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The estateplannerdecember2016

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Monthly magazine of articles about estate planning

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The estateplannerdecember2016

  1. 1. THE ESTATE PLANNER INSIDE THIS ISSUE Welcome to the December 2016 issue of The Estate Planner. On page 04, we look at what’s involved when it comes to paying Inheritance Tax. Usually the executor of a Will or the ‘administrator’ of the estate pays Inheritance Tax using funds from the estate. An executor is a person named in the Will to deal with the estate – there can be more than one. An administrator is the person who deals with the estate if there’s no Will. Trustees are responsible for paying IHT on trusts. No one likes to think about what will happen when they die, but planning ahead will save your loved ones a lot of heartache. Bucket lists have become increasingly popular in recent years. They take the form of a number of things you want to do before you die (or ‘kick the bucket’). On page 02, we provide our nine-step financial bucket list plan. Your pension is your life savings you’ve built up to give you the retirement you want. Since new pension rules came into effect from 6 April 2015, pensions have become more flexible – including a cut in tax when a pension is passed on. With more money able to be passed on, it’s never been more important to plan whom you’d like to inherit it. Read the full article opposite. May we take this opportunity to wish you all a Merry Christmas and best wishes for 2017. 01 It’s good to talk To arrange an appointment or to discuss any concerns that you may have in relation to making appropriate protection for you, your loved ones and your estate, please contact us. We look forward to hearing from you. PASSINGONYOUR PENSION SAVINGS It’s never been more important to plan whom you’d like to inherit them Your pension is your life savings you’ve built up to give you the retirement you want. Since new pension rules came into effect from 6 April 2015, pensions have become more flexible – including a cut in tax when a pension is passed on. PLAN WHO INHERITS YOUR PENSION With more money able to be passed on, it’s never been more important to plan whom you’d like to inherit it. What’s not always well known, however, is that your Will doesn’t usually control who inherits your pension. That final, crucial decision is down to your pension provider, who makes reference to who is named on your Beneficiary Nomination form. If you don’t have this in place, your pension savings may not go to the person (or people) you wanted them to. LIFE CHANGES AND YOUR WISHES All you need to do is request a Beneficiary Nomination form from your pension company. It’s vital, too, to keep your Beneficiary Nominations up to date, as life changes and your wishes may not be reflected in the form you completed ten years ago. It’s particularly important following major life events such as the birth of children or divorce. Issue 24 – December 2016 CONTROLLING WHO INHERITS YOUR PENSION If you want more control over who inherits your pension, don’t delay in completing your Beneficiary Nomination. It is now possible to pass your money purchase pension pot on from generation to generation, just like other assets, but it’s essential to obtain professional advice. If you require more information, please contact us. INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE. A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
  2. 2. 02 No one likes to think about what will happen when they die, but planning ahead will save your loved ones a lot of heartache. Bucket lists have become increasingly popular in recent years. They take the form of a number of things you want to do before you die (or ‘kick the bucket’). Our nine-step financial bucket list plan isn’t complicated or time-consuming, but it will ensure that your loved ones won’t have to struggle with a complicated estate or financial uncertainty after you’re gone. 1. WRITE A WILL This is the most important thing you can do. If you die without writing a Will (known as ‘dying intestate’), it can lead to all sorts of complications and means that THE FINANCIAL BUCKETLISTA nine-step plan to ensure your loved ones aren’t left struggling your estate may not go to the people you want it to. If you die intestate, your assets are divided up according to the law. If you are married without children, then your spouse gets the lot. If you are married with children, then the spouse gets the first £250,000 and 50% of what remains, with the rest going to your children. If you are unmarried, then your parents will receive your estate or other blood family members if your parents are deceased. The laws of intestacy are particularly important if you are in a long-term relationship but are unmarried. Your partner will get nothing if you die, which can lead to a very complicated situation if you own a property together. Once you have a Will, make sure your family know where to find it. If you get it drawn up by a solicitor, they should keep a record of it on file. Finally, make sure you keep it up to date. If you divorce, separate, marry or any other major change happens in your life, be sure to update your Will. Otherwise, you may end up leaving your money to someone you really didn’t want to leave it to. 2. LOOK AFTER YOUR PETS Who would look after your pets if you weren’t around anymore? Choose someone and ask them if they would be prepared to do it. If you don’t have anyone who could help, the RSPCA can. You can sign up to its free Home for Life service, which means it will take in any animals you leave behind after your death and endeavour to find a new home for them. Simply sign up and make a note of your decision in your Will. Alternatively, you could leave all your money to your pet with details of how they are to be looked after. 3. CREATE A FINANCIAL FACT FILE Does your partner or family have details of all your accounts? This WHEN YOU ARE MAKING A NOTE OF ALL YOUR ACCOUNTS, DON’T FORGET ABOUT YOUR DIGITAL ASSETS. OVER THE PAST DECADE, MANY OF US HAVE BUILT UP SUBSTANTIAL ONLINE ESTATES. FOR EXAMPLE, IN 2011 IT WAS ESTIMATED THAT THE AVERAGE ITUNES LIBRARY CONTAINED 7,160 SONGS.
  3. 3. 03 seems like such an insignificant thing, but trying to hunt down savings accounts or work out how to pay the gas bill can cause great heartache for grieving family members. This is easy to avoid. Simply set up a spreadsheet that lists all your bank and savings account details (account numbers and sort codes will do), credit cards and any household accounts such as the gas or telephone provider. 4. DETAIL YOUR DIGITAL ESTATE When you are making a note of all your accounts, don’t forget about your digital assets. Over the past decade, many of us have built up substantial online estates. For example, in 2011 it was estimated that the average iTunes library contained 7,160 songs. At a typical cost of 79p per song, that means most of us have more than £5,500 of music sitting in our iTunes accounts. Digital assets, such as music and e-books, cannot form part of your estate and be formally handed down when you die. But make sure your partner or family member knows your login details if you’ve shared your music or e-book libraries, so they can continue to enjoy them. Also, include details of your social media accounts so these can be closed down. 5. DON’T FORGET YOUR PENSION Many people don’t realise that they can pass on their pension pot as well as their savings. The new pension freedoms allow even more flexibility with pension pots, so be sure to review what you’ve got. The rules on pensions have changed a lot this year. One of the big differences is that you can now pass your pension savings down to your beneficiaries after your death without the taxman taking the bulk of it. When it comes to pensions, the new rules mean people can treat their pension as a tax-efficient family pot. If you die before you are 75, your family can inherit your pension pot as a tax-free lump sum or income. If you are 75 or over, tax only becomes liable once your beneficiaries start taking an income. These changes mean it is important you stipulate in your Will who you want to inherit your pension, and include details of where they can find it. 6. THINK ABOUT INHERITANCE TAX If your estate is worth more than £325,000 when you die (including the value of any part of your home that you own), then 40% of your estate above that will be taken by the taxman. To reduce that, you need to start Inheritance Tax (IHT) planning. This can mean giving away money within the IHT gifting rules – you can give away up to £3,000 a year, wedding gifts and small amounts without being liable for IHT. But anything you give away outside of the gift rules will be liable if you die within seven years of making the gift. The Capital Taxes Office work on the basis of ‘guilty until proven innocent’ when it comes to gifts. In other words, if the executor cannot prove a gift should be exempt, IHT will be charged on the value of the gift. Therefore, it’s important to keep good records of all gifts; the IHT Form 400 – the form used by executors to claim gifts that have been made – is a good starting point. 7. POWER OF ATTORNEY Beyond thinking about what would happen when you die, it also makes sense to consider what you would want to happen if you could no longer make decisions for yourself. Trying to cope with a situation where someone can’t make the big decisions anymore because they have been badly hurt in an accident, had a stroke or are suffering from dementia can be incredibly hard. Make it simpler by setting up a Lasting Power of Attorney. This is a legal document that nominates someone of your choosing to handle your affairs if you lose the mental capacity to do so. A good idea is to set it up at the same time as getting your Will drawn up. 8. CONSIDER LIFE INSURANCE If you have financial dependants such as young children or an elderly relative, you should consider life insurance. Taking out a policy while you are relatively young can be inexpensive and provide invaluable assistance if the worst happens. Level-term life assurance guarantees a lump sum payout if you die within a set period of time, so you could arrange for a £150,000 payout if you die within 15 years. This can be a great choice if you have children, as you can take it out to last the length of time until your children would be financially independent. Also, think about putting your policy into a trust, as the proceeds will not form part of your estate so won’t be subject to IHT, and there’ll be no need to wait for probate to be granted before your loved ones can receive a payout. 9. PLAN YOUR FUNERAL Set aside some money to cover your big send-off. Funerals are the fourth biggest expense of your lifetime – well, just beyond your lifetime – so it is well worth thinking about. Making a note of what you would want in terms of flowers, songs and ceremony types can really help your family. But you can also cut costs, too. If you leave no clue as to your wishes, your loved ones could end up overspending in an effort to show how missed you are – leaving instructions that you don’t mind having a cheap coffin, or arriving in a hearse rather than a horse-drawn carriage, can make a big difference. Make a note of your wishes and keep it with your Will. How can we help? With regular reviews, we can help you to ensure that you make the most of your estate planning requirements. Contact us today to find out more.
  4. 4. 04 The content of this publication is for your general information and use only, and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely informa- tion, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The Financial Conduct Authority does not regulate Will Writing, Inheritance Tax Planning or Taxation Advice. All figures relate to the 2016/17 tax year, unless otherwise stated. Gifts made within the last seven years are not included in the calculations but may be liable to IHT on a sliding scale. The calculation for valuation of your estate is for your general information and use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. If IHT is due on the estate, you would need to complete HM Revenue & Customs (HMRC) form IHT400. You may also need to send other forms at the same time. If no IHT is due, you’ll need to complete form IHT205 to tell HMRC that no IHT is due on the estate. You or your solicitor will need to send the forms with your application for probate (‘grant of representation’). This is called ‘confirmation’ in Scotland. The grant of representation (confirmation) gives you the right to deal with the estate as the executor or administrator. DEADLINE FOR PAYING INHERITANCE TAX The executor of a Will or administrator of an estate usually has to pay IHT by the end of the sixth month after the person died. After this, the estate has to pay interest. PAYING INHERITANCE TAX Usually the ‘executor’ of a Will or the ‘administrator’ of the estate pays Inheritance Tax using funds from the estate. An executor is a person named in the Will to deal with the estate – there can be more than one. An administrator is the person who deals with the estate if there’s no Will. Trustees are responsible for paying IHT on trusts. WORK OUT IF INHERITANCE TAX IS DUE ON AN ESTATE To estimate how much IHT you could have to pay, add up the value of all your wealth, subtract your liabilities and the £325,000 nil rate band allowance, and then multiply the remainder by 40%. If you are married or in a registered civil partnership, add up your combined estates and reduce these by two nil rate band allowances of £325,000 each (£650,000) before applying the 40% rate to estimate your potential liability to IHT. Married couples and registered civil partners are allowed to pass their possessions and assets to each other tax-free, and, since October 2007, the surviving partner is now allowed to use both tax-free allowances (providing one wasn’t used at the first death). Estimating how much liability you could leave behind for your loved ones You can make early payments before you know what the estate owes. Interest isn’t due on this amount. You can pay IHT in instalments over 10 years on things that may take time to sell, for example, property and some types of shares. There are different deadlines for paying IHT on a trust. How can we help? With regular reviews, we can help you to ensure that you make the most of your estate planning requirements. Contact us today to find out more.

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