Anything is possible

I ask the same questions in a lot of client meetings:

  • Have you made a Will?
  • Have you set up a Lasting Power of Attorney?
  • Are they both up to date?

In this article, I’ve refreshed one of our old articles about estate planning: Poppycock, Balderdash and Hogwash. I hope you find it useful and welcome your feedback.

Things change constantly

As I write, there’s the potential for a new Government in July. With a new Government, anything could change. Even if there’s not a new Government, anything could change.

This means you need to plan based on your best knowledge of current legislation, not on speculation.

For example, you might have heard rumours that Inheritance Tax (IHT) is to be abolished. Sadly, this is probably rubbish!

When you are serious about doing the right IHT planning, you can mitigate the effects of IHT. Here are a few of the options…

PETs

With a Potentially Exempt Transfer (PET), you can pass on an unlimited amount of your money now without the beneficiary having to pay IHT – as long as you survive for seven years after the transfer.

Gifts

For years, there’s been no change in the amount of cash or assets you can give away tax free.

  • The maximum still stands at £3,000 per tax year. That’s £3,000 in total. Not per person. So, if you want to make four equal gifts, the recipients will get £750 each
  • If one of your children is getting married, you can give them up to £5,000 in cash or assets, tax free
  • If you have grandchildren, you can give them up to £2,500 per year, tax free
  • You can give anyone you want up to £250 tax free, anytime

Jargon-busting

Bear with me because the jargon gets a bit complicated here. Let’s start with some definitions. There’s a Nil Rate Band (NRB) and a Residential Nil Rate Band (RNRB).

  • The NRB is the amount you can pass on to beneficiaries of your estate without them being charged any IHT. This threshold is set at £325,000 until 2028. Above that limit, your beneficiaries will have to pay IHT at the rate of 40%
  • The RNRB allowance can be offset against the family home and only applies to estates worth under £2 million*. This threshold is currently set at £175,000

For married couples and those in civil partnerships there will be two NRBs and RNRBs (one each).

*Note that assets above £2m will start to lose the RNRB (it tapers down to zero depending on the total level of assets).

Discretionary Trusts

Don’t be put off the idea of putting your money into a Trust – in many circumstances, they are still a sensible way to:

  • Protect your assets e.g. from potential long-term care costs of the surviving spouse
  • Set aside assets that may grow in the future (and this growth will be outside the estate of the second partner)
  • Reduce IHT
  • Control who gets what when you’re gone

Loan arrangements

Another way to provide excellent second-generation IHT planning involves making loans from the Trust to potential beneficiaries.

Then, on the death of the second spouse, the debt owed to their Trust will reduce the value of their estate by £325,000. For many estates, this will be enough to pull the net value below the £2m limit, and avoid the loss of the RNRB allowance.

Digital legacy

These days, you have probably accrued digital assets as well as physical ones. To help manage those as well as everything else, we’ve invested in Zenplans on behalf of our clients.

It’s a private portal where you can store details of all your assets, debts, daily life and future wishes. It’s a proactive way you can make life much easier for your loved ones during probate.

For more on this, please see: When Tom met Jerry.

What this means to you

Take professional advice and make a proper plan now, and you’ll be ready for anything, whatever happens.

Whatever way the General Election goes, sitting around doing nothing is not an option.

Related reading

We often cover the same topics. Here are all our estate planning articles in one place. And, on the right, three of our most popular articles on the subject that you might like to re-read.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100