Successful Estate Planning

Estate planning is one of the most important areas of financial planning. It becomes especially important as you approach later life. In this article, we will explain briefly what estate planning is and share our views on how best to structure your affairs for estate planning success.

What is estate planning and why is it important?

Your estate is everything you own – your money, property and possessions. Everyone has an estate, no matter how small. In simple terms, estate planning is about controlling what happens to these things when you’re gone. It is about setting out who gets what and when. Good estate planning also includes making provisions for if you become unable to care for, or make decisions for, yourself.

Everyone should be concerned with estate planning, but it arguably becomes particularly important as the level of wealth increases. When the size of the estate exceeds £325,000, inheritance tax planning becomes an important part of estate planning to ensure your loved ones get as much of what you leave behind as possible.

Making a plan for what will happen when you die gives you peace of mind that comes with knowing your wishes will be followed. It also makes life easier for those you leave behind. If you fail to make a plan, the future of your estate becomes very uncertain – your family may end up with hefty bills to pay or, in the worst-case scenario, they may be left with nothing. 

Our tips for successful estate planning

1)    Create a will that truly covers your wishes when you die

Writing a will is a simple first step. It documents who gets what when you die. It can also appoint guardians for children under 18. Within your will you name your executors – the people who are responsible for making sure your wishes are followed. 

To ensure that your will is legally binding, it’s important to make sure the correct process is followed. Whilst it is possible to write your own will, we highly recommend working with a specialist to avoid any potential issues in the future. They may also think of things you should mention in your will that you would not have considered.

Don’t forget to review your will if there are any big changes in your life.

If you die intestate, that is without a will, the rules are very complicated. It can cause a real headache for your family and make the distribution of your estate a very drawn out process. There are no guarantees that your assets will go to the people you would like them to and the government could keep everything if a suitable heir is not found.


2)    Make sure you have lasting powers of attorneys in place

A lasting power of attorney, or LPA, grants power to make certain decisions on your behalf to someone else. This person is known as your attorney. Your LPA is triggered when it is deemed that you are no longer able to make decisions for yourself.

There are two main types of LPA. One covers your health and care – including what medical care you will receive and, potentially, where you will live. The other covers finance and property.

When choosing your attorney it is important to be sure that person has your best interests at heart. This could be a family member or close friend. It is also possible to name a professional attorney (such as a solicitor or estate planning specialist) to perform this role.

With one person developing dementia every three minutes in the UK*, a scenario where you will need an LPA is sadly becoming increasingly common. Getting professional advice on your LPA is important to make sure you are protecting your future.


3)    Plan how to mitigate your inheritance tax liability

Any assets you pass on when you die could be subject to inheritance tax (IHT) of up to 40%. 

There is a tax-free IHT allowance (the nil-rate band) which is currently £325,000. In addition, there is a relatively new transferable allowance of £150,000 (rising in April 2020 to £175,000) if you’re leaving property to your lineal descendants – usually your children or grandchildren. Anything above these allowances will be subject to tax at 40%.

Careful inheritance tax planning can reduce this liability, ensuring your heirs get more of your estate:

  • Gifting: if you’re married or in a civil partnership, you can give anything you own to your spouse free of IHT. 

You can also use gifting to pass assets on to others. The key is to plan early. If you live for more than seven years after gifting, there is usually no IHT to pay. You can gift £3,000 each year under your annual exemption. You can also give unlimited gifts of £250 which do not count towards your annual exemption. There are also separate allowances for marriage gifts and you are also allowed to gift away any ‘excess income’ so long as certain rules are followed.

You can gift an unlimited amount to a charity or political party free of IHT. The money may not be going to your family, but it is going to a cause close to your heart, so this can be a good way to reduce your overall liability.

  • Trust planning: trusts are a way of managing money and other assets on behalf of one or more beneficiaries. Assets in trust for longer than seven years are no longer part of your estate, meaning trusts can be a very valuable tool for protecting your money from IHT and making sure it goes to the right people. 

There are many different types of trusts, such as Asset Protection Trusts, Lifetime Trusts, Family Protection Trusts and Property Protection Trusts. Each type has different features and offer different benefits. It is vital to get advice from a specialist before setting up any trusts.

  • IHT efficient investments: A number of shares listed on the Alternative Investment Market (AIM) become free from IHT once you have held them for two years, when they qualify for Business Property Relief. The same is true of Enterprise Investment Schemes (EIS) and other specialist investments.

IHT investments can be high risk, so it is important to seek professional financial advice.

IHT planning is a specialist area. It’s always best to work with a financial adviser to make sure you’re taking full advantage of the various allowances available to you.


4)    Plan your income generation in retirement correctly 

Assuming you’ve been sensible enough to save into your pension throughout your life, at the age of 55 (in most cases), you could start taking money from your pot. There are a number of options at this point – taking a lump sum, buying an annuity, or entering drawdown. The best option for you will depend on your individual circumstances. There are tax implications to consider, as well as things like how long you expect to live for and lifestyle factors.

However, drawing from your pension may not be the only option available to you. Investment income, such as stock dividends, fixed-interest payments and proceeds from shares could all be considered.  As pensions are free of IHT on death, it may be more sensible to structure your retirement income to be taken from other sources than your pension and this is something you should work through with a financial adviser to make this as efficient and suitable for you as possible.


5)    Use cash flow planning to work out what you can and can’t afford to give away

An efficient IHT plan usually includes gifting in your lifetime. What you don’t want to do it give away money that you will need yourself later in your life.

By planning what you will need to live the life you desire in your remaining years and projecting your retirement income, you will get a clearer picture of what you can afford to give away. Always remember to allow some contingency and account for things like future care costs.


6)    Make sure you have a good financial adviser

We have already mentioned several times the benefit of working with a good financial adviser on all aspects of your estate planning, but it is so important, it deserves another mention.

Many of the tips we’ve mentioned here can be quite complicated. Everyone also has different circumstances, which means that correct planning for one person is not the same as for someone else. Making sure you execute any plans properly is vital to their success. The better plans you put in place now, the better things will be for you and your loved ones in the future. If you have a particularly large or complicated estate, it’s even more important to get started as soon as possible. Failing to plan can be very costly.

Our experienced team can help with all of the aspects we’ve discussed. They can come up with a plan to suit your individual circumstances. Get in touch to begin your estate planning journey





About the author

Natalie Ponting