Why inheritance planning is so important
Planning your inheritance means you can ensure the people and organisations who matter to you receive funds from your estate after you die. Part of this planning is about how tax is collected and part is about the wellbeing of the people you leave behind. Let’s look at how we can achieve this:
Start the conversation early to avoid arguments
There is a long-running cultural habit in the UK to “not talk about” your plans for inheritance and your will in general. It might seem this is the best way to avoid arguments, but that only holds true while you’re alive. Once your will becomes public, as it does after probate, it can cause a great deal of anger and many arguments if people feel “wronged” by your decisions.
That’s why when Unividual offer advice on inheritance we often try to get the whole family together. There might be parts of your estate that you want to keep private or separate, but it’s a good time to lay out your general plans. This lets everyone understand your wishes with someone objectively sitting in the middle to help coach conversations. Any misunderstandings or misgivings can then be ironed out before they cause too much bad feeling. You’d be amazed at how loving and giving people are, most often family just want to see things done fairly and ensure that your wishes are fulfilled after your death.
Unclear who should benefit from your estate?
If you have no spouse, civil partner or children, then it’s still important to have a will and plan for your passing. As we’ve seen, the laws of intestacy will apply if you don’t have a will. Ultimately this can lead to the entity of your estate going to the government. Is this really what you want? Picking a partner, friend, someone who helped you in the past, or simply a charity to benefit from your estate are all options.
Planning gifts before you die
This deals mostly with your children and friends, as gifts to spouses or civil partners are not counted for tax purposes. As long as your spouse or civil partner is resident in the UK permanently, you may gift them as much as you like without paying inheritance tax later.
To others, family and friends, you may give up to £3000 of gifts each year. This £3000 allowance can be split between as many people as you choose. Small gifts of £250 per person can be given as many times as you wish, as long as a gift from another allowance is not given. You can also give wedding, or civil partnership, gifts tax-free, depending on the relationship:
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person
Any gift you give, no matter how large, is exempt from inheritance tax if given 7 years before your death.
Add your business affairs to your inheritance plans
If a business is to be included in the estate, then there are some reliefs that can be claimed. This relief, at either 50% or 100%, can be claimed on property and buildings, unlisted shares and machinery. It is essential you join up your approach to your business exit and continuity planning with inheritance planning too. There are also insurance products, called shareholder protection insurance, that will make it clear what must happen to shares after you die. It will also provide funds to allow the business to continue operating efficiently.
Add pension planning to your estate plan
Managing your pension, and even paying into a pension on behalf of a spouse or child, can be a very effective way to plan for inheritance tax. Going into detail isn’t practical in this guide, but it’s possible to make sure your pension, and any pension wrapper, is made as efficient as possible.
Setting up a trust, which can hold money, investments, land or buildings, can protect your assets for a nominated person or group until a specific point in time. An example would be placing a property in trust and defining what happens to any rental income for a set period. Trusts are a flexible vehicle to help to divide and manage assets so both your wishes, and the needs of your beneficiaries, are fulfilled in a timely manner.