Inheritance Planning
Inheritance planning and talking about death
There are two things we can count on in life – one is we will have to pay tax, and the second certainty is death. Whilst it may feel a morbid subject, making these conversations as a family “normal” as early on as possible, can avert disasters or major losses when the inevitable comes to pass.
This is why inheritance planning is so critical.
As the inheritance tax (IHT) threshold will be frozen until April 2028, more and more families are finding their estates are falling out of the current allowances of £325,000 for a single person and £650,000 for a married couple.
For direct descendants or surviving civil partners and spouses, there is also the residence nil-rate band which enables estates of up to £1million to be passed on without incurring inheritance tax payments of 40%.
The price of properties is still increasing year on year, despite the recent cost of living crisis and economic uncertainty, and with frozen thresholds, it could be argued that this is a stealth tax and one that less and less people will be able to avoid.
In 2023, the Government receive £7billion in IHT payments, however the forecast by 2032-33 is set to soar to just over £15billion at current prices. This alone makes the requirement for estate planning such a priority.
"The stock market is filled with individuals who know the price of everything, but the value of nothing."
– Phillip Fisher
Making a Will
On a basic level ensuring you have a last Will and testament in place will provide details as to who we want to pass our estate to. Dying without one leaves you intestate where a set of laws will then dictate how your estate is divided up, and you will have no say as to who gets what.
To avoid this, and to help reduce the amount of Inheritance Tax payable, draw up a Will through an appointed professional and keep it up to date to incorporate any changes in circumstances (wills should be reviewed every 5 years).
"Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off."
— Carlos Slim Helu
Trusts
The use of trusts can ring-fence your assets meaning your beneficiaries will receive what you intended them to receive and can minimise the effects of inheritance tax by effectively removing assets altogether from your estate.
Trusts can be complex, falling into two broad categories – “revocable” and “irrecovable,” the latter being the most efficient tax advantages.
From this point there are several different types of trusts that are designed to address differing needs, many of which cannot be revoked, which is why it’s imperative that these are entered into with professional and transparent advice.
Discretionary trusts are a more common term, and the rules around IHT on discretionary trusts can mean a sharp reduction in the amount of IHT payable through chargeable lifetime transfers. Another reason why seeking professional advice will help point you in the most suitable direction for you.
Lifetime Gifts
Giving money or assets to beneficiaries of your estate whilst you’re still alive can contribute to the reduction of Inheritance tax, however there is a seven year rule! If you die within seven years of making the gift, the amount becomes part of your estate, which where the threshold is exceeded, the actual beneficiary will be liable for repaying the tax.
Charitable Gifts
If you leave a gift in your Will to a qualifying charity, this will be exempt from IHT, and will reduce the overall value of your estate. In addition if you gift at least 10% of the net value of your estate to charity, what remains above the threshold will be paid at a lower rate of 36%
Life Insurance
You may decide to set up a life insurance policy that will cover all or part of your forecasted IHT bill.
If it was held in trust, and did not fall within the seven year rule, this would not be considered part of your estate regarding IHT calculations.
How OFS Financial Solutions can help
“Hope for the best but plan for the worst” is a common phrase – but this does involve planning ahead – in this case inheritance tax planning – which so many of us do not do.
As a firm of independent financial planners, we provide a comprehensive estate planning service to safeguard you and your dependants which will preserve everything you have worked so hard to achieve.
“Having used One Financial Solutions for various services, we have always found them extremely helpful and efficient – nothing is too much trouble.”
Testimonial:
“ I contacted Wayne with regards to legacy planning for my parents, we had a number of questions and were looking for reassurance of our current understanding of the process. I have to say that Wayne was friendly, reassuring and a fountain of knowledge on the subject.” – January 2024
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Recognising that each individual’s life, interests, and mindset are pivotal components in the financial journey, offering personalised guidance that transcends mere numbers and charts.
By fostering a deep understanding of our clients’ circumstances, One Financial Solutions empowers individuals to navigate their financial paths with confidence and clarity, ensuring that their aspirations and dreams remain at the forefront of every decision.
