5 Steps to Kick-Start your Estate Planning


Estate Planning is, as the name suggests, planning how and when you share your estate to those you love. Part of this plan is ensuring you have the assets and income you need before you pass away and doing all of this in a tax efficient manner.

The first step is to understand what your current position is today. Once you have this picture you and your adviser can then begin building a plan to ensure you pass your estate to those you love in the way you want to.

#1 What is the value of your estate?

Make a list of everything you own and its value today; your home, other properties, savings, investments. This will be your total estate value. Make a note of whether you own these individually or jointly and who you would want them to go to when you pass away.

#2 Identify what is taxable for Inheritance Tax Purposes (and what is not).

Not everything is included in your estate for inheritance tax. Gifts you made over 7 years ago, most pension funds and pension contracts, a trading business or anything written into Trust*. Deduct the value of these from your total estate and it will give you your Net Estate Value for Inheritance Tax Purposes.

#3 Identify how much of your estate is taxed at Nil?

With the recent budget this March, we saw yet another year where there was no change to the amount of your estate you can pass to your beneficiaries taxed at Nil, this threshold remains at £325,000.

If you are passing your home to direct descendants, you may also benefit from a further allowance called the Residents Nil Rate Band which is a further £175,000. Be aware that this is often lost on high value estates.

The inheritance tax amount still stands at 40% on anything over and above this.

So, for a married couple passing everything to their children they potentially have £1,000,000 threshold taxed at 0% and everything over and above this is taxed at 40%.

#4 Calculate your Inheritance Tax.

So now you know your total estate value, your net estate value for inheritance tax purposes and your nil rate bands you should be able to calculate how much tax may be payable after you pass away. Here’s an example.

Example Values

Total Estate - £1,500,000

Net Estate - £1,250,000

Less Nil Rate and Residents Nil rate Band - £1,000,000

Taxable Estate - £250,000

          Tax to pay at 40% - £100,000

#5 Review your Will.

Your Will is a powerful document that nominates who will be responsible for distributing your estate and who will benefit from the items you individually own. It can also be used to express how people will benefit and when. Review this at the same time you start Estate Planning to make sure it is working with your plan.

Over the coming months we’ll look in more detail at some of the possible options you can consider as part of your Estate Plan including:

1. Spending


3. Pensions

4. Trusts

5. Insurance Written into Trust

6. Business Relief

7. Wills

*NOTE: Some chargeable lifetime transfers made up to 14 years ago can still be assessed in your estate. Section 32 Buy-Out Bonds and Section 226 Retirement Annuity contracts remain in your estate. Trusts that allow the settlor to benefit e.g., family protection trusts, these assets remain in the estate assessment.

The Financial Conduct Authority (FCA) does not regulate Will Writing, Trusts and some forms of Estate Planning.

Publish date: 9th April 2021

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