Does your estate planning pass the test?

It is never too early to plan your estate. If it is large, it could be exposed to inheritance tax at 40%, and if it is small, advance planning can help you ensure that your assets will go to your chosen beneficiaries. Currently just over 3% of settled estates have a liability to IHT and the average IHT payable is almost £245,000.

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 (£325,000 until 5 April 2020/21).

It is now possible to transfer unused nil-rate band allowances between spouses or civil partners. These 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 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 is £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 from 9 October 2007, including those when the death of the first spouse/civil partner occurred prior to that date.

Making a Will

Estate planning begins with the following decisions:

  • Who will inherit your assets?
  • When should the recipients receive them?
  • What limitations will be placed on the recipients?

A Will should also stipulate who is to be your minor child(ren)'s guardian. Although making a Will makes your decision legally binding, the Will can be amended any time you change your mind.

Where should you begin?

Start by completing the following survey. Every 'no' answer indicates an area where estate planning issues should be addressed.

  1. Have you made a Will?
  2. Has your Will been safely lodged so that others can access it after your death?
  3. Does your Will name a guardian for your children if both you and your partner die while they are still in their minority?
  4. Have you considered how to fund the inheritance tax liability?
  5. If you die suddenly, will your executors be able to locate all your records easily?
  6. Do you have medium-term and long-term financial objectives?
  7. Do you know the present value of your estate?
  8. Are you comfortable with the executor(s) and trustees you have selected?
  9. Have you arranged your affairs to take advantage of the inheritance tax exemptions?
  10. Are you sure you have the right type and amount of life assurance?
  11. Have you considered a trust to prevent assurance proceeds from being taxed as part of your estate?
  12. Have you considered making gifts to family members that take advantage of the inheritance tax and capital gains tax exemptions and reliefs?
  13. Are you sure your estate plan is up-to-date and takes into account all your personal wishes and all your potential tax saving strategies?
  14. Have you considered how inheritance tax will affect your business?
  15. Do you know what will happen to your business if you die?
  16. Do you know that business assets can be given away without you having to pay capital gains tax?
  17. Do you know how to give away business assets free of inheritance tax?
  18. Have you considered the use of trusts in estate planning?
  19. Do you know the advantages of an accumulation and maintenance trust?
  20. Do you know the intentions of relatives with substantial estates?

Seek advice for every no answer.