Estate planning and how it can help you

Estate planning may sound to some people like something out of Downton Abbey, but the reality is much more straightforward than that.

Estate planning is essentially working out how you would like your assets to be managed and passed on after your death.

In this article, we look at the estate planning process, the financial and legal aspects and how estate planning solutions can help you and your family.

Who needs estate planning?

You don’t have to be rich or have extensive land and property holdings to benefit from estate planning.

In fact, with inheritance tax (IHT) allowances frozen until at least 2030, even people with moderate levels of assets could end up leaving their descendants with tax bills if they’ve not taken estate planning advice.

Getting expert advice on estate planning can:

• Help make your executors’ and family’s lives easier, especially at a time of stress and grief
• Protect your estate for your beneficiaries
• Clarify how much inheritance tax your beneficiaries could end up paying; and
• Create strategies to minimise any inheritance tax bill

How does estate planning work?

On a basic level, estate planning starts with you adding up the value of all of your assets, from money to property.

When calculating your assets, it’s important to take into account any unused defined contribution pensions you have. This is because from April 2027, unused pensions will form part of your estate and will be subject to inheritance tax.

Once you’ve added up your assets, you need to subtract any liabilities you have, such as loans, mortgages and other payments. The resulting sum is your estate.

You now need to plan what to do with your estate after your death. This can include things like:

• Leaving the family home to your children or grandchildren
• Leaving specific sums of money or items to loved ones
• Setting any conditions your beneficiaries need to meet before they can receive what you leave to them

In order to make those wishes legally binding, you will need to make a will. Getting professional legal advice at an early stage will help to create, manage and safely store your will.

What should I include in my estate plan?

To make sure that everything in your estate goes to the right person, you will need to put together a full list of your assets and outline who will get what.

Your assets can include:

• Cash
• Savings
• Property
• Investments
• Possessions and valuables
• Insurance policies
• Pensions

You should get your assets valued regularly so you always have an accurate picture of the total value of your estate.

All assets left to your spouse or civil partner – including property – will not attract inheritance tax upon your death due to something called the spousal exemption.

However, assets left after their death could attract inheritance tax, as detailed below.

When does inheritance tax kick in?

With limited exceptions, inheritance tax (IHT) of 40% is charged on anything you leave after your death over £325,000. This amount is known as the ‘nil-rate band’.

If you leave your main home to your children or grandchildren, you may also get a residence nil-rate band of £175,000. This adds up to a maximum £500,000 before tax kicks in. Therefore, a couple who are married or in a civil partnership can potentially pass on up to £1m without their inheritors paying tax.

How can estate planning help to minimise inheritance tax?

There are several strategies and estate planning solutions which can help you to cut down on inheritance tax bills which your loved ones may face.

These include things like gifting, trusts, life insurance and maximising allowances.

Check out our blog on inheritance tax planning to find out more.

How can a financial adviser help?

While the basics of estate planning may sound straightforward, there is a lot of complexity involved in the process.

Getting expert advice from a financial adviser can help not just in putting together your estate plan and actioning it, but also in putting that plan in the context of your overall financial situation.

This way, not only will you have peace of mind for the future that your wishes will be carried out and your loved ones will be cared for after your death, but also that you will have confidence in your finances for your own life.

Key takeaways

Estate planning is a vital part of helping your loved ones when you are no longer here and is becoming more important due to the increasing pressure of inheritance tax.

At Fairstone, we have a raft of estate planning experts who have helped hundreds of families face the future with confidence and ensure assets are passed on to the next generation.

To start your estate planning journey and find out more about estate planning solutions, get in touch today.

Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions. It is important to note that the value of investments and the income from them can go down as well as up and that you may get back less than the amount you invested.