Economic Insights

7 Great Reasons Why You should Plan For Death!

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By Grant Ellis, Director Ellis Bates Group

In 1789 Benjamin Franklin said there are only two certainties in life – death and taxes. We all seem happy to talk about taxes, but less keen on discussing, or planning for our ultimate demise. It’s as if by talking about it we are somehow tempting fate. But it can bring tremendous peace of mind not only to the planner, but also to their loved ones to know that a well thought out programme is in place for their eventual departure. Here are 7 good reasons why you shouldn’t put off planning for it – old or young.

Dying without leaving a Will is not a good idea

If you haven’t made a Will, then when you die, everything you own will be shared out according to the law instead of in accordance with your wishes. This could mean your estate passes to someone you hadn’t intended – or that someone you want to pass things on to ends up with nothing. For example, if you’re not married and not in a civil partnership, your partner is not legally entitled to anything when you die. If you’re married, your husband or wife might inherit most or all of your estate and your children might not get anything (except in Scotland). This is true even if you’re separated. If you have children or grandchildren, how much they are legally entitled to, will depend on where you live in the UK. All of this can be avoided if you make a Will, setting out your wishes.

Oh, and if you needed any more persuading, if you do die without having left a Will, all your assets are likely to be frozen until the estate is sorted out, which can mean hardship for your loved ones in the meantime. And it’s much more expensive to use the courts to reconcile an estate, so there’ll be less left over for your family too. It really is a ‘no brainer.’

For more information visit https://www.ellisbates.com/individuals/inheritance/

Make provision for if you are no longer capable

A good number of us can expect to lose our mental capacity as we get older and this can be just as difficult for the family to deal with as death, if not more so. It’s therefore prudent to not only leave a Will but also Lasting Powers of Attorney for our finances and our health and welfare. These will give our family or trusted loved ones the capacity to make decisions on our behalf when we’re no longer able to, ensuring that bills get paid, and that any decisions about our health can be made by those who are closest to us.

Document your health preferences up front

You should also consider leaving a ‘Living Will’ which is a statement of your wishes intended to guide your family (when you are not able to make the decision yourself) about what treatment you might want in various scenarios. This will give them the confidence that they are acting in accordance with your actual wishes rather than trying to second guess you.

Don’t leave your young family in the lurch

All of this is especially important if you have dependants, but it’s not the only thing that needs to be addressed. Too many of us assume that if anything happens to us, the state will step in and look after our family. That may be the case up to a point, but it won’t be easy on those you leave behind. Much better to take out some low cost life assurance when you’re young, to pay out if anything happens to you. This will give your family a cushion to tide them over should your income be lost to them, or alternatively you have to pay for childcare if your partner is no longer around. It’s only really necessary whilst you have financial responsibilities to others, so can lapse once the mortgage is paid off and the kids have finished education. It is surprisingly inexpensive too.

For more information visit https://www.ellisbates.com/individuals/financial-protection/

Talk to each other about what you want to achieve with what you leave behind

We’ve all seen the TV dramas, where the family solicitor reads out the deceased’s Will, and everyone is shocked by what it contains. Unless you’ve a vindictive streak, that is not really how it should be. It’s much better to talk to your loved ones openly and candidly about your assets, and what you’d like to do with them when you pass on. Often there are 3 generations to consider, and an open and frank discussion, perhaps aided and abetted by your financial adviser will help to make sure everyone understands what your plans are. It may be for example that you initially expect to leave your assets to your children, but they may prefer it if you left them to their children instead. Discussing such things up front helps set everyone’s expectations, and avoids any conflict and disappointment later on.

Plan early to leave more to your family and less to the taxman

Inheritance tax is a tax on the estate, and is potentially payable at a rate of 40% once the estate has a value of over £325,000. So if you are leaving behind a substantial estate, you could be leaving your loved ones with a large tax bill too. However, with some simple planning you can significantly reduce the amount of tax payable. It’s a complicated area so you should seek some specialist advice from a financial adviser, preferably one who is affiliated to the Society of Trust and Estate Practitioners.

Make a plan for your funeral

The last thing your family will want to do in the days following your demise is argue about what they think you may have wanted for your funeral, so leave them some instructions. Things like burial or cremation, whether you want a religious service or not, what songs or music you’d like to have played, and whether or not you want it to be a celebration of your life or a more sombre affair. All these decisions can be taken up front and take away any pressure on the family at what will be a difficult time.

Hopefully I’ve persuaded you that there are at least seven really good reasons why you should plan for your death now rather than put it off into the future. So, what are you waiting for?

Ellis Bates Financial Advisers are independent financial advisers with offices across the United Kingdom. They specialise in Estate Planning and manage over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist https://www.ellisbates.com/reviews/

For more information please visit their website www.ellisbates.com

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Setting Financial Goals

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How to create financial goals you can actually achieve.

Taking control of our financial life requires planning, and that starts with setting financial goals. Setting short-term, mid-term and long-term financial goals is an important step towards becoming financially secure and independent.

We all have different financial goals and aspirations in life. Yet often, these goals can seem out of reach. In today’s complex financial environment, achieving our financial goals may not be that straightforward. This is where financial planning is essential to help secure your financial future.

A financial plan seeks to identify your financial goals, prioritise them, and then outline the exact steps that you need to take to achieve your goals. Figuring out your objectives and matching them with timelines are the keys to setting financial goals. Your financial goals are specific and unique to a number of factors related to you, like your age, your interests, current financial situation and your aspirations. Based on these, you need to develop your goals and establish a plan to achieve them.

If your New Year’s resolutions include giving your financial plans an overhaul, here are our financial planning tips to help you create a robust financial plan for 2020 and beyond.

Be specific about your objectives

Any goal (let alone financial) without a clear objective is nothing more than a pipe dream, and this couldn’t be more true when setting financial goals.

It is often said that saving and investing is nothing more than deferred consumption. Therefore, you need to be crystal clear about why you are doing what you’re doing. This could be planning for your children’s education, your retirement, that dream holiday, or a property purchase.

Once the objective is clear, it’s important to put a monetary value to that goal and the time frame you want to achieve it by. The important point is to list all of your goal objectives, however small they may be, that you foresee in the future and put a value to them.

Keep them realistic

It’s good to be an optimistic person, but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, being overly unrealistic can definitely impact on your chances of achieving them.

It’s important to keep your goals realistic as it will help you stay the course and keep you motivated throughout your journey until you get to your destination.

Short, medium and long-term

Now you need to plan for where you want to get to, which will likely involve looking at how much you need to save and invest to achieve your goals. The approach towards achieving every financial goal will not be the same, which is why you need to divide your goals into short, medium and long-term time horizons.

As a rule of thumb, any financial goal which is due within a five-year period should be considered short-term. Medium-term goals are typically based on a five-year to ten-year time horizon, and over ten years, these goals are classed as long-term.

This division of goals into short, medium and long-term will help in choosing the right savings and investments approach to help you achieve them, and it will also make them crystal clear. This will involve looking at what large purchases you expect to make such as purchasing property or renovating your home, as well as considering the later stages of your life and when you’ll eventually retire.

Always account for inflation

It’s often said that inflation is taxation without legislation. Therefore, you need to account for inflation whenever you are putting a monetary value to a financial goal that is far away in the future. It’s important to know the inflation rate when you’re thinking about saving and investing, since it will make a big difference to whether or not you make a profit in real terms (after inflation).

In both 2008 and 2011, inflation climbed to over 5% – not good news for savers – so always account for inflation. You could use the ‘Rule of 72’ to determine, at a given inflation rate, how long it will take for your money to buy half of what it can by today. The rule of 72 is a method used in finance to quickly estimate the doubling or halving time through compound interest or inflation respectively. Simply divide 72 by the number of years to get the approximate interest rate you’d need to earn for your money to double during that time.

Risk protection plays a vital role

Its best to discuss your goals with those you’re closest to and make plans together so that you are well aligned. An evaluation of your assets, liabilities, incomings and outgoings will provide you with a starting point. You’ll be able to see clearly how you’re doing and may find areas you can improve on.

Risk protection plays a vital role in any financial plan as it helps protect you and your family from unexpected events. Make sure you have put in place a Will to protect your family, and think about how your family would manage without your income should you fall ill or die prematurely.

Check you’re using all of your tax allowances

With tax rules subject to constant change, it’s essential that you regularly review your own and your family’s tax affairs and plan accordingly. Tax planning affects all facets of your financial affairs. You may be worried about the impact that rises in property values are having on gifts or Inheritance Tax, how best to dispose of shares in a business, or the most efficient way to pass on your estate.

Utilising your tax allowances and reliefs is an effective way of reducing your tax liability and making considerable savings over a lifetime. When it comes to taxes, there’s one certainty – you’ll pay more tax than you need to unless you plan. The UK tax system is complex, and its legislation often changes. So it’s more important than ever to be tax-efficient, particularly if you are in the top tax bracket – making sure you don’t pay any more tax than necessary.

Creating your comprehensive financial plan

Creating and implementing a comprehensive financial plan will help you develop a clear picture of your current financial situation by reviewing your income, assets and liabilities. Other elements to consider will typically include putting in place a Will to protect your family, thinking about how your family will manage without your income should you fall ill or die prematurely, or creating a more efficient tax strategy.

Identifying your retirement freedom options

Retirement is a time that many look forward to, where your hard-earned money should support you as you transition to the next stage of life. The number of options available at retirement has increased with changes to legislation, which has brought about pension freedoms over the years. The decisions you make regarding how you take your benefits may include tax-free cash, buying an annuity, drawing an income from your savings rather than pension fund, or a combination.

Beginning your retirement planning early gives you the best chance of making sure you have adequate funds to support your lifestyle. You may have several pension pots with different employers, as well as your own savings to withdraw from.

Monitoring and reviewing your financial plan

There is little point in setting goals and never returning to them. You should expect to make iterations as life changes. Set a formal yearly review at the very least to check you are on track to meeting your goals.

We will help you to monitor your plan, making adjustments as your goals, time frames or circumstances change. Discussing your goals with us will be highly beneficial as we can provide an objective third-party view, as well as the expertise to help advise you with financial planning issues.

Finally, make sure your financial goals are SMART

This is a great way to set a variety of goals. SMART stands for Specific, Measurable, Achievable, Relevant and Time-Related.

Advice every step of the way

Setting financial goals marks the beginning of the financial planning process to help you achieve the objectives at various life stages. Goal-setting gives meaning and direction to the various financial decisions you will take during your lifetime. The start of a new year is the perfect time to review your financial strength, assess your budget and make plans for the future. To arrange a meeting, or for further information, please contact us.

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Considering Inheritance Tax

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How do you leave a legacy which serves your family’s best interests?

Will you be one of the thousands of households in Britain that will have to pay Inheritance Tax? What’s the best way to avoid it? If you’re administering an estate because someone has died, how do you obtain probate? Is it ever possible to retrospectively minimise an estate’s tax liabilities?

Inheritance Tax receipts reached a record high of £5.2 billion in the 2017/18 tax year according to figures published by HM Revenue & Customs[1], despite the introduction of a new residence nil-rate band (RNRB).

Families are becoming increasingly complex entities, often shaped by divorces, remarriages and children from previous relationships. This can make estate and trust planning a challenge to navigate if an individual has strong feelings about those they would like to inherit their assets and those they wouldn’t.

If applicable to your situation, effective estate and trust planning could save your family a potential Inheritance Tax bill amounting to hundreds of thousands of pounds. Inheritance Tax planning has become more important
than ever following the Government’s decision to freeze the £325,000 lifetime exemption, with inflation eroding its value every year and subjecting more families to Inheritance Tax.

Reducing the amount of money beneficiaries have to pay

Inheritance Tax is usually payable on death. When a person dies, their assets form their estate. Any part of an estate that is left to a spouse or registered civil partner will be exempt from Inheritance Tax. The exception is if a spouse or registered civil partner is domiciled outside the UK. The maximum a person can give them before Inheritance Tax may need to be paid is £325,000. Unmarried partners, no matter how long-standing, have no automatic rights under the Inheritance Tax rules.

However, there are steps people can take to reduce the amount of money their beneficiaries have to pay if Inheritance Tax affects them. Where a person’s estate is left to someone other than a spouse or registered civil partner (i.e. to a non-exempt beneficiary), Inheritance Tax will be payable on the amount that exceeds the £325,000 nil-rate threshold. The threshold is currently frozen at £325,000 until the tax year 2020/21.

IHT is payable at 40% on the amount exceeding the threshold

Every individual is entitled to a nil-rate band (NRB) – that is, every individual is entitled to leave an amount of their estate up to the value of the nil-rate threshold to a non-exempt beneficiary without incurring Inheritance Tax. If a widow or widower of the deceased spouse has not used their entire NRB, the NRB applicable at the time of death can be increased by the percentage of the NRB unused on the death of the deceased spouse, provided the executors make the necessary elections within two years of your death.

To calculate the total amount of Inheritance Tax payable on a person’s death, gifts made during their lifetime that are not exempt transfers must also be taken into account. Where the total amount of non-exempt gifts made
within seven years of death – plus the value of the element of the estate left to non-exempt beneficiaries – exceeds the nil-rate threshold, Inheritance Tax is payable at 40% on the amount exceeding the threshold.

Certain gifts made could qualify for taper relief

This percentage reduces to 36% if the estate qualifies for a reduced rate as a result of a charity bequest. In some circumstances, Inheritance Tax can also become payable on the lifetime gifts themselves – although gifts made between three and seven years before death could qualify for taper relief, which reduces the amount of Inheritance Tax payable.

From 6 April 2017, an Inheritance Tax RNRB was introduced in addition to the standard NRB. It’s worth up to £150,000 for the 2019/20 tax year and increases to £175,000 for 2020/21. In order to qualify, you must own a property or a share in a property, which you have lived in at some stage and which you leave to your direct descendants (including children, grandchildren or stepchildren). For estates over £2 million, the RNRB is reduced at the rate of £1 for every £2 over £2 million. In addition, it only applies on death and not on gifts or any other lifetime transfers.

Property, land or certain types of shares where IHT is due

It might also apply if the person sold their home or downsized from 8 July 2015 onwards. If spouses or registered civil partners don’t use the RNRB on first death – even if this was before 6 April 2017 – there are transferability
options on the second death. Executors or legal personal representatives typically have six months from the end of the month of death to pay any Inheritance Tax due. The estate can’t pay out to the beneficiaries until this is done. The exception is any property, land or certain types of shares where the Inheritance Tax can be paid in instalments. Beneficiaries then have up to ten years to pay the tax owing, plus interest.

Source data: [1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/730110/Table_12_1.pdf

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Boosting Investment Returns

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Out of adversity comes opportunity

Under new Prime Minister Boris Johnson, the Government has toughened its stance on a no-deal Brexit, which it has said is ‘now a very real prospect’. 23 June marked three years since the UK voted to leave the European Union.

Three years on from the 2016 referendum, and with ongoing political wrangling, the eventual outcome of Brexit is still uncertain. Brexit-related uncertainty and the challenging domestic backdrop mean investors need to be smarter about how they invest, which is why it is essential to obtain professional financial advice. As Benjamin Franklin once said, ‘Out of adversity comes opportunity.’

Reflecting your future capital or income needs

As the uncertainty around Brexit continues, the need for asset allocation has never been more important. This is because most investment returns are explained by asset allocation, which means it matters more about how you divide up your pot than it does whether you pick the best or even worst funds in each of those asset classes.

Uncertainty is a fact of life when it comes to investing and should not be a reason to put off investing. The important thing to remember is to not let your investment decisions be driven by your emotions. This means that your overall asset allocation needs to reflect your future capital or income needs, the timescales before those capital sums are required, the level of income sought, and the amount of risk you can tolerate. Investing is all about risk and return.

Individual attitude towards risk

Not only does asset allocation naturally spread risk, but it can also help you to boost your returns while maintaining, or even lowering, the level of risk of your portfolio. Most rational investors would prefer to maximise their returns, but every investor has their own individual attitude towards risk.

Determining what portion of your portfolio should be invested into each asset class is called ‘asset allocation’ and is the process of dividing your investment/s between different assets. Portfolios can incorporate a wide range of different assets, all of which have their own characteristics like cash, bonds, equities (shares in companies) and property.

Not putting all your eggs in one basket

The idea behind allocating your money between different assets is to spread risk through diversification and to understand these characteristics and their implications on how a portfolio will perform in different conditions – the idea of not putting all your eggs in one basket.

Investments can go down as well as up, and these ups and downs can depend on the assets you’re invested in and how the markets are performing. It’s a natural part of investing. If we could look into the future, there would be
no need to diversify our investments. We could merely choose a date when we needed our money back, then select the investment that would provide the highest return to that date.

Combining a number of different investments

Moreover, the potential returns available from different kinds of investment, and the risks involved, change over time as a result of economic, political and regulatory developments, as well as a host of other factors. Diversification helps to address this uncertainty by combining a number of different investments.

When putting together a portfolio, there are a number of asset classes, or types of investments, that can be combined in different ways. The starting point is cash – and the aim of employing the other asset classes is to achieve a better return than could be achieved by leaving all of the investment on deposit.

Cash

The most common types of cash investments are bank and building society savings accounts and money market funds (investment vehicles that invest in securities such as short-term bonds to enable institutions and larger personal investors to invest cash for the short term).

Money held in the bank is arguably more secure than any of the other asset classes, but it is also likely to provide the poorest return over the long term. Indeed, with inflation currently above the level of interest provided by many accounts, the real value of cash held on deposit is falling.

Your money could be eroded by the effects of inflation and tax. For example, if your account pays 5% but inflation is running at 2%, you are only making 3% in real terms. If your savings are taxed, that return will be reduced even further.

Bonds

Bonds are effectively IOUs issued by governments or companies. In return for your initial investment, the issuer pays a pre-agreed regular return (the ‘coupon’) for a fixed term, at the end of which it agrees to return your initial investment. Depending on the financial strength of the issuer, bonds can be very low or relatively high-risk, and the level of interest paid varies accordingly, with higher-risk issuers needing to offer more attractive coupons to attract investment.

As long as the issuer is still solvent at the time the bond matures, investors get back the initial value of the bond. However, during the life of the bond, its price will fluctuate to take account of a
number of factors, including:

  • Interest rates – as cash is an alternative lower-risk investment, the value of government bonds is particularly affected by changes in interest rates. Rising base rates will tend to lead to lower government bond prices, and vice versa
  • Inflation expectations – the coupons paid by the majority of bonds do not change over time. Therefore, high inflation reduces the real value of future coupon payments, making bonds less attractive and driving their prices lower
  • Credit quality – the ability of the issuer to pay regular coupons and redeem the bonds at maturity is a key consideration for bond investors. Higher-risk bonds such as corporate bonds are susceptible to changes in the perceived creditworthiness of the issuer

Equities

Equities, or shares in companies, are regarded as riskier investments than bonds, but they also tend to produce superior returns over the long term. They are riskier because, in the event of a company getting into financial difficulty, bond holders rank ahead of equity holders when the remaining cash is distributed.

However, their superior long-term returns come from the fact that, unlike a bond which matures at the same price at which it was issued, share prices can rise dramatically as a company grows.

Returns from equities are made up of changes in the share price and, in some cases, dividends paid by the company to its investors. Share prices fluctuate constantly as a result of factors such as:

  • Company profits – by buying shares, you are effectively investing in the future profitability of a company, so the operating outlook for the business is of paramount importance. Higher profits are likely to lead to a higher share price and/or increased dividends, whereas sustained losses could place the dividend or even the long-term viability of the business in jeopardy
  • Economic background – companies perform best in an environment of healthy economic growth, modest inflation and low interest rates. A poor outlook for growth could suggest waning demand for the company’s products or
    services. High inflation could impact companies in the form of increased input prices, although in some cases companies may be able to pass this on to consumers. Rising interest rates could put strain on companies that have borrowed heavily to grow the business
  • Investor sentiment – as higher-risk assets, equities are susceptible to changes in investor sentiment. Deterioration in risk appetite normally sees share prices fall, while a turn to positive sentiment can see equity markets rise sharply

Property

In investment terms, property normally means commercial real estate – offices, warehouses, retail units and the like. Unlike the assets we have mentioned so far, properties are unique – only one fund can own a particular office building or shop. The performance of these assets can sometimes be dominated by changes in capital values. These unusually dramatic moves in capital value illustrate another of property’s key characteristics, namely its relative illiquidity compared to equities or bonds.

Buying equities or bonds is normally a relatively quick and inexpensive process, but property investing involves considerable valuation and legal involvement. The more normal state of affairs is for rental income to be the main driver of commercial property returns. Owners of property can enhance the income potential and capital value of their assets by undertaking refurbishment work or other improvements. Indeed, without such work, property can quickly become uncompetitive and run down. When managed properly, the relatively stable nature of property’s income return is key to its appeal for investors.

Diversification

If we could see into the future, there would be no need to diversify our investments. We could merely choose a date when we needed our money back, then select the investment that would provide the highest return to that date. It might be a company share, or a bond, or gold, or any other kind of asset. The problem is that we do not have the gift of foresight. Diversification helps to address this uncertainty by combining a number of different investments.

In order to maximise the performance potential of a diversified portfolio, managers actively change the mix of assets they hold to reflect the prevailing market conditions. These changes can be made at a number of levels, including the overall asset mix, the target markets within each asset class and the risk profile of underlying funds within markets. As a rule, an environment of positive or recovering economic growth and healthy risk appetite would be likely to prompt an increased weighting in equities and a lower exposure to bonds. Within these baskets of assets, the manager might also move into more aggressive portfolios when markets are doing well and more cautious ones when conditions are more difficult. Geographical factors such as local economic growth, interest rates and the political background will also affect the weighting between markets within equities and bonds.

In the underlying portfolios, managers will normally adopt a more defensive positioning when risk appetite is low. For example, in equities, they might have higher weightings in large companies operating in parts of the market that are less reliant on robust economic growth. Conversely, when risk appetite is abundant, underlying portfolios will tend to raise their exposure to more economically sensitive parts of the market and to smaller companies.

Time to do more with your money?

Whatever your level of confidence, we can help you make better-informed investment decisions. We’ll demystify a complex subject and provide professional advice to enable you to build an investment portfolio that meets
your investment goals, whatever your risk level. Please contact us to discover your options.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and depend on your individual circumstances. The value of investments and income from them may go down, you may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

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Wealth Preservation

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The 6 things you need to consider to help preserve your wealth.

Whether you have earned your wealth, inherited it or made shrewd investments, you will want to ensure that as little of it as possible ends up in the hands of HM Revenue & Customs. With careful planning and professional financial advice, it is possible to take preventative action to either reduce or mitigate a person’s beneficiaries’ Inheritance Tax bill – or mitigate it altogether. These are some of the main areas to consider.

1. Make a Will

A vital element of effective estate preservation is to make a Will. According to a YouGov survey, almost 60% of all UK adults do not have a Will. This is mainly due to apathy but also a result of the fact that many people feel uncomfortable talking about issues surrounding death. Making a Will ensures an individual’s assets are distributed in accordance with their wishes.
This is particularly important if the person has a spouse or registered civil partner. Even though there is no Inheritance Tax payable between both parties, there could be tax payable if one person dies intestate without a Will.
Without a Will in place, an estate falls under the laws of intestacy – and this means the estate may not be divided up in the way the deceased person wanted it to be.

2. Make allowable gifts

A person can give cash or gifts worth up to £3,000 in total each tax year, and these will be exempt from Inheritance Tax when they die. They can carry forward any unused part of the £3,000 exemption to the following year, but they must use it or it will be lost.
Parents can give cash or gifts worth up to £5,000 when a child gets married, grandparents up to £2,500, and anyone else up to £1,000. Small gifts of up to £250 a year can also be made to as many people as an individual likes.

3. Give away assets

Parents are increasingly providing children with funds to help them buy their own home. This can be done through a gift, and provided the parents survive for seven years after making it, the money automatically moves outside of their estate for Inheritance Tax calculations, irrespective of size.

4. Make use of trusts

Assets can be put in an appropriate trust, thereby no longer forming part of the estate. There are many types of trust available that, if appropriate, usually involve parents (settlors) investing a sum of money into a trust. The trust has to be set up with trustees – a suggested minimum of two – whose role is to ensure that on the death of the settlers, the investment is paid out according to the settlors’ wishes. In most cases, this will be to children or grandchildren.
The most widely used trust is a discretionary trust and can be set up in a way that the settlors (parents) still have access to income or parts of the capital. It can seem daunting to put money away in a trust, but they can be unwound in the event of a family crisis and monies returned to the settlors via the beneficiaries.

5. The income over expenditure rule

As well as putting lump sums into an appropriate trust, people can also make monthly contributions into certain savings or insurance policies and put them into an appropriate trust. The monthly contributions are potentially subject to Inheritance Tax, but if the person can prove that these payments are not compromising their standard of living, they are exempt.

6. Provide for the tax

If a person is not in a position to take avoiding action, an alternative approach is to make provision for paying Inheritance Tax when it is due. The tax has to be paid within six months of death (interest is added after this time). Because probate must be granted before any money can be released from an estate, the executor may have to borrow money or use their own funds to pay the Inheritance Tax bill.
This is where life assurance policies written in an appropriate trust come into their own. A life assurance policy is taken out on both a husband’s and wife’s life, with the proceeds payable only on second death. The amount of cover should be equal to the expected Inheritance Tax liability. By putting the policy in an appropriate trust, it means it does not form part of the estate. The proceeds can then be used to pay any Inheritance Tax bill straightaway without the need for the executors to borrow.

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Choppy waters, not full-on gale

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Wait for the bad weather to pass and stay the course. Volatility fluctuates based on where we are in the economic cycle, but it is a normal feature of markets that investors should expect. When stock markets start correcting, daily injections of bad news may sound as though it will never end. This can spark anxiety, fuel uncertainty and trigger radical decisions in even the most seasoned investors.

From the unfathomable Brexit playbook and the continued prominence of populist ideology, to unconventional US foreign policy and the retirement of Draghi, the highly respected European Central Bank president, uncertainty prevails. But it’s essential not to panic and to keep perspective when markets are turbulent. Whether it’s rough seas or a volatile stock market, the same rules apply. When storms rock the boat, don’t jump ship. Wait for the bad weather to pass and stay the course. Here are some strategies to consider when volatility strikes.

Keep calm – short-term volatility is part and parcel of the investment journey

Markets can fluctuate depending on the news flow or expectations on valuations and corporate earnings. It is important to remember that volatility is to be expected from time to time in financial markets.

Short-term volatility can occur at any time. Historically, significant recoveries occur following major setbacks, including economic downturns and geopolitical events.

While headline-grabbing news can affect short-term market sentiment and lead to reductions in asset valuations, share prices should ultimately be driven by fundamentals over the long run. Therefore, investors should avoid panic-selling during volatile periods so that they don’t miss out on any potential market recovery.

Remain invested – long-term investing increases the chance of positive returns

When markets get rocky, it is tempting to exit the market to avoid further losses. However, those who focus on short-term market volatility may end up buying high and selling low. History has shown that financial markets go up in the long run despite short-term fluctuations.

Though markets do not always follow the same recovery paths, periods after corrections are often critical times to be exposed to the markets. Staying invested for longer periods tends to offer higher return potential.

By combining assets with different characteristics, the risks and performance of different investments are combined, thus lowering the overall portfolio risk. That means a lower return in one type of asset may be compensated by a gain in another.

Stay diversified – diversification can help achieve a smooth ride

Diversification basically means ‘don’t put all your eggs in one basket’. Different asset classes often perform differently under various market conditions.

By combining assets with different characteristics, the risks and performance of different investments are combined, thus lowering overall portfolio risk. That means a lower return in one type of asset may be compensated by a gain in another.

Stay alert – market downturns may create opportunities

Don’t be passive in the face of market declines. When market sentiment is low, valuations tend to be driven down, which provides investment opportunities. In rising markets, people tend to invest as they chase returns, while in declining markets people tend to sell. When investors overreact to market conditions, they may miss out on some of the best-performing days.

Although no one can predict market movements, the times when everyone is overwhelmingly negative often turn out to be the best times to invest.

Invest regularly – despite volatility

Investing regularly means continuous investment regardless of what is happening in the markets.

When investors make fixed regular investments, they buy more units when prices are low and fewer when prices are high. This will smooth out the investment journey and average out the price at which units are bought. It thus reduces the risk of investing a lump sum at the wrong time, particularly amid market volatility.

The longer the time frame for investment, the better, because it allows more time for investments to grow, known as the ‘compounding effect’.

Organising your wealth to support your needs and goals

We take a personalised approach to assessing your needs, which allows us to provide you with long-term, bespoke solutions. To discuss your future investment plans, goals and dreams, please contact us.

The value of investments and income from them may go down. You may not get back the original amount invested. Investment should be regarded as long term and fit in with your overall attitude to investment risk and financial circumstances. This content is for your general information and use only and is not intended to address your particular requirements or constitute advice.

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