Estate planning might sound like something for the super wealthy, but in reality, it’s something that benefits almost everyone. Whether you own a home, have savings, investments or simply want to make sure your personal belongings go to the right people after you die, having a clear plan in place helps protect your loved ones and ensures your wishes are followed after you’re gone.
Estate planning isn’t just about creating a Will, although that is a big part. It can also involve setting up trusts, making gifts and considering how inheritance tax may affect your estate. Taking time to plan now can make a big difference later – both in terms of financial efficiency and family peace of mind.
Wills and trusts explained
A Will is the cornerstone of any estate plan. It’s a legal document that sets out how you want your property, money and possessions (this is your ‘estate’) to be distributed after your death. It also allows you to name Executors – the people responsible for managing your estate – and to make arrangements for any dependents, for example children under 18.
If you don’t have a Will when you pass away, your estate is divided according to the rules of intestacy, which may not reflect your wishes or your family’s circumstances. For example, unmarried partners and stepchildren are not automatically entitled to inherit under these rules.
Leaving assets in a Will that’s been professionally created helps avoid confusion and disputes for everyone involved. And even if you already have one, it’s worth reviewing your Will every few years, or whenever your circumstances change – such as if you get married, divorced or have a child.
Understanding trusts
A trust is a legal arrangement that allows you to give assets (such as money, property or investments) to trustees, who then manage them on behalf of those you’ve picked as your chosen beneficiaries. Trusts can be used for a variety of reasons – from protecting assets for young children to managing wealth more flexibly or reducing inheritance tax.
There are several types of trusts, each with different rules and tax implications. Common examples include:
● Bare trusts, where the beneficiary has an immediate right to the assets.
● Discretionary trusts, where trustees decide how and when beneficiaries receive the assets.
● Life interest trusts, where one person (often a spouse or partner) benefits during their lifetime, and the remaining assets pass to others after their death.
Trusts can be a good way to make sure your assets are protected and used in the way you intend. But they can be complex, so it’s always best to seek professional legal advice when setting one up.
Considering inheritance tax
Inheritance tax is often overlooked but should be considered when you think about how to plan your estate. In the UK, it’s generally charged at 40% on estates worth over £325,000, with the tax paid on the portion of your estate that’s above the threshold. Various allowances and exemptions can reduce the amount due.
For instance, the residence nil-rate band can increase your tax-free threshold if you’re leaving your main home to direct descendants. Meanwhile, gifts made more than seven years before your death are usually exempt from inheritance tax, and assets placed in certain sorts of trusts may also qualify for tax advantages.
By planning ahead with the help of a solicitor, you can make sure that more of your estate goes to your loved ones rather than the taxman.
For legal advice about Wills, trusts and inheritance, contact Batt Broadbent today.