A few years ago Inheritance Tax (IHT) was becoming a political hot-topic. Rising property prices and healthy investment performance had meant that more and more individuals discovered they had estates tipping over the threshold at which IHT was payab
However, fast forward to present day and property prices and asset values generally continue to be suppressed meaning IHT is perhaps not the same problem it was for many people who were on the borderline. The introduction from 9th October 2007 of the ability to transfer any ‘nil rate band’ (currently £325,000 for tax year 2011/12) unused by a deceased spouse or civil partner to the survivor has also meant that most joint estates under £650,000 escape IHT altogether.
However, estate planning is not all about Inheritance Tax and there are a number of estate planning tips that can be relevant regardless of whether or not you are caught by the IHT net.
Make a Will
Ensuring you have a valid and up to date Will is the cornerstone of any estate planning. Where no Will has been made then the estate must be distributed in a particular order known as ‘the Intestacy rules’ – These differ depending on whether the deceased lived in England & Wales, Scotland, or Northern Ireland and can be complex.
It is also important to be aware that any existing Will you may have made will automatically be revoked on marriage or civil partnership so, even if you have previously made a Will it may no longer be valid. It is also important to review any existing Wills to take into account other changes in your circumstances.
There are many things you can do through a Will such as:
• Ensure your assets, money, and property pass to whom you wish to inherit and in the way you want
• Save Inheritance Tax and care fees
• Ensure your spouse / partner always has a home
• Appoint guardians to care for your children (and provide money for their maintenance)
• Give rights of occupation to adult children who are still living at your home when you die
• Ensure an inheritance for your children in the event of your partner remarrying after your death
Consider making a Lasting Power of Attorney (LPA)
When we think of the term ‘estate planning’ it is usually in the context of controlling what will happen to our assets when we die, but what about what will happen to our assets whilst we are still alive should we become unable to manage our own affairs?
This is why making a Lasting Power of Attorney (LPA) is important – Possibly even more important than your Will. An LPA is a legal document that allows you to choose persons (attorneys) you would like to make decisions on your behalf if you lack the mental capacity to make the decision yourself.
There are two types of LPA:
Property & financial affairs LPA: This allows an attorney to make decisions about paying bills, dealing with the bank, collecting benefits, selling your house, etc
Health and welfare LPA: this allows decisions on medical treatment, care, medication, where you live, etc.
Making a LPA not only gives you peace of mind that someone of your choice will be there to manage your affairs but can also make this process less stressful for your loved ones, should they be placed into a situation where they need to make decisions on your behalf.
OK, we appreciate this is not the most romantic thing to discuss with your partner when proposing but in some cases a pre-nuptial agreement may be a sensible thing to consider. It perhaps also doesn’t at first glance appear to be ‘estate planning’, but the costs of divorce can often be greater than the costs of any inheritance tax.
Consider, for example, a couple who each have children from previous relationships. They may wish to ensure that their assets are ‘ringfenced’ to ensure they would not be lost on divorce – Such planning is often incorporated in Wills but of course this only covers a scenario should either party die.
It is important to stress that pre-nuptial agreements are not legally binding, although they are increasingly taken into account provided they meet the following conditions:
• Each party has received good quality legal advice;
• Each party makes a full financial disclosure;
• The terms are fair & reasonable (for example making sufficient provision for children);and
• There is no pressure on either party to sign the agreement
The issues raised above are not necessarily exhaustive but hopefully this article demonstrates that estate planning is just as much about control over your assets as it is about tax. However, whether you are looking for advice on general estate planning or mitigating inheritance tax please contact us if you need further guidance and we will be happy to help.