How recently has your property been valued? Do you know how your home will affect your inheritance tax liabilities? There’s been a lot of talk recently in the news in relation to trusts, care home fees and of course probate fees. A huge increase to probate fees was controversially introduced and then swiftly withdrawn, but has the idea been forgotten or will we see it in another guise after the General Election? These factors are very important when it comes to planning the future of your estate and your legacy. Estate planning is one of those areas people often fall behind on, simply because life moves very fast. Reviewing an estate plan regularly gives you the opportunity to make vital changes, which could reduce future tax liabilities for your loved ones.
Here are our top tips for you to consider when it comes to effective estate planning:
1. Lasting Power of Attorney allows control of your estate
Many professionals consider this to be more important than a Will, and this is why we have made this point number one. Regardless of the value of your estate, if something were to happen to you or your spouse and they lost the ability to make decisions for themselves, a Lasting Power of Attorney gives you the ability to make decisions on their behalf – to manage them and their affairs. There are two types of Lasting Power of Attorney: Property and Financial Affairs, and Health and Welfare. There’s little point putting plans in place without the certainty you can act, should your loved one no longer have the capacity to make important decisions.
2. Wills help to avoid probate fees and family disputes
If you have children, you need a Will, especially if you have children from a previous marriage. Even if you don’t have children, having a Will makes life a lot easier for your loved ones when you pass away. The grieving process is terrible enough, so why add estate worries to their stress? Without a Will, family disputes are very likely and, if the estate goes to probate, sometimes years can go by without any resolution. Plus, probate costs can run into thousands, eroding your hard-earned wealth. Avoid future family crises – make sure your Will is up-to-date and reflects all of your assets, property and possessions. Talk to one of our financial planners for more details.
3. Trusts and inheritance Tax (IHT) – reduce the effect of your legacy
Now you have secured your property and assets with a Will and a Lasting Power of Attorney, it’s time to check how your estate will be taxed. This April 2017, a ‘main residence’ allowance of £100,000 was added to the ‘nil-rate’ band for inheritance tax (where the family home passes to a direct descendant on death). This means that tax won’t apply on estates under £425,000 where a direct descendent has inherited the main home of the deceased. Over this threshold, there is a 40% tax charge.
Taking steps to reduce your exposure to inheritance tax ranges from simple to sometimes very complex solutions and it really depends on your situation and what you are trying to achieve as to what will work best for you. Gifting to your family, using trusts, and using special exemptions, all of these could help you preserve a greater legacy for your loved ones. Speak to one of our financial planners for advice on this.
If you would like advice on estate planning or inheritance tax, please get in touch and speak to one of our financial planners.