Metis AM
Estate planning can be a daunting task. You may have multiple generations of your family that you wish to provide for and a range of different types of assets to consider.
Perhaps you’ve read about the importance of taking steps to reduce the amount of Inheritance Tax (IHT) your family might need to pay, or how trusts can be a useful part of estate planning.
But the truth is that the most important factor in your estate plan is the purpose you want it to serve. In other words: what do you want to achieve with your wealth?
There are lots of possible answers to this question. Indeed, deciding on your priorities for your estate plan can sometimes be the hardest part. But once you have a clear idea of what you want to achieve with your wealth, the practical steps you need to take to realise your dream become much easier to implement.
Below, discover some of the most common estate planning goals and how they could influence the plan you create for your wealth.
I want to preserve the wealth I have accumulated for future generations
Having worked hard to build wealth and enable your family to enjoy a high standard of living, it’s natural to want to make sure that wealth can continue to benefit your family into the future.
If preserving your wealth for future generations is a priority, it’s sensible to consult with a financial planner who can advise you of the most suitable wrappers to use. You may need to put plans in place to minimise any tax that your estate or beneficiaries could be liable for.
Additionally, it’s important to understand how much wealth you will need to retain for your own living expenses and potential later-life care costs. This can help you to accurately predict how much money you will have available to pass on to your beneficiaries.
I want to help my family to achieve specific milestones
You might have more specific ideas about how you would like your family to benefit from your wealth. For example, you may wish to ensure that your wealth is used to support beneficiaries in buying their first home or perhaps to pay school or university fees.
If this is the case, it’s important to review your estate plan regularly so that you can update it if circumstances change.
Additionally, you might consider using a trust to hold the assets you are passing down.
A trust is a legal agreement that can be a helpful way to pass on wealth while also ringfencing it for use in specific circumstances. There are different types of trusts, but they aren’t suitable for everyone. So, it’s important to consult with a financial planner to check whether they are a sensible option for your circumstances.
I want to support a charitable cause
Supporting a charity that is close to your heart can be a rewarding way to use your wealth. There are also some tax advantages to leaving a charitable gift in your will.
Any money that you leave to a qualifying charity is exempt from IHT. Additionally, if you leave 10% or more of your estate to a qualifying charity or charities, the rate of any IHT charge your estate is liable for will be reduced from 40% to 36%.
If this is something you’d like to do, make sure you leave clear instructions in your will about how much you would like to leave to charity, and which charity the funds should go to.
I want to help my family financially during my lifetime
An increasingly popular way to pass on wealth is to gift a living legacy. This can allow you to witness the good that your money can do for your family. For example, you can join the house-warming party for your child’s first home or watch your family enjoy fun holidays together.
While there are many benefits to gifting money during your lifetime, there are also some important things to consider before doing so.
The first consideration is to be sure that you will retain enough wealth after the gift to cover your living expenses and potential later-life care costs.
According to the Office for National Statistics, life expectancy has been gradually increasing over the past 40 years, while Canada Life has found that 1.8 million over-60s underestimate the cost of later-life care.
So, it’s crucial to plan accordingly to make sure you don’t leave yourself with a shortfall.
Secondly, what could the possible tax implications be of your gift? If you were to pass away within seven years of giving your gift, depending on the amount you gifted while you were living, your family could still be liable for IHT on the wealth you gave them. So, be sure to have a plan in place to help your beneficiaries to cover these costs just in case.
Read more: 5 helpful ways to gift money and reduce your estate’s Inheritance Tax liability
Having an open conversation with your family can be a big help
Regardless of how you choose to distribute your wealth during your life and after you die, discussing your wishes with your family is often a sensible thing to do.
An open and honest conversation now could help to avoid tension or stress at an already emotional time after you’ve passed away. It can also help your children and other beneficiaries to prepare their own finances.
This is especially important if you are passing on a significant amount of wealth – if your beneficiaries aren’t prepared to manage the money correctly, they could end up overpaying in taxes or making unwise financial decisions.
Read more: 5 practical ways to discuss your will with your adult children
Get in touch
If you’d like to learn more about how to create an estate plan that’s tailored to your needs and goals, we can help.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
The Financial Conduct Authority does not regulate trusts, estate planning, tax planning or will writing.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
