Estate Planning - "Don't Pay Death Taxes"

Here's where we can advise

Lifetime gifts of assets, including business interests Gifts to charity Disposition of your assets on death Using trusts in lifetime and estate tax planning Minimising tax on gifts and inheritances Choosing a friend as an executor Choosing a professional as an executor Inheritance tax reduction planning and life assurance to cover any liabilities Naming a guardian for your children How your business interests should devolve if you die or become disabled

Estate planning should start early in life. If your estate is large it could be subject to inheritance tax, but even if it is small, planning and a well drafted Will can ensure that your assets will go to your chosen beneficiaries.

Do you have a liability to inheritance tax? Use our calcuator to identify your potential liability to tax - and then contact us.

Do you need a Will?

Anyone who owns property - a home, a car, investments, business interests, retirement savings, collectibles, personal belongings, etc - needs a Will. A Will allows you to direct by and to whom your property will be distributed after your death. If you have no Will, your property will normally be distributed according to the intestacy laws, and making assumptions about how these rules work is a very common mistake.

The more you have, the less you should leave to chance when it comes to creating an estate plan that minimises taxes. We can help you to ensure that, through planned lifetime gifts and a tax efficient Will, more of your wealth will pass to the people you love.

Making your estate plan

Start by answering the following questions:

Who? Who do you want to benefit from your wealth? What do you need to provide for your spouse? Should your children share equally in your estate – does one or more have special needs? Do you wish to include grandchildren? Would you like to give to charity?

What? Should your business pass only to those children who have become involved in the business, and should you compensate the others with assets of comparable value? Consider the implications and complications of multiple ownership.

When? Consider the age and maturity of your beneficiaries. Should assets be placed into a trust restricting access to income and/or capital? Or should gifts wait until your death?

Use your exemptions

You should make the best use of IHT exemptions, including:

• The £3,000 annual exemption,
• Normal expenditure gifts out of after-tax income,
• Gifts in consideration of marriage (up to specified limits)
• Exemption for gifts you make of up to £250 per annum to any number of persons
• Exemption for gifts between spouses*, facilitating equalisation of estates

*Transfers on or within seven years of death to a spouse domiciled outside the UK are exempt only to the extent of £55,000

If you die within seven years of making substantial lifetime gifts, they will be added back into your estate and may result in a substantial IHT liability for the recipients. You can take out a life assurance policy to cover this tax risk if you wish.

However you can make substantial gifts out of your taxable estate into trust now, and as a trustee retain control over the assets. However, the inheritance tax treatment of assets held in trust is extremely complex and undergoing a period of change, so you should discuss your thoughts with us in detail.

Estimate the inheritance tax on your estate		£
Value of:	Your home (and contents)
	Your business*
	Bank/savings account(s)
	Stocks and shares
	Insurance policies
	Car
	Jewellery
	Other assets
Total assets
Deduct:
Mortgage
Loans
Other debts
Total liabilities
Net value of your assets
Add: Gifts in last seven years**
Deduct		- 325,000
Taxable estate		£
Tax at 40% is		£
* If you are not sure what your business is worth, we can help you value it. Most business assets currently qualify for Inheritance Tax reliefs. ** Chargeable and potentially exempt transfers.

Your gift strategy

Business assets
Under current rules, there will be no CGT and perhaps little or no IHT to pay if you retain business property until your death. This is fine, as long as you wish to continue to hold your business interests until death, and recognise that the rules may change, the IHT rules that will apply at the date of your death are as yet unknown!

Alternatively, you may wish to hand your business over to the next generation. A gift of business property today will probably qualify for up to 100% IHT relief, and any capital gain can be rolled over to the new owner, so there will be no current CGT liability.

Appreciating assets
Gifts do not have to be in cash. You could save more IHT and/or CGT by gifting assets with the potential for growth in value. Gift while the asset has a lower value, and the appreciation then accrues outside your estate.

Gifts out of income
Another way to build up capital outside your own estate is to make regular gifts out of income, perhaps by way of premiums on an insurance policy written in trust for your heirs. Regular payments of this type will be exempt from IHT.

Use the nil rate band
Currently most transfers of property between spouses or civil partners are exempt from IHT. This means that when one partner dies leaving some or all of their property to their spouse/civil partner they may not make full use of their nil-rate band (currently £325,000).

It is possible to transfer unused nil-rate band allowances between spouses or civil partners. The rules apply to allow a claim to be made to transfer any unused IHT nil-rate band on a person's death from the estate of their deceased spouse/civil partner where the second death occurs on or after 9 October 2007.

The amount of the nil rate-band potentially available for transfer will be based on the proportion of the nil-rate band unused when the first spouse or civil partner died. If on the first death the chargeable estate is £150,000 and the nil-rate band was £300,000, then 50% of the original nil-rate band is unused. If the nil rate band when the surviving spouse dies is £325,000, then that would be increased by 50% to £487,500.

Any claims for transfer of unused nil-rate band amounts can be made by the personal representatives of the estate of the second spouse or civil partner to die when they make an IHT return. The rules apply to all surviving spouse/civil partner estates, including those when the death of the first spouse/civil partner occurred prior to that date.

Estate planning for singles

Single people might not have given a thought to estate planning. But you should make a Will to set out your preferred funeral arrangements, how you want your estate to devolve on your death – and who will have responsibility for it.

Your estate might pass to your parents or your siblings under intestacy rules, but would you prefer to leave your wealth to your nieces and nephews - with the bonus of potential IHT savings through 'generation skipping'.

Estate planning and ‘second’ marriages

A different set of challenges faces parents in their 'second' marriages, with children from former and current marriages.

If both partners are wealthy, you might want to direct more of your own wealth to children of your first marriage. If your partner is not wealthy you might wish to protect him or her by either a direct bequest or a life interest trust (allowing your assets to devolve on the second death according to your wishes). Should younger children receive a bigger share than adult children, already making their own way in the world, and should your partner’s children from the previous marriage benefit equally with your own?

If you are concerned about your former spouse gaining control of your wealth, consider creating a trust to ensure maximum flexibility in the hands of people you choose.

Estate planning for grandparents

Your children may be grown up and financially secure. If your assets pass to them, you will be adding to their estate, and to the IHT which will be charged on their deaths. Instead, you might consider leaving something to your grandchildren, or reducing your taxable estate by helping them out during their education.

A Will is a powerful planning tool

Through a properly drawn Will you can:

• Protect your family by making provisions to meet their present and future financial needs
• Minimise taxes that might reduce the size of your estate
• Name an experienced executor* who will ensure that your wishes are carried out
• Name a trusted guardian for your children
• Provide for any special needs of specific family members
• Include gifts to charity
• Establish trusts to manage the deferral of the inheritance of any beneficiaries
• Secure the peace of mind of knowing that your family and other heirs will receive according to your express wishes

Having a Will also means that there is an opportunity for re-writing in the two years after your death, in the event that some changes are agreed by all concerned to be appropriate.

* Before choosing someone as your executor, give serious thought to how well he or she will be able to handle the duties and responsibilities of the role, and indeed whether or not they will be willing to accept the role.

Is it time to update your estate plan?

Estate plans can easily become out of date. Check to see if any of these changes have occurred since you last updated your estate plan.

• The birth of a child or grandchild
• The death of your spouse, another beneficiary, your executor or your children’s guardian
• Marriages in the family
• Divorces
• A substantial increase or decrease in the value of your estate
• The formation, purchase or sale of a business
• Retirement
• Changes in tax law

The new rules now applying with regard to the inheritance tax allowance means that there may be an opportunity to review your Will now that the inheritance tax exemption on first death is no longer 'lost'.

Do contact us if you would like further help or advice on this subject on 01708 854943 or http://www.truemanbrown.co.uk/