Making a plan for what needs to happen after you die may not be the nicest subject to think about. But it can make the lives of your family members and the people you leave behind much easier.
It’s not just for the wealthy either. Anyone can, and should, make a plan for what they leave behind and the earlier you start planning the better. It’s all about making sure your estate is managed in the way you want it to be.
Is it really necessary to make a plan?
In a word, yes. For your own peace of mind, and for your family’s. Your loved ones will want to know how to carry out your wishes, should you predecease them, and planning ahead takes away any uncertainty. It can also protect them from inheritance tax.
What does ‘estate’ mean?
Your ‘estate’ refers to the total of everything you own. This ranges from your most insignificant personal possessions to your house and car. It’s essentially your net worth.
An ‘estate plan’ records and clearly sets out how you want to divide and distribute your estate to the people who will inherit after your death.
Understanding inheritance tax
This tax (often referred to as IHT) is paid on your estate after your death. However, it isn’t universal and many families will never have to pay it on their deceased loved one’s behalf.
Whether you pay IHT or not will depend on the size of your estate, after any debts have been deducted. Estates that are worth less than £325,000 pay no IHT. In general, this is how it works:
- Anything above the £325,000 IHT threshold will incur 40 per cent tax.
- If you leave more than 10 per cent of your estate to charity then your estate might have to pay 36 per cent of anything above £325,000.
Civil partners and married couples can transfer unused IHT allowance to their partner when they die, which means the threshold for that partner can be raised to £650,000.
The Residence Nil Rate Band was introduced on 6 April 2017. This new allowance that starts at £100,000 can be added to the £325,000 IHT if a home is left to children or grandchildren.
What about tax free gifts?
You can give away up to £3,000 every tax year. You can also give gifts to friends and family that won’t be taxed, including gifts between a husband and wife, to charities or universities or gifts given up to seven years before your death.
What about making a will?
Wills are important as they allow you to record what you want to do with your assets. A Will also puts someone in charge of sorting out your wishes.
If you die without a Will this is called dying intestate, which means the government could keep your entire estate if an heir isn’t found. This will depend on where you live, how much your estate is worth, whether you have a partner and or any relatives that survive you.
To make a Will, you can either employ a solicitor to set it out for you, or do it yourself. If you have a complicated estate and a lot of heirs to think about then a solicitor is your best bet.
If your estate is simple and below the IHT threshold, then you can buy packages online and do it yourself. For a Will to be legally binding it needs to be in writing, made voluntarily by someone over 18 of sound mind, be signed by the person making the Will and by two witnesses.