What is Estate planning?
Estate Planning is the process of arranging for how you would like your estate distributed upon your death and making plans, during your lifetime, that may help to ensure your assets are passed on as tax efficiently as possible. Estate Planning typically attempts to eliminate uncertainties over the administration of probate by writing a Will, and maximise the net value of the estate by reducing taxes where possible. Guardians are often designated for minor children and beneficiaries in incapacity.
Good Estate Planning is much more than that, however. It should also:
- Include instructions for your care if you become disabled before you die
- Name a guardian and an inheritance manager for minor children
- Provide for family members with special needs
- Include life insurance to provide for your family at your death, disability income insurance to replace your income if you cannot work due to illness or injury, and long-term care insurance to help pay for your care in case of an extended illness or injury
- Provide for the transfer of your business at your retirement, disability, or death
- Minimise taxes, court costs, and unnecessary legal fees
- Be an ongoing process, not a one-time event. Your plan should be reviewed and updated as your family and financial situations (and laws) change over your lifetime
When should I start thinking about estate planning?
The only answer to this is now.
Estate Planning is not just for retired people, although people do tend to think about it more as they get older. Unfortunately, we can’t successfully predict how long we will live, and illness and accidents happen to people of all ages.
Estate Planning is not just for the wealthy either, although people who have built some wealth do often think more about how to preserve it. Good Estate Planning often means more to families with modest assets, because they can afford to lose the least.
Individuals put off estate planning because they think they don’t own enough, they’re not old enough, they’re busy, think they have plenty of time, they’re confused and don’t know who can help them, or they just don’t want to think about it. Then, when something happens to them, their families have to pick up the pieces.
What happens if I don’t have a plan ready?
At your death: If you die intestate (i.e. without leaving a valid will), your assets will be distributed according to the laws of intestacy. This is a set procedure of distributing your estate to your surviving relatives and may mean that your estate is not distributed according to your wishes. If you have no surviving relatives then ultimately your estate will go to the Crown. If you have an estate plan ready, you have control of who receives what and when. Be it a family heirloom that you want to pass down to your grandchildren or money that you want to give your brother to pay off his home. An estate plan helps to provide peace of mind of you and your family in case the worst happens.
How can we help?
Here at Niche we can help arrange your estate appropriately so that it is distributed in line with your wishes. We can help with all of the different areas of planning from Inheritance Tax planning, will writing to assisting with the Probate process upon the death of a loved one.
What is it?
Inheritance Tax is paid on an estate when somebody passes away if it exceeds a certain value. It's also payable on some gifts or assets placed in trust during a person’s lifetime. On average, most estates don't have to pay Inheritance Tax because they're valued at less than the threshold (£325,000 in 2019/20). Inheritance tax is payable at 40% on the amount over this threshold.
How do you know if you are over the threshold?
To find out if Inheritance Tax is due on an estate, you must first value the estate. This means adding up the value of all the assets in the estate - such as a house, possessions, money and investments - and deducting any debts the deceased may have owed, including household bills and funeral expenses.
An estate also includes the deceased's share of any jointly owned assets and the value of any assets held in certain types of trust.
You should also review any gifts that the deceased may have made in the seven years before their death to see if they are exempt, and if they aren't exempt, include them in the overall value of the estate. In some casts, taper relief may be available.
Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies - to as much as £650,000 in 2019/20. Their executors or personal representatives must transfer the first spouse or civil partner's unused Inheritance Tax threshold or 'nil rate band' to the second spouse or civil partner when they die.
Who is responsible for paying Inheritance Tax?
Inheritance Tax is payable by different people in different circumstances. Usually, the executor or personal representative pays it using funds from the deceased's estate.
The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax - but this is not common.
Can I reduce the amount of Inheritance Tax that I have to pay?
There are many ways that you can reduce the amount of inheritance Tax that you have to pay, such as:
- Annual inheritance tax gift exemption: The first £3,000 given away each tax year is completely ignored as part of your estate and is not subject to Inheritance Tax if you die. If you don’t give away the money this year, you can carry it forward for one tax year (no more) and use it then as long as the current year's allowance is also fully used.
- Gifts to charities and political parties are inheritance tax-free: As well as the gifts themselves being free from inheritance tax, leaving at least 10% of your net estate to a charity can lower the rate of tax you have to pay on your taxable estate from 40% to 36%.
- Small gifts exemption: Gifts of no more than £250 each to any number of recipients per tax year are excluded from inheritance tax (and are not counted toward the annual gift exemption). For example someone with 12 grandchildren could give each of them £250 annually as a birthday present and it wouldn't be counted as part of the estate.
- Regular gifts out of income: As long as they don't reduce your standard of living these gifts are immediately out of your estate.
- Gifts on marriage: Gifts of £5,000 from parent, £2,500 from a grandparent, and £1,000 from anyone else made to a bride or groom are exempt from Inheritance Tax.
- Woodland, heritage, farm and business: If you own an agricultural property that's part of a working farm, then a percentage may be exempt from tax. Similarly if you own woodland, those who receive it in your will can apply for the timber on it, but not the land itself, to be deemed exempt. Do check what happens when the timber is sold, as inheritance tax may apply at that time.
- Make other gifts and survive 7 years: Lifetime gifts to other individuals or into trusts that don’t fall within one of the above exemptions will fall out of your estate after 7 years. Gifts into discretionary/flexible trusts can suffer an immediate 20% inheritance tax charge if they exceed your available nil rate band.
What is probate?
'Probate' is a term commonly used when talking about applying for the right to deal with a deceased person's affairs (called 'administering the estate').
If the person who has died leaves a will:
In this case one or more 'executors' may be named in the will to deal with the person's affairs after their death. The executor applies for a 'grant of probate' from a section of the court known as the probate registry.
The grant is a legal document which confirms that the executor has the authority to deal with the deceased person's assets (property, money and possessions). They can use it to show they have the right to access funds, sort out finances, and collect and share out the deceased person's assets as set out in the will.
If the person who has died didn't leave a will:
If there is no will, a close relative of the deceased can apply to the probate registry to deal with the estate. In this case they apply for a 'grant of letters of administration'. If the grant is given, they are known as 'administrators' of the estate. Like the grant of probate, the grant of letters of administration is a legal document which confirms the administrator's authority to deal with the deceased person's assets.
Is a grant of probate/representation always needed?
When a grant is needed
A grant is almost always needed when the person who dies leaves one or more of the following:
- £10,000 or more
- Stocks or shares
- Certain insurance policies
- Property or land held in their own name or as 'tenants in common'
In most cases above, the bank or relevant institution will need to see the grant before transferring control of the assets. However if the estate is small some organisations, such as insurance companies and building societies, may release the money to you at their discretion.
When a grant may not be needed
A grant of representation may not be needed where:
- The person who died left less than £10,000
- They owned everything jointly with someone else and everything passes automatically to the surviving joint owner
To establish whether the assets can be obtained without a grant, the executor or administrator would need to write to each institution informing them of the death and enclosing a photocopy of the death certificate (and will if there is one).
If you have been named as an executor in the will of a person who has died, you have a responsibility to bring all the money of the estate together, pay any tax bill and then pay out the money in accordance with the deceased's wishes in their will.
What can we do?
This can be a complicated process as quite often a person can die leaving money with various different companies, and having several assets which need to be valued and then distributed. The probate process and paperwork required to complete it can be quite daunting to most people and this is where we can be of help.
We provide a probate service where we will establish exactly what makes up the deceased's estate and value it, complete all the probate forms and call in the contents of the estate so they can be paid out to the beneficiaries named in the will.
We will agree a fee up front with you depending on the work involved and assist you each step of the way.