Estate Planning and Wills

The threshold for Inheritance Tax (IHT) has risen in recent years to £325,000 for individuals and – with the option now to transfer any unused threshold to a spouse or civil partner – a total of £650,000 for legally joined couples (for the tax year 2012/13) . The relative level of house prices, however, particularly in the South East, means IHT is still a concern for many homeowners. It is therefore sensible to take some time to consider in advance the potential liability you may be leaving behind.

Before you look to offset it, however, it is important to establish what will accumulate as a potential liability. For most, the key contributor to their estate will be the value of their home and, even if this lies below the threshold, other elements can push an estate over the limit. For example, although people typically talk of the benefits of ISA investing – which shelters investors from capital gains and income tax – ISAs are not sheltered from IHT.

The problem with IHT is not only the fact it has to be paid, but also that it becomes due relatively quickly – generally within six months . When your home and certain other volatile assets are involved, there is a provision that allows your beneficiaries to pay their liability through instalments whilst the home is sold. However, this means that, whilst waiting for that sale, other heirlooms could be compromised as, without prudent planning, some might have to be sold to meet the bills.

Nevertheless, there is action you can take , particularly if your liability is relatively small. Few people realise that they have an annual exempted amount that they can gift to someone. At £3,000 per year, this could go some way to reducing the overall estate. Gifts for weddings, from parents, grandparents and even friends, are also exempt (subject to varying maximum amounts) and there are other useful tools such as loan trusts and discounted gift schemes.

As the Government looks to close potential tax loopholes it is always worth getting advice on what can and cannot be done to ease potential IHT burdens. In the end, it may help your family preserve some of its most valued possessions, sentimental or otherwise.

Wills

It is understandable that so many of us put off the task of making a Will. It makes us think about our mortality and consider things which we hope will never happen. However, without one, you might be surprised to find out how easy it is for your assets to be distributed in an undesirable way. The exact rules of distribution depend where in the British Isles you live as some details differ between Scotland, Ireland and England & Wales. However, if you are not married, for example, the law is united in saying your partner may get nothing. Without a marriage certificate, your children and parents will benefit instead.

Even if you are married, there are many good reasons for making a Will. First and foremost, it allows you to take positive decisions over who gets what – including friends, friends’ children, charities and local societies who are entitled to nothing without your say. You can also decide if ex-partners – or perhaps more importantly, ex-partner’s children – should be helped out. And, if your estate is greater than £325,000 (£650,000 for married couples), a Will can help you plan to reduce your Inheritance Tax liabilities. In thinking like this, making a Will can actually become a positive, rather than negative experience. Considering such things in advance can help your peace of mind and ensure that all your family and friends will be looked after in exactly the way you want them to be.

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Hoskin Financial Planning

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Hoskin Estate Planning

The Financial Services Authority does not regulate Will Writing and some forms of Inheritance Tax Planning.  Levels & bases of reliefs from taxation are subject to change.