INSIDE THIS ISSUE
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ESTATE PLANNER Issue 36 – December 2017
Welcome to the December 2017 issue of The Estate Planner. No one likes to think about what will happen when they die, but planning ahead will save your loved ones a lot of heartache. Bucket lists have become increasingly popular in recent years. They take the form of a number of things you want to do before you die (or 'kick the bucket'). On page 02, we provide our nine-step financial bucket list plan. It is important to plan ahead to ensure that when you die, your estate is shared out exactly as you want it to be, and this can be achieved by leaving a Will. The Inheritance Tax threshold (or ‘nil-rate band’) is the amount up to which an estate will have no IHT to pay. If the estate (including any assets held in trusts and gifts made within the seven years before death) is more than the threshold, IHT will be due at 40% on the amount over the nil-rate band. Find out more on page 04.
It’s good to talk To arrange an appointment or to discuss any concerns that you may have in relation to making appropriate protection for you, your loved ones and your estate, please contact us. We look forward to hearing from you.
GIVING TO CHARITY Reducing an Inheritance Tax – it’s good to give
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WHICH CHARITIES YOU CAN LEAVE ASSETS TO To pay the reduced rate, the assets must be left to:
The net value of an estate is the total value of all the assets after deducting:
Charities with an HM Revenue and Customs (HMRC) charity reference numberCommunity amateur sports clubs (CASCs)
n estate can pay Inheritance Tax at a reduced rate of 36% on some assets (instead of 40%) if 10% or more of the ‘net value’ of their estate is left to charity.
• Debts and liabilities • Reliefs • Exemptions, for example, anything left to a husband, wife or civil partner • Anything below the IHT threshold of £325,000 (the nil rate band) An estate doesn’t have to pay IHT on any gifts given to charities, museums, universities or community amateur sports clubs.
WRITING A WILL You can write a clause into your Will to make sure that you’ll leave 10% of your estate to charity. CHANGE A WILL The beneficiaries of an estate can change the Will to make or increase a donation to a charity so the estate meets the 10% test.
OPT OUT OF PAYING THE REDUCED RATE If you’re the executor of a Will or administrator of an estate, you can choose to pay IHT at 40% rather than the reduced rate – if the beneficiaries agree. This can make it easier to deal with the estate, for example, if the cost of getting some of the assets professionally valued would outweigh the benefits of paying the reduced rate.
How can we help? With regular reviews, we can help you to ensure that you make the most of your estate planning requirements. Contact us today to find out more.
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THE FINANCIAL BUCKET LIST
A nine-step plan to ensure your loved ones aren't left struggling
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o one likes to think about what will happen when they die, but planning ahead will save your loved ones a lot of heartache. Bucket lists have become increasingly popular in recent years. They take the form of a number of things you want to do before you die (or 'kick the bucket'). Our nine-step financial bucket list plan isn't complicated or time-consuming, but it will ensure that your loved ones
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won't have to struggle with a complicated estate or financial uncertainty after you're gone. 1. WRITE A WILL This is the most important thing you can do. If you die without writing a Will (known as 'dying intestate'), it can lead to all sorts of complications and means that your estate may not go to the people you want it to. If you die intestate, your assets are divided up according to the law. If you are married
without children, then your spouse gets the lot. If you are married with children, then the spouse gets the first ÂŁ250,000 and 50% of what remains, with the rest going to your children. If you are unmarried, then your parents will receive your estate (or other blood family members if your parents are deceased). The laws of intestacy are particularly important if you are in a long-term relationship but are unmarried. Your partner will get nothing if you
die, which can lead to a very complicated situation if you own a property together. Once you have a Will, make sure your family know where to find it. If you get it drawn up by a solicitor, they should keep a record of it on file. Finally, make sure you keep it up to date. If you divorce, separate, marry or any other major change happens in your life, be sure to update your Will. Otherwise, you may end up leaving your money to someone you really didn't want to leave it to.
2. LOOK AFTER YOUR PETS Who would look after your pets if you weren't around anymore? Choose someone and ask them if they would be prepared to do it. If you don't have anyone who could help, the RSPCA can. You can sign up to its free Home for Life service, which means it will take in any animals you leave behind after your death and endeavour to find a new home for them. Simply sign up and make a note of your decision in your Will. Alternatively, you could leave all your money to your pet with details of how they are to be looked after. 3. CREATE A FINANCIAL FACT FILE Does your partner or family have details of all your accounts? This seems like such an insignificant thing, but trying to hunt down savings accounts or work out how to pay the gas bill can cause great heartache for grieving family members. This is easy to avoid. Simply set up a spreadsheet that lists all your bank and savings account details (account numbers and sort codes will do), credit cards, and any household accounts such as the gas or telephone provider. 4. DETAIL YOUR DIGITAL ESTATE When you are making a note of all your accounts, don't forget about your digital assets. Over the past decade, many of us have built up substantial online estates. For example, in 2011 it was estimated that the average iTunes library contained 7,160 songs. At a typical cost of 79p per song, that means most of us have more than £5,500 of music sitting in our iTunes accounts. Digital assets, such as music and e-books, cannot form part of your estate and be formally handed down when you die. But make sure your partner or family member knows your login details if you've shared your music or e-book libraries, so they can continue to enjoy them. Also, include details of your social media accounts so these can be closed down.
5. DON'T FORGET YOUR PENSION Many people don't realise that they can pass on their pension pot as well as their savings. The new pension freedoms allow even more flexibility with pension pots, so be sure to review what you've got. The rules on pensions have changed a lot this year. One of the big differences is that you can now pass your pension savings down to your beneficiaries after your death without the taxman taking the bulk of it. When it comes to pensions, the new rules mean people can treat their pension as a tax-efficient family pot. If you die before you are 75, your family can inherit your pension pot as a tax-free lump sum or income. If you are 75 or over, tax only becomes liable once your beneficiaries start taking an income. These changes mean it is important you stipulate in your Will who you want to inherit your pension, and include details of where they can find it. 6. THINK ABOUT INHERITANCE TAX If your estate is worth more than £325,000 when you die (including the value of any part of your home that you own), then 40% of your estate above that will be taken by the taxman. To reduce that, you need to start Inheritance Tax (IHT) planning. This can mean giving away money within the IHT gifting rules – you can give away up to £3,000 a year, wedding gifts and small amounts without being liable for IHT. But anything you give away outside of the gift rules will be liable if you die within seven years of making the gift. The Capital Taxes Office work on the basis of 'guilty until proven innocent' when it comes to gifts. In other words, if the executor cannot prove a gift should be exempt, IHT will be charged on the value of the gift. Therefore, it's important to keep good records of all gifts; the IHT Form 400 – the form used by executors to claim gifts that have
IF YOU HAVE FINANCIAL DEPENDANTS SUCH AS YOUNG CHILDREN OR AN ELDERLY RELATIVE, YOU SHOULD CONSIDER LIFE INSURANCE. TAKING OUT A POLICY WHILE YOU ARE RELATIVELY YOUNG CAN BE INEXPENSIVE AND PROVIDE INVALUABLE ASSISTANCE IF THE WORST HAPPENS.
been made – is a good starting point. 7. POWER OF ATTORNEY Beyond thinking about what would happen when you die, it also makes sense to consider what you would want to happen if you could no longer make decisions for yourself. Trying to cope with a situation where someone can't make the big decisions anymore because they have been badly hurt in an accident, had a stroke or are suffering from dementia can be incredibly hard. Make it simpler by setting up a Lasting Power of Attorney. This is a legal document that nominates someone of your choosing to handle your affairs if you lose the mental capacity to do so. A good idea is to set it up at the same time as getting your Will drawn up. 8. CONSIDER LIFE INSURANCE If you have financial dependants such as young children or an elderly relative, you should consider life insurance. Taking out a policy while you are relatively young can be inexpensive and provide invaluable assistance if the worst happens. Level-term life assurance guarantees a lump sum payout if you die within a set period
of time, so you could arrange for a £150,000 payout if you die within 15 years. This can be a great choice if you have children, as you can take it out to last the length of time until your children would be financially independent. Also, think about putting your policy into a trust, as the proceeds will not form part of your estate so won't be subject to IHT, and there'll be no need to wait for probate to be granted before your loved ones can receive a payout. 9. PLAN YOUR FUNERAL Set aside some money to cover your big send-off. Funerals are the fourth biggest expense of your lifetime – well, just beyond your lifetime – so it is well worth thinking about. Making a note of what you would want in terms of flowers, songs and ceremony types can really help your family. But you can also cut costs, too. If you leave no clue as to your wishes, your loved ones could end up overspending in an effort to show how missed you are – leaving instructions that you don't mind having a cheap coffin, or arriving in a hearse rather than a horsedrawn carriage, can make a big difference. Make a note of your wishes and keep it with your Will. 03
PAYING TAX WHEN WRITING YOUR WILL
Helping you control and protect your assets It is important to plan ahead to ensure that when you die, your estate is shared out exactly as you want it to be, and this can be achieved by leaving a Will. The Inheritance Tax (IHT) threshold (or ‘nil-rate band’) is the amount up to which an estate will have no IHT to pay. If the estate (including any assets held in trusts and gifts made within the seven years before death) is more than the threshold, IHT will be due at 40% on the amount over the nil-rate band. The current nil-rate band is £325,000. ANNUAL EXEMPTION If your estate is worth more than £325,000, there are some IHT exemptions which allow you to make gifts to others during your lifetime and not have to pay tax on them when you die. You could make use of your ‘annual exemption’, which allows you to give away gifts worth up to £3,000 in total in each tax year – these gifts will be exempt from IHT when you die. You can carry forward any unused part of the £3,000 exemption to the following year.
from IHT as long as you live for seven years after making the gift. If you die within seven years and the gift is valued at more than the nil-rate band, IHT will need to be paid on it either by the recipient of the gift or the representatives of your estate. However, if you die between three and seven years of making the gift and its value is over the nil-rate band, the gift attracts ‘taper relief ’, which reduces any IHT due on it on a sliding scale. CHANGING THE WAY YOU OWN YOUR HOME If you give your home to your children but continue to live there, it will not be exempt from IHT, even if you live for seven years afterwards. However, if you sell your home and give the money to your children, the gift
won’t be included in your estate for IHT purposes provided you live for seven years.
the particular assets, such as business assets or agricultural property.
If you and your spouse/civil partner own your home as joint tenants, the surviving spouse/ partner will automatically inherit the property when you die. However, if you own a property as tenants in common with another person, you can pass your portion onto your children when you die. This may reduce the future size of the taxable estate when your surviving spouse dies. If your estate is worth more than the nil-rate band, you may wish to consult a solicitor to discuss the implications of changing the way you own your home.
USING TRUSTS If your children aren’t immediately able to look after their own affairs, you can use a trust to pass assets on to them. However, gifts into a trust may still be subject to IHT if the size of your estate, including the amount being transferred, is over £325,000. Trusts are complicated, so it is advisable to seek professional help.
You may be able to claim special relief for passing on
IT’S GOOD TO TALK To arrange an appointment or to discuss any concerns that you may have in relation to making appropriate protection for you, your loved ones and your estate, please contact us – we look forward to hearing from you.
You can also make small gifts up to the value of £250 to as many individuals as you like in any one tax year, although you cannot use your small gifts allowance together with another exemption when giving to the same person. In addition, any gifts you make to your children will be exempt
The content of this publication is for your general information and use only, and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The Financial Conduct Authority does not regulate Will Writing, Inheritance Tax Planning or Taxation Advice. All figures relate to the 2017/18 tax year, unless otherwise stated.
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