ESTATE SEPTEMBER 2019 AND TRUST PLANNING 02 GUIDE TO ESTATE AND TRUST PLANNING GUIDE TO ESTATE AND TRUST PLANNING HELPING YOU PLAN FOR YOUR FUTURE AND YOUR FAMILY’S FUTURE Welcome to our Guide to Estate and Trust transfer assets to your beneficiaries in a Planning. This guide is designed to give you manner that is consistent with your goals TIME TO CREATE A BESPOKE PLAN a basic understanding of Estate and Trust and objectives. We provide an extensive THAT WORKS FOR YOU AND WHAT Planning and the issues you may face. We range of services, plus the ability to tailor YOU WANT TO ACHIEVE? look at various ways you could reduce a solutions based on your specific needs. Every family is different, and potential Inheritance Tax liability in order to It‘s not easy projecting yourself into the every estate is unique. We pass on as much wealth as possible. future and seeing what‘s around the next understand this, and we work This guide addresses the main bend. Benjamin Franklin famously said: with you to create a bespoke arrangements available to individuals. ‘Nothing can be said to be certain, except plan that is tailored for you and The language used throughout this guide death and taxes.’ But while there’s nothing what you want to achieve. To is technical due to the nature of the subject. any of us can do about the former, there are find out more about how we We always recommend that you obtain steps you can take to legitimately reduce can help and our Estate and professional financial advice before making any a potential Inheritance Tax liability. By Trust Planning services, please decisions. We can help you understand these structuring your assets in a tax-efficient way, contact one of our experts for technical issues and make any decisions that are you can make sure everyone is provided for an informal chat – don’t leave appropriate for your personal circumstances. in the future. n it to chance. On page 20, we have included a ‘glossary’ of the technical terms to assist you. ESTATE PLANNING AND TRUSTS ARE A Estate planning is not just about reducing HIGHLY COMPLEX AREA OF FINANCIAL tax. It’s about giving you peace of mind for PLANNING. INFORMATION PROVIDED the future, knowing you’ll have enough after AND ANY OPINIONS EXPRESSED ARE FOR retirement and your loved ones will have the GENERAL GUIDANCE ONLY AND NOT financial support they need, which is why it’s PERSONAL TO YOUR CIRCUMSTANCES essential to make sure your wealth is protected NOR INTENDED TO PROVIDE SPECIFIC for you and your family. By structuring your ADVICE. PROFESSIONAL FINANCIAL assets in a tax-efficient way, you can make sure ADVICE SHOULD BE OBTAINED. WE everyone is provided for in the future. ACCEPT NO RESPONSIBILITY FOR ANY There are many factors to consider: from LOSS ARISING TO ANY PERSON FROM simple gifting to more advanced planning ACTION AS A RESULT OF THIS GUIDE. with various entities, we can help you GUIDE TO ESTATE AND TRUST PLANNING 03 04 10 12 14 20 CONTENTS 02 WELCOME 12 TRUSTS Helping you plan for your future How to give away your wealth and keep and your family’s future some control 04 INHERITANCE TAX 16 LASTING POWER OF ATTORNEY How do you leave a legacy which Allowing someone to make decisions serves your family’s best interests? for you, or acting on your behalf 06 RESIDENCE NIL-RATE BAND 18 WEALTH PRESERVATION How to apply the additional threshold The 6 things you need to consider to help preserve your wealth 08 MAKING FINANCIAL GIFTS Passing on your assets effectively 20 GLOSSARY whilst you’re alive Estate and Trust Planning technical terms explained 10 MAKING A WILL Secure more of your wealth for your loved ones 04 GUIDE TO ESTATE AND TRUST PLANNING INHERITANCE TAX HOW DO YOU LEAVE A LEGACY WHICH SERVES YOUR FAMILY’S BEST INTERESTS? Will you be one of the thousands of standing, have no automatic rights under a charity bequest. In some circumstances, households in Britain that will have to pay the Inheritance Tax rules. Inheritance Tax can also become payable on Inheritance Tax? What’s the best way to avoid However, there are steps people can the lifetime gifts themselves – although gifts it? If you’re administering an estate because take to reduce the amount of money their made between three and seven years before someone has died, how do you obtain beneficiaries have to pay if Inheritance death could qualify for taper relief, which probate? Is it ever possible to retrospectively Tax affects them. Where a person’s estate reduces the amount of Inheritance Tax payable. minimise an estate’s tax liabilities? is left to someone other than a spouse From 6 April 2017, an Inheritance Tax Inheritance Tax receipts reached a record or registered civil partner (i.e. to a non- RNRB was introduced in addition to the high of £5.2 billion in the 2017/18 tax year exempt beneficiary), Inheritance Tax will be standard NRB. It’s worth up to £150,000 according to figures published by HM Revenue payable on the amount that exceeds the for the 2019/20 tax year and increases to & Customs[1], despite the introduction of a new £325,000 nil-rate threshold. The threshold £175,000 for 2020/21. In order to qualify, residence nil-rate band (RNRB). is currently frozen at £325,000 until the you must own a property or a share in Families are becoming increasingly tax year 2020/21. a property, which you have lived in at complex entities, often shaped by divorces, some stage and which you leave to your remarriages and children from previous IHT IS PAYABLE AT 40% ON direct descendants (including children, relationships. This can make estate and THE AMOUNT EXCEEDING THE THRESHOLD grandchildren or stepchildren). For estates trust planning a challenge to navigate if an Every individual is entitled to a nil-rate band over £2 million, the RNRB is reduced at individual has strong feelings about those (NRB) – that is, every individual is entitled the rate of £1 for every £2 over £2 million. they would like to inherit their assets and to leave an amount of their estate up to the In addition, it only applies on death and those they wouldn’t. value of the nil-rate threshold to a non-exempt not on gifts or any other lifetime transfers. If applicable to your situation, effective beneficiary without incurring Inheritance estate and trust planning could save Tax. If a widow or widower of the deceased PROPERTY, LAND OR CERTAIN your family a potential Inheritance Tax spouse has not used their entire NRB, the TYPES OF SHARES WHERE IHT IS DUE bill amounting to hundreds of thousands NRB applicable at the time of death can be It might also apply if the person sold their of pounds. Inheritance Tax planning increased by the percentage of the NRB home or downsized from 8 July 2015 has become more important than ever unused on the death of the deceased spouse, onwards. If spouses or registered civil following the Government’s decision to provided the executors make the necessary partners don’t use the RNRB on first death freeze the £325,000 lifetime exemption, elections within two years of your death. – even if this was before 6 April 2017 – with inflation eroding its value every To calculate the total amount of there are transferability options on the year and subjecting more families to Inheritance Tax payable on a person’s death, second death. Executors or legal personal Inheritance Tax. gifts made during their lifetime that are representatives typically have six months not exempt transfers must also be taken from the end of the month of death to pay REDUCING THE AMOUNT OF MONEY into account. Where the total amount of any Inheritance Tax due. The estate can’t pay BENEFICIARIES HAVE TO PAY non-exempt gifts made within seven years out to the beneficiaries until this is done. Inheritance Tax is usually payable on death. of death – plus the value of the element of The exception is any property, land or certain When a person dies, their assets form their the estate left to non-exempt beneficiaries types of shares where the Inheritance Tax estate. Any part of an estate that is left to – exceeds the nil-rate threshold, Inheritance can be paid in instalments. Beneficiaries then a spouse or registered civil partner will be Tax is payable at 40% on the amount have up to ten years to pay the tax owing, exempt from Inheritance Tax. The exception exceeding the threshold. plus interest. n is if a spouse or registered civil partner is domiciled outside the UK. The maximum CERTAIN GIFTS MADE COULD Source data: a person can give them before Inheritance QUALIFY FOR TAPER RELIEF [1] https://assets.publishing.service.gov. Tax may need to be paid is £325,000. This percentage reduces to 36% if the estate uk/government/uploads/system/uploads/ Unmarried partners, no matter how long- qualifies for a reduced rate as a result of attachment_data/file/730110/Table_12_1.pdf GUIDE TO ESTATE AND TRUST PLANNING 05 INHERITANCE TAX IS USUALLY PAYABLE ON DEATH. WHEN A PERSON DIES, THEIR ASSETS FORM THEIR ESTATE. ANY PART OF AN ESTATE THAT IS LEFT TO A SPOUSE OR REGISTERED CIVIL PARTNER WILL BE EXEMPT FROM INHERITANCE TAX. 06 GUIDE TO ESTATE AND TRUST PLANNING RESIDENCE NIL-RATE BAND HOW TO APPLY THE ADDITIONAL THRESHOLD The Inheritance Tax residence nil-rate band (RNRB) came into effect on exceeds the threshold.