Do you plan to leave as much of your wealth as possible to your loved ones? If you do, you cannot underestimate the importance of estate planning. If you carry out effective estate planning, it may help you mitigate or eliminate your exposure to Inheritance Tax (IHT)
What is involved in Estate Planning?
Estate planning is a process you go through from time to time to work out what you should do with your wealth. It is amazing that people who own a house do not consider themselves to be wealthy. Property values have increased at record rates in recent years. That means people are finding the value of their house is coming close to or exceeding the IHT threshold. This tax free threshold currently stands at £325,000.
Essentially, you add up the value of all your property, assets and investments. From that total, you deduct your liabilities. This sum totals the value of your net estate. Once you know that, you can then begin to plan what to do with it.
You will be able to consider whether you should gift some of your estate away now or decide to make a donation to charity on your death. You will also be able to consider using up your annual gift allowances.
If your house is in your sole name, should you transfer this into the joint names of yourself and your spouse or partner? When you die, what do you want to happen to your house or your share in the house.
One of the key steps in carrying out estate planning will be to create a Will. When you make a Will, you can direct the distribution of your estate.
We cannot understate the importance of estate planning to determine the destination of your wealth. Taking action now can mean potentially making significant tax savings in the future.
What are the benefits of Estate Planning?
One clear benefit of estate planning is the potential to reduce your exposure to Inheritance Tax. It also allows you to organise your affairs in advance. This means that when you die, your affairs will be in order.
In addition to estate planning for tax, it is important to consider your estate from the perspective of family dynamics. Increasingly, there are blended families and your family situation should be considered when estate planning.
You may be able to take advantage of the additional £175,000 allowance if leaving your house to your children or grandchildren(including step-children or step-grandchildren). This would mean your tax free allowance may potentially increase to £500,000.
If you gift property, assets or investments to family, friends or charity now and survive for at least seven years, there should be no IHT implications. Again, this is where it is essential to take legal advice.
Donations to charity are free of IHT and are deducted from the net value of your estate for IHT purposes. If you donate 10% or more of your estate to charity, the IHT rate may reduce from 40% to 36%.
These are just some of the benefits you will gain by carrying out effective estate planning.
How often should you carry out estate planning?
Carrying out estate planning is not a time limited exercise. As your wealth increases over time, you should consider how this impacts on your current plans.
For some people, it might be prudent to review your plans every three years. For others it might be every five years.
Clearly, if there has been a material change in your circumstances, it is important to carry out a review. For instance, coming into a large inheritance would probably constitute a material change in circumstances. Other life-changing events such as marriage, children and divorce also qualify.
These are just some examples of when it important to carry out an estate planning review exercise.
Estate planning and Wills solicitors, Dunfermline and Kinross, Fife
Our experienced solicitors understand the importance of estate planning. In conjunction with tax advisors, we advise clients on the benefits and practicalities of estate planning in conjunction with making or reviewing a Will. We help clients in Dunfermline and Kinross and other locations throughout Fife and across the whole of Scotland.
If you would like to meet with one of our solicitors who specialise in this area, please get in touch with us to make an appointment.
