Lets face it: no one likes talking about death. It’s like the awkward elephant in the room that we all know is there but prefer to ignore. Making financial plans for a future without you, can be a way to give you and your loved ones peace of mind. It can be a surprisingly comforting experience and for those with the prospect of leaving their loved ones an Inheritance Tax bill, planning for death is a must do.   

Broadly speaking, for those that are unmarried or in a civil partnership, they can pass on £325,000 to their beneficiaries before Inheritance Tax applies. Should they have a main residence they could benefit from a further residence nil rate band allowance of up to £175,000. For those married or in civil partnerships, these figures potentially double to £650,000 of nil rate band and £350,000 of residence nil rate band. There are caveats to the above as the residence nil rate band may not apply in part or full, depending upon who the property passes to, the value of the property and the size of the estate.

For obvious reasons, it is not unheard of advising clients to get married for more than just love. Inheritance tax is normally payable at 40%, reducing to 36% if more than 10% of the net estate is left to charity. In this article I will highlight some simple ways for you to plan for when you are no longer here.

Communicate

I would typically say ‘write a will’ as my first point, however, over the years of working in finance the biggest failure in financial planning, especially with estate planning, is communication.

Humans are creatures of habit and if we don’t understand something, we tend to avoid it, encountering the classic fight or flight psyche. If you trust your family, or potential beneficiaries, this is a good place to start. Should you feel more comfortable speaking to someone independent, speak with a solicitor or financial planner. Having a good general understanding about your financial position is the most important starting block. The sooner you start planning, the easier it will be for your loved ones when your time comes.

Write a Will

Wills are incredibly easy to set up and do not cost a lot. Some solicitors even set up a free Will month, so keep an eye out for those. If you are married or in a civil partnership, the most common Will is a Mirror Will. A Mirror Will leaves everything to the surviving partner, thereafter your children. You can include anything in a will, writing in as many people, charities or political parties as you would like.

Trusts

For those who wish to make provision for loved ones but retain some control, trusts can be a good way to reduce your inheritance tax (IHT) bill. In some circumstances you can even retain regular capital repayments on certain types of trust. Yes, trusts can seem more complex than other solutions however, they can save beneficiaries very substantial sums in IHT payments if set up correctly. We work with solicitors who specialise in trust work to ensure complete legal. Financial and investment advice.  Life Insurance

Often families want to make dealing with what is left behind as easy as possible, whether that is organising the loft full of memories beforehand or making sure the finances are in order, leaving a straightforward transition of wealth to the next generation.  

By taking out life insurance to cover an IHT liability, it puts money in the right hands at the time of need, without having to go through the complications of probate. Life insurance could be considered the least exciting gamble you can sign up to. If you pay less in premiums than you are insured for, your family will have won. However, if you live a long time, the life insurance company technically ‘wins’ if you pay more premiums than the payout. You may feel aggrieved for paying them, however you will have guaranteed a smooth transition and money being in the right hands at the time of need.  

Ultimately, it is important to plan with the cards you have been dealt with at the time. If life insurance is affordable and written into trust, it can cover your IHT liability for your beneficiaries and avoid probate, which will make it a lot easier and quicker for them to access your estate. If you have surplus income, your premiums could also be paid under the ‘gifting out of surplus income’ rules and therefore will not attract IHT on the premiums paid.

Spending and Gifting

Enjoy life. If you can spend for enjoyment, please do. We see too often clients feel they are unable to spend money, sometimes through worry of not having enough but more often the difficulty in the changing of a mindset of having been a saver to now being a spender. When in fact, they can and should start reaping the rewards of having saved throughout their lifetime.  As financial planners, we want to see our clients living life on their terms.

Spending could potentially save your beneficiaries 40% and most beneficiaries would like to see money enjoyed before it passes down to the next generation.

If you don’t want to spend your money, it is sensible to try and gift or use trusts as noted above. It must be worth noting that if you don’t mind paying IHT, well this blog will not concern you.

With gifting you will have your annual exempt amount per donor to use of £3,000, this allows you to gift money immediately out of your estate. If you haven’t used the previous years allowance, you can look back one year and make a gift of £6,000 per donor. There is an annual exempt amount of £250 per donee. Gifts over and above this will be subject to the 7 year rule.

Conclusion

Life is for living. In a world that is ever changing, making little steps to plan ahead is more important than ever. We shouldn’t worry about planning for the end, it is the only thing that is guaranteed, and the sooner we set plans in motion, the more comfortable we feel knowing that our loved ones will be taken care of especially at a difficult time.

By seeking advice and talking it through with your family and/or a financial planner it can remove a lot of the anxieties that come with planning for death. To summarise:

Communicate with close family or trusted friends if you feel comfortable in doing so.
Seek advice sooner rather than later. This will help you gain a better understanding in how to achieve what you want as well as putting your mind to rest that your loved ones are taken care of after you are gone. If possible, enjoy your money whilst you are alive and well.

Please contact Duncan Fernie or another member of our Wealth team if you would like to discuss anything within this article.

Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority. 

This communication should not be read or considered as financial advice. While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm.