Effective estate planning: Protecting your assets for future beneficiaries | WIS Accountancy
Effective estate planning: Protecting your assets for future beneficiaries | WIS Accountancy image

19th April 2024

Effective estate planning: Protecting your assets for future beneficiaries

Estate planning is the process of making advance arrangements to manage and distribute your assets after your death. Effective estate planning ensures that your wealth is passed on according to your wishes and that your loved ones are cared for. In the UK, effective estate planning can also help minimise the inheritance tax burden on your beneficiaries, making it a worthwhile consideration for anyone looking to protect their assets for future generations. In this article, we'll learn about effective state planning and how it helps with protecting your assets for future beneficiaries.

What is Estate Planning?

Estate planning goes beyond simply writing a will. It encompasses a range of financial, legal, and personal decisions about who will inherit your assets and how your affairs should be managed if you cannot handle them yourself. The primary components of estate planning include wills, trusts, power of attorney, and health care directives, each playing its own important role in ensuring your estate is managed and distributed according to your wishes.

Wills and Trusts

A will is a legal document that specifies how you want your assets to be distributed upon your death. Without a will, your assets will be distributed according to the intestacy rules, which may not align with your wishes. Trusts, on the other hand, offer a way to manage your assets during your lifetime and beyond, providing a flexible solution for those who wish to set specific terms for the distribution of their assets or reduce their inheritance tax liability.

Lasting Power of Attorney

A lasting power of attorney (LPA) is a legal document allowing you to appoint someone to make decisions on your behalf if you cannot do so. An LPA can cover financial decisions, health care decisions, or both, depending on the type of power of attorney you choose.

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Mitigating Inheritance Tax

Inheritance tax (IHT) can take a significant portion of your estate, but you can reduce the amount payable with careful planning. The current IHT threshold in the UK is £325,000 per person, with any value above this amount potentially taxed at 40%. However, strategies such as gifting assets during your lifetime, setting up trusts, and taking advantage of the residence nil rate band can help mitigate this tax.

Gifting Assets

One simple way to reduce your IHT liability is by gifting assets to your beneficiaries while you're still alive. You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate. Small gifts of up to £250 per person per year and gifts in consideration of marriage or civil partnership can also be exempt from IHT.

Trusts and the Residence Nil Rate Band

Trusts can be an effective way to manage and protect your assets and reduce your IHT liability. Certain types of trusts can allow you to pass assets to beneficiaries outside your estate, potentially reducing the amount subject to IHT. The residence nil rate band, introduced in April 2017, offers an additional allowance when passing your main residence to direct descendants, reducing the potential IHT liability.

Regular Review and Updating

Estate planning is not a one-time task but an ongoing process. Regular reviews and updates to your estate plan are important, especially after major life events such as marriage, divorce, the birth of a child, or the acquisition of significant assets. These updates ensure your estate plan aligns with your current wishes and circumstances.

Professional Advice

Estate planning can be complex, with various legal and tax implications. Seeking professional advice from solicitors, tax advisors, and financial planners who specialise in estate planning is advisable. They can provide personalised advice tailored to your situation, helping you navigate the complexities of the law and tax regulations to ensure your assets are protected and passed on according to your wishes.

Be Prepared With Effective Estate Planning

Effective estate planning is essential for anyone looking to protect their assets for future beneficiaries. By understanding the basics, taking steps to mitigate inheritance tax, and seeking professional advice, you can ensure your estate is managed and distributed according to your wishes. Remember, estate planning is an ongoing process that requires regular review and updates to reflect your current circumstances and wishes. Taking the time to create a comprehensive estate plan now can provide peace of mind for you and financial security for your loved ones in the future.

If you're looking for assistance with your estate planning or would like guidance on the best approach to setting up your estate, please get in touch with our team at WIS Accountancy today.