to organise the power of attorney, in case you’re not well enough to manage your affairs.

If you’re worried about the state of your estate – get in touch for a free, impartial conversation.