Considering what’s to come after we’re gone is never a pleasant pastime; but – for those approaching the later stages of retirement, it’s a very real concern. To make sure their loved ones are provided for, people often want to remain in control of how their assets will be distributed after death. Putting plans in place is a great place to start; but – if you’re wanting to do things properly, you’ll need to familiarise yourself with the various complexities of estate planning law.
With rules, regulations and policies flying around – things can easily get complicated; but planning your estate ahead of time is just as important to later life as sourcing home care options or constructing a garden annexe. We’ve created this guide to help you understand the current guidelines – and teach you the basics you’ll need to know going forward.
What is Estate Planning?
The fundamental purpose of estate planning is to consider what will happen to a person’s assets after they’ve passed away. While death is never a pleasant conversation; planning ahead gives peace of mind over what will happen to your financial property when you’re gone. Not only does it sit alongside creating a will – and downsizing to an annexe, as key parts of putting your affairs in order in later life; it also provides a viable and sound way of ensuring your assets are protected for those you love.
Planning an estate is a lengthy and time-consuming process; so it’s always worth ensuring you’ve done all the research you need before undertaking such a task. However – seeing as it will also help you avoid or reduce the amount of Inheritance Tax (IHT) you’ll pay; it’s a job that’s definitely worth doing.
Estate Planning Law – The Basics
The practice of Estate Planning Law primarily involves the drafting of wills, trusts and other legal documents to help facilitate the transfer of property after death. When an estate hasn’t been managed, the deceased’s possessions will automatically get distributed to their next of kin. As such, by not establishing a will – or otherwise making estate plans, the individual gives up control of their estate; and has no say in how it will be divided.
Depending on various factors – such as the complexity of the estate and the health of the individual involved; many people might benefit from the services of an estate planning lawyer. While it may be possible for a relative to do this on behalf of someone no longer able to manage their own affairs; it’s always advisable to seek professional advice early – as with any aspect of retirement planning.
After having children, some families establish trusts to help manage their finances. These documents act in a similar fashion to wills; however they also come with the added benefit of facilitating asset transferral before death. Figuring out the best way to leave money in a trust or will early will help make the lives of your loved ones easier when you’re not around. This impact is a major – and very real concern for retirees; particularly those relying on relatives for an alternative care option to expensive nursing homes.
Often the most pressing concern for anyone planning their estate will be the impending tax you’ll pay upon death. Underpinned by the Inheritance Tax Act 1984, IHT is levied on the entire monetary value of an estate; and – as such, will include the property, money, possessions and assets of the individual who has died.
There’s normally no IHT to pay if either the value of your estate is below the current £325,000 threshold; or you leave everything above this threshold to your spouse, civil partner or registered charity. However, even in these tax-exempt circumstances, it’s likely you’ll still need to report the estate’s value. This is particularly true if the individual involved gave more than £250,000 away in the 7 years before they died; continued to benefit from any financial gifts given or those who have foreign assets valuing over £100,000.
Changes to Estate Planning Law
Currently, the standard IHT rate is 40% and is only charged on the part of your estate above the £325,000 threshold. However, rules surrounding IHT and estate planning law change often; with some major reforms introduced earlier this year. According to current guidelines, those in the following circumstances would likely find their estate exempt from taxation:
- The estate is valued below £325,000; or – alternatively, £650,000 if an unused IHT threshold has been transferred from a deceased spouse or civil partner.
- The deceased was living permanently outside the UK as a ‘foreign domiciliary’ when they passed away and the value of their UK assets is lower than £150,000.
- The deceased left everything to a spouse or civil partner living in the UK; or to a qualifying charity where the estate involved is worth less than £3 million
- IHT can be paid at a reduced rate of 36% if 10% or more of the estate’s ‘net value’ was given to charity in your will. This is the estate’s total value minus any debts.
iHus – Here to Help
With over 300 annexes – and more than ten years of experience, we take pride in making our clients feel as ready for what’s to come as possible. Our dedicated and friendly team is always ready and on-hand to offer their expert advice. Get in touch today to see how we can help you make solid plans for your future.