Introduction to estate planning

Where do you want your wealth to go?

Although it’s not nice to think about, getting your affairs in order for when you pass away can bring real peace of mind as you get older.

Estate planning is about making sure that all the things you own – whether it’s property, savings or investments – are passed on efficiently and in line with your wishes when you die.

Making a will is a key part of estate planning, but it’s really only the start. Without careful consideration of the financial impact, you could be leaving a big inheritance tax burden behind. That’s one thing you definitely don’t want your loved ones to inherit.

Please note The Financial Conduct Authority does not regulate inheritance tax planning and trusts.

Inheritance tax planning

Known as ‘a tax for those who don’t plan’, inheritance tax (IHT) can take a huge chunk out of the value of your estate.

If your estate is worth more than £325,000 (the inheritance tax threshold or ‘Nil Rate Band’), anything above this amount could potentially be taxed at 40%.

For many people, simply owning their own home may be enough to put them over that threshold.

Ways to minimise IHT

If you’re smart with your money – and start thinking about estate planning sooner rather than later – there are ways to help minimise inheritance tax. These could include:

Making gifts to family and friends before you die
Setting up a trust fund for those you want to benefit from your estate
Putting your life and pension policies into a trust so they’re not included as part of your overall estate.

Your Specialist Financial Adviser from Wesleyan Financial Services can advise you. If you’d like to learn more about inheritance tax before getting advice, you can read our guide to inheritance tax.

The common misconceptions around estate planning

Here's a few wrong assumptions people often make about IHT...

“Inheritance tax is only payable on death”

As well as being assessed on death, inheritance tax is also payable on some lifetime gifts. For instance, money or assets put into discretionary trusts will be subject to inheritance tax at 20% on amounts that, over a seven-year period, exceed the £325,000 limit. The same rule applies to lifetime gifts to your spouse if he or she is not domiciled in the UK.

“I can give my children my home to get it out of my estate”

If you give away your home, but carry on living in it without paying market-value rent, it is classed as a ‘Gift with Reservation of Benefit’. Although you don’t own it, its value will still be included in the inheritance tax assessment on your estate. You can’t sell the property to your children way below market-value either – the difference in value would be counted as a gift.

“Overseas property is not counted for UK inheritance tax”

Again, this is not true. If you are domiciled or deemed domiciled in the UK, all your worldwide assets are included in your estate for UK inheritance tax.

Speak to your Specialist Financial Adviser and they’ll help you understand what your inheritance tax liability could look like – and how best to minimise its impact.