Estate planning encompasses not only preparing your finances to ensure your assets are protected for your loved ones once you are gone, but it’s also about ensuring you have enough money to live on.

It starts with obtaining a comprehensive view of your assets. Assessing the value of your estate and ensuring the right documentation is in place is a first port of call (such as Wills, Lasting Powers of Attorney (LPA), and the formation of any relevant Trusts).

Valuing your estate
In order to establish the value of your estate, first calculate the total worth of all your assets, including your home, any other property, money and savings, shares and investments, business equity, cars, jewellery and other personal possessions. Determine the value of

non-monetary assets, by applying a realistic market value. Any gifts which incur Inheritance Tax (IHT) should be added to the value of assets. Then deduct debts and liabilities from this amount to establish the total value of the estate.

Deductions include any outstanding bills, mortgage debt, loans, credit cards, overdrafts, and funeral expenses.

Wills*, Trusts and LPA
Putting together a clear plan, that details your wishes regarding how you’d like your estate to be managed upon your death, will ensure when the person looking after your estate applies for probate they will know what your wishes were. A vital part of successful estate planning is ensuring you have a valid Will in place. Trusts are also a useful way of managing money or other assets on behalf of beneficiaries. There are various types of Trusts which provide an alternative to direct inheritance or transfer of certain parts of an estate, giving you control over who receives what and when. There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’ which are worth establishing at an early stage.

IHT
Estate planning can also help you reduce the amount of IHT payable. With expert planning, you can legitimately reduce the amount of IHT payable and pass on assets to your family as intended. For individuals, the current IHT nil-rate threshold is £325,000, and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. Beyond these thresholds, IHT is usually payable at a rate of 40%.

Since April 2017, there has also been a main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant (e.g. child or grandchild). For the 2020-21 tax year, this allowance is £175,000. Added to the existing threshold of £325,000 this could potentially give rise to an overall IHT allowance of £500,000 for individuals, or £1m for those who are married or in civil partnerships. It is important to note larger estates will find residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m.

There is another simple way of passing money to the next generation which allows for gifts to be made from surplus income. Conditions apply, and advice would be needed to ensure the gifts are made in the right way. We can talk you through the options and help you to find the most appropriate choice.

We can help
We can give you advice to ensure your money ends up with the people you want, for the reasons you choose. We can show you how much money you will need, help you to pass on assets in the most effective way, and work with you to reduce or manage an Inheritance Tax bill.

*Will writing and LPAs are not a part of the Openwork offering. Openwork Limited accepts no responsibility of this aspect of our business. These products are not regulated by the Financial Conduct Authority.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Key Takeaways

• Estate planning involves protecting assets for your loved ones and ensuring you have enough money to live on
• To value your estate, calculate the value of all assets, then deduct debts and liabilities
• A vital part of successful estate planning is ensuring that you have a valid Will in place.
• Trusts are a useful way of managing money or other assets on behalf of beneficiaries.
• There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’
• Estate planning can help you reduce the amount of IHT payable
• For individuals, the current IHT nil-rate threshold is £325,000 and £650,000 for a married couple or civil partners
• There is a main residence nil-rate band (currently £175,000), which applies if you want to pass your main residence to a direct descendant
• For larger estates residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m
• A simple way of passing money to the next generation is gifts made from surplus income
• We can advise you to ensure your money ends up with the people you want in the most effective way and work with you to reduce or manage an Inheritance Tax bill.