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Estate Planning

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/about/reviews/

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

Wealth transfer and the next generation

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How to secure your family’s financial future.

We spend a lifetime generating wealth and assets but not many of us ensure that it will be passed to the next generation – our children, grandchildren, nieces, nephews, and so on. Intergenerational wealth transfer is the passage of wealth from one family generation to the next.

It’s becoming increasingly important for more people to consider succession planning and intergenerational wealth transfer as part of their financial planning strategy. As the baby boomer generation reaches retirement age, we’re on the brink of a vast shift in assets, unlike any that we have seen before.

Wealth transfers

By 2027, it is expected that wealth transfers will nearly double from the current level of £69 billion, to £115 billion[1], coined as ‘the Great Wealth Transfer’ of the 21st century.

Intergenerational wealth transfer can be a huge issue for all family members concerned. If done well and executed properly, it can make a real difference to the financial position of the recipients. If misjudged or poorly handled, it can cause enormous issues, conflicts and resentments that are never forgotten nor forgiven.

Financial implications

One aspect that hasn’t been widely considered is the impact on other family members, and in particular children, as their parents think about selling their business or retiring from their career, perhaps selling their family home, and starting life in retirement.

It is important that children are prepared to deal with this process, not least so they are aware of the financial implications and how they may be affected. For instance, children may be expecting to receive a certain amount of money from their parents – particularly those who are selling a business – and end up disappointed. Conversely, they may not be expecting to receive anything, and are therefore not equipped to deal with a windfall.

Contributory factors

According to the King’s Court Trust, £5.5 trillion will move hands in the United Kingdom between now and 2055, with this move set to peak in 2035[2]. Why? Well, there are a number of contributory factors that account for this. The two main reasons are increased net worth and rising mortality rates.

For those approaching, or in, retirement, it’s important to have frank and open conversations with children about expectations and also whether children have the knowledge and understanding to manage financial matters.

Approaching retirement

This is not an easy exercise, as you may not want to discuss your financial affairs with your children. You may find your children’s eyes are opened when they see what their parents have been able to achieve financially. They may even want to know how they can do that themselves and change their own habits.

Everyone works hard to provide for their family, and perhaps even leave them a legacy. However, parents approaching retirement shouldn’t feel that their family is solely reliant on them, or that they need to be responsible for their children’s financial situation.

Expressing wishes

A good approach is to help your children establish their own strong financial footing and be ready for intergenerational wealth transfer. For instance, introducing them to your professional advisers can provide comfort that there is someone they can go to for advice.

Having open conversations with your children and expressing wishes and goals will also ensure that your family are all on the same page, which can help reduce potential conflict later when managing intergenerational wealth transfer. These are some questions you should answer as part of your intergenerational wealth transfer plans:

  • When did wealth enter my life and how do I think this timing influences my values and family relationships?
  • What impact does affluence have on my life and the lives of my next generation?
  • What was the key to my success in creating wealth and how might telling this story to my future generation be helpful?
  • What is my biggest concern in raising my children or grandchildren with affluence?
  • What conversations (if any) did I have with my own parents about money and wealth growing up?
  • How did my parents prepare me to receive wealth?
  • What lessons did I learn from my parents about money and finance that I would like to pass on to my heirs?
  • What family values would I like to pass down to the next generation and how do I plan on communicating this family legacy?
  • What concerns do I have about my adult children when it comes to inheriting and managing the family wealth?
  • How can I help prepare my beneficiaries to receive wealth and carry on our family legacy?

Between generations

Despite the vast amount of wealth likely to be passed down between generations, those in line for inheritance could end up being over-reliant on their expected windfall. The key will be to ensure younger generations are able to get involved and understand how to handle the wealth they will be inheriting, as well as being able to make good decisions about the wealth that they generate themselves.

You need to consider who will receive what and whether you want to pass your wealth during your lifetime or on death. These decisions then need to be balanced by the tax implications of any proposed planning. This is especially important at what can be a highly stressful time. By making advanced preparations, the burden of filing complicated Inheritance Tax returns can be reduced. It’s worth noting that UK Inheritance Tax receipts exceed £3bn from 17,900 estates[3].

Source data:
[1] Kings Court trust, ‘Passing on the Pounds – The rise of the UK’s inheritance economy’.
[2] Resolution Foundation, Intergenerational Commission. ‘The Million dollar be-question’.
[3] Prudential 2019.

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Estate Protection

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Preserving your wealth and transferring it effectively.

Estate planning is an important part of wealth management, no matter how much wealth you have built up. It’s the process of making a plan for how your assets will be distributed upon your death or incapacitation.

As a nation, we are reluctant to talk about inheritance. Through estate planning, however, you can ensure your assets are given to the people and organisations you care about, and you can also take steps to minimise the impact of taxes and other costs on your estate.

In order to establish the value of your estate, it is first necessary to calculate the total worth of all your assets. No matter how large or how modest, your estate is comprised of everything you own, including your home, cars, other properties, savings and investments, life insurance (if not written in an appropriate trust), furniture, jewellery, works of art, and any other personal possessions.

Having an effective estate plan in place will not only help to ensure that those you care about the most will be taken care of when you’re no longer around, but it can also help minimise Inheritance Tax (IHT) liabilities and ensure that assets are transferred in an orderly manner.

Write a Will

The reason to make a Will is to control how your estate is divided – but it isn’t just about money. Your Will is also the document in which you appoint guardians to look after your children or your dependents. Almost half (44%) of over-55s have not made a Will[1], and as such, they will not have any say in what happens to their assets when they die.

Should you die without a valid Will, you will have died intestate. In these cases, your assets are distributed according to the Intestacy Rules in a set order laid down by law. This order may not reflect your wishes.

Even for those who are married or in a registered civil partnership, dying without leaving a Will may mean that your spouse or registered civil partner does not inherit the whole of your estate. Remember: life and circumstances change over time, and your Will should reflect those changes – so keep it updated.

Make a Lasting Power of Attorney

Increasingly, more people in the UK are using legal instruments that ensure their affairs are looked after when they become incapable of looking after their finances or making decisions about their health and welfare.

By arranging a Lasting Power of Attorney, you are officially naming someone to have the power to take care of your property, your financial affairs, and your health and welfare if you suffer an incapacitating illness or injury.

Plan for Inheritance Tax

IHT is calculated based on the value of the property, money and possessions of someone who has died if the total value of their assets exceeds £325,000, or £650,000 if they’re married or widowed. If you plan ahead, it is usually possible to pass on more of your wealth to your chosen beneficiaries and to pay less IHT.

Since April 2017, an additional main residence nil-rate band allowance was phased in. It is currently worth £150,000, but it will rise to £175,000 per person by April this year. However, not everyone will be able to benefit from the new allowance, as you can only use it if you are passing your home to your children, grandchildren or any other lineal descendant. If you don’t have any direct descendants, you won’t qualify for the allowance.

The headline rate of IHT is 40%, though there are various exemptions, allowances and reliefs that mean that the effective rate paid on estates is usually lower. Those leaving some of their estate to registered charities can qualify for a reduced headline rate of 36% on the part of the estate they leave to family and friends.

Gift Assets while you’re Alive

One thing that’s important to remember when developing an estate plan is that the process isn’t just about passing on your assets when you die. It’s also about analysing your finances now and potentially making the most of your assets while you are still alive. By gifting assets to younger generations while you’re still around, you could enjoy seeing the assets put to good use, while simultaneously reducing your IHT bill.

Make use of Gift Allowances

One way to pass on wealth tax-efficiently is to take advantage of gift allowances that are in place. Every person is allowed to make an IHT-free gift of up to £3,000 in any tax year, and this allowance can be carried forward one year if you don’t use up all your allowance.

This means you and your partner could gift your children or grandchildren £6,000 this year (or £12,000 if your previous year’s allowances weren’t used up) and that gift won’t incur IHT. You can continue to make this gift annually.

You are able to make small gifts of up to £250 per year to anyone you like. There is no limit to the number of recipients in one tax year, and these small gifts will also be IHT-free provided you have made no other gifts to that person during the tax year.

A Potentially Exempt Transfer (PET) enables you to make gifts of unlimited value which will become exempt from Inheritance Tax if you survive for a period of seven years.

Gifts that are made out of surplus income can also be free of IHT, as long as detailed records are maintained.

IHT-Exempt Assets

There are a number of specialist asset classes that are exempt to IHT. Several of these exemptions stem from government efforts over the years to protect farms and businesses from large Inheritance Tax bills that could result in assets having to be sold off when they were passed down to the next generation. Business relief (BR) acts to protect business owners from IHT on their business assets. It extends to include the ownership of shares in any unlisted company. It also offers partial relief for those who own majority rights in listed companies, land, buildings or business machinery, or have such assets held in a trust.

Life Insurance within a Trust

A life insurance policy in trust is a legal arrangement that keeps a life insurance pay-out separate from the valuation of your estate after you die. By ring-fencing the proceeds from a life insurance policy by putting it in an appropriate trust, you could protect it from IHT. The proceeds of a trust are typically overseen by a trustee(s) whom you appoint. These proceeds go to the people you’ve chosen, known as your ‘beneficiaries’. It’s the responsibility of the trustee(s) to make sure the money you’ve set aside goes to whom you want it to after you pass away.

Keep Wealth within a Pension

When you die, your pension funds may be inherited by your loved ones. But who inherits, and how much, is governed by complex rules. Money left in your pensions can be passed on to anyone you choose more tax-efficiently than ever, depending on the type of pension you have, by you nominating to whom you would like to leave your pension savings (your Will won’t do this for you) and your age when you die, before or after the age of 75.

Your pension is normally free of IHT, unlike many other investments. It is not part of your taxable estate. Keeping your pension wealth within your pension fund and passing it down to future generations can be very tax-efficient estate planning.

It combines IHT-free investment returns and potentially, for some beneficiaries, tax-free withdrawals. Remember that any money you take out of your pension becomes part of your estate and could be subject to IHT. This includes any of your tax-free cash allowance which you might not have spent. Also, older style pensions may be inside your estate for IHT.

Make Sure Wealth Stays in the Right Hands

Estate planning is a complex area that is subject to regular regulatory change. Whatever you wish for your wealth, we can tailor a plan that reflects your priorities and particular circumstances. To find out more, or if you have any questions relating to estate planning, don’t hesitate to contact us.

Source data: [1] Brewin Dolphin research: Opinium surveyed 5,000 UK adults online between 30 August and 5 September 2018.

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. The rules around trusts are complicated, so you should always obtain professional advice. The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.