Estate planning needs to be done before death to ensure that your heirs get the maximum benefit from your estate. You could pay more in taxes if not for careful estate planning.
Arrange your money, assets, and liabilities as you want them to be distributed after your death with the help of estate planning.
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What is Estate Planning?
Estate planning in the UK entails a few deciding factors like –
- Who do you want to leave your estate to?
- Whom should you put in charge of executing your estate after your death?
- Are there any specific things you want to leave to your children, family, and friends?
- Whose care do you want to leave minor children in?
- Who will care for your estate in your minor children’s stead after your death?
- Do you want to leave anything to charity?
If you are confused about what to do with your estate, enlist the help of a trusted estate planner to help you figure out the right factors to start your estate planning.
Here are 10 things you need to do to plan your estate –
1. Identify your assets
The first step is identifying and listing your assets, liabilities, and debts. This will help you evaluate how much your estate is worth and how much you need to save to avoid taxes.
Less than 1% of the government revenue comes from inheritance tax, but it doesn’t hurt to be careful.
2. Make a Will
A will is a legally binding document that has details of what happens to your assets after you. It states the individual’s wishes on the distribution of assets, disposal of liabilities, and instructions for children.
3. Appoint a Power of Attorney
Safeguard your property by appointing a lasting power of attorney. That gives legal permission to a trusted person to make decisions on your behalf if you are incapacitated.
4. Plan taxes
Understand the extent of taxes your estate will attract. Inheritance tax, capital gains tax, and income tax are a few taxes that could be imposed on your estate.
A very minuscule percentage of government revenue comes from inheritance taxes, but it doesn’t hurt to be aware of the rules.
If your estate is below the nil-rate band of £ 325,000, your estate will pay no inheritance tax. However, if your estate is worth more, you’d have to pay a tax on 40% o the surplus.
But you could save taxes if you leave your entire estate to your civil partner or spouse, charity, or a community sports club.
It is also possible to increase your nil-rate band under certain circumstances.
5. Understand gifts
Gifts are one of the recommended ways to keep your money within the family and avoid paying taxes on it. You can pass on your wealth and money over the years to minimise IHT.
You can gift money before death up to £3,000 every year. Further, you can make small gifts of £250, as long as they are not to the same person.
Using gifts to avoid inheritance tax can be quite complex. Consult a professional if you need to save more in taxes.
6. Use trusts
Put some of your assets in a trust to protect them for a certain period of time. Trusts allow someone else to manage trusts on your beneficiaries’ behalf.
For example- protect assets for minor children or relatives with disability till they can use the assets meant for them.
7. Plan funeral
Plan your funeral so that your loved ones know the kind of send-off you’d like. You can put this in detail in your will.
You can pay for your own funeral with your estate.
8. Appoint executors and beneficiaries
Appoint beneficiaries and executors beforehand and notify them. They must be willing to take up the responsibility.
Executors have a very crucial role in executing your estate. They have to be on board with your idea if they are to take on that responsibility.
Speak to your beneficiaries before making a will as well. Ensure that they know how you’re distributing your assets amongst them to avoid disputes later.
9. Talk to your loved ones
While this is not an easy topic to talk about, discussing your estate and inheritance can help you make better decisions.
Before making the decision to distribute your assets, talk to your loved ones about the executors you want to appoint, charity donations, and beneficiaries. Reduce the stress and guesswork of disposing of your assets.
10. Get the right help
Estate planning can be a difficult task. You may miss out on crucial details that could help you save on taxes. Estate planning is not only helpful in avoiding inheritance tax but also other taxes like capital gains tax and income tax on inherited property.
You would need to onboard a trusted and experienced estate planner who can pay special attention to your case. Every case is different and requires a lot of time, effort, and studying to master each case.
To Sum Up
The government of the UK imposes tax on your estate to redistribute wealth and some call it death tax colloquially. This tax is avoidable with the timely and early distribution of wealth using gifts, trusts, and wills.
If you think that your estate could attract inheritance tax then start saving right from the present.
Consult an estate planning expert to save time and money and a lot of effort. You could plan your estate yourself over the years and get good at it, however, employing the expertise of planning experts who have decades of experience could be more beneficial.