By Balance team, Aug 16 2017 07:24AM
Estate planning affects everyone. If you want your children or loved ones to inherit from you, the more planning you do now, the more likely your legacy will go to the right people. A combined approach using Wills and Trusts will enable you to plan effectively for the future. In this article, we focus on Trusts and Estate planning:
What’s included in your ‘estate’?
Everyone has an ‘estate’ and this is made up of ‘assets’, which include:
• Your home – and any other property you own including buy-to-lets and foreign property, such as apartments and villas.
• Your money - this includes money in bank accounts, savings and investments, as well as any life policies or pension benefits you may be receiving.
• Your possessions – this is where it can get complicated because everything you possess worth any value needs to be taken into consideration. For example - cars, boats, jewellery, paintings, ornaments, crystal glassware, ceramics, camera or video equipment, designer clothing and shoes – the list is endless!
• Your business interests – again, this can prove very complex if you have shares in a company or you own business property. Always speak to an expert to assess the value of your business interests.
How do I value my estate?
To protect your children from facing a huge Inheritance Tax bill, it is really important to have your estate valued. If your estate is worth more than £325,000 (Nil Band Rate), Inheritance Tax will be owed at 40%. Inheritance Tax will not be owed if your assets are passed between a married couple. Before you consider writing a Will, you need to understand what you own and how much it’s all worth. Once you understand the true value of your estate, you will be able to start planning to protect your assets – for example, by using a Trust. For accurate estate valuations, please contact our team for more information.
So, what’s a ‘Trust’?
There are several types of Trust available and it is important to choose the right Trust for your situation. In simple terms, Trusts allow you to secure and control your assets until a chosen time in the future – for example, after you pass away, to enable your children to inherit from you. Having a Trust in place can protect your estate from possible threats such as care fees and inheritance tax, and there can be certain tax benefits too.
• Asset Protection Trusts or Lifetime Trusts - you can place assets valued up to the Nil Band Rate (which is £650,000 for married couples) into this type of Trust. The benefits include protection against Inheritance Tax, care home fees, debt and insolvency, ensuring your assets are passed to the people you choose. Lengthy delays relating to probate, as well as costs, can also be avoided. You could be named as a Trustee, but you would need to also appoint another Trustee (someone you can, quite literally, trust implicitly!). An Asset Protection Trust also allows you to control how your assets are left, i.e. you may wish your children to have a share in your family home, but you could have a partner living at the property and you may not wish them to feel at risk of the property being sold while they’re living there.
• Family Protection Trust – similar to the above, this type of Trust protects your estate by ensuring it is passed onto the people you choose, avoiding disinheritance issues, reducing Inheritance Tax, helping to protect against care home fees and to reduce probate costs. You can benefit from your assets while you are alive, and then when you pass away, your assets will pass to the people you choose.
• Property Protection Trust – this protects your share in your property, i.e. your family home, so it can be inherited by your chosen ‘beneficiaries’, i.e. your children, partner, friends, and so on. The reason why this is so important is because most couples (married or civil partners) own their homes as ‘joint tenants’. This means that both people own all of the property rather than 50:50. This can make things very complicated should one person die and the deceased person intended the property to be passed to someone else. Usually, this becomes an issue when couples separate and remarry, and the family home is then passed on to the new spouse and their family. Alternatively, you may be ‘tenants-in-common’, equally owning a property, i.e. a shared buy-to-let. This poses a risk when one half of the property could then pass to someone written into a Will without the other person even being aware. See our recent blog on disinheritance for more details on this.
If you would like to find out more about Trusts and Estate Planning, please get in touch to speak to one of our financial planners.