Wills, trusts and inheritance planning: what you need to know

Whatever your stage of life, it is never too early or too late to turn your mind to planning your Will and organising your financial affairs to make sure your loved ones are properly provided for in the future. When getting your affairs in order, it is always important to seek professional inheritance tax planning advice to ensure that your beneficiaries receive as much of the estate as possible.

In this article, Claire Wickens, Wills, trusts and estate planning solicitor with Warners Solicitors in Kent, highlights how making a Will and using trusts for some careful inheritance planning can ensure that your beneficiaries are taken care of as per your wishes after your death.

Maximising your inheritance tax allowances and reliefs

If you have spent years saving your hard-earned money you will want to ensure the taxman gets as little as possible from your estate on your death. On the other side of the coin, you will want to maximise the value of your estate for your loved ones.

The inheritance tax threshold (the nil rate band) for an individual is £325,000 so if your estate is worth more than that on your death you could be taxed at 40 per cent for anything above the threshold.

With rising house prices, more estates than ever now exceed this threshold, meaning that most of us need to consider what you can do now to reduce the inheritance tax payable on your estate when you die.

There may be additional inheritance tax allowances or reliefs that you may be applicable, such as:

  • the residence nil rate band;
  • business property relief; or
  • agricultural property relief.

Making a Will

If you die without making a Will you will die ‘intestate’ and the law will then dictate who inherits your estate. However, the beneficiaries entitled under the statutory rules may not be who you would choose. By making a Will, you get to decide who gets what when you die.

You can also plan your Will to minimise your inheritance tax bill such as leaving specific gifts, careful use of your nil rate band and giving legacies to the charities of your choice. However, considering how to make your Will work in a tax-efficient way can be complex so take advice from a specialist lawyer who can look at your specific circumstances.

Remember you can make a new Will at any time. We recommend that if there is any significant change in your personal, employment or financial circumstances you should review your Will because it may no longer be tax-effective or fit for purpose.

Setting up a trust fund

You can put money or property in trust during your lifetime to benefit your named beneficiaries. For example, you could put a lump sum into trust for your children’s university living costs, or a house deposit, for their wedding or to buy a horse or car. You will need to think about the terms of the trust fund, and it must be administered according to your wishes.

Importantly, the trust fund will be ring-fenced which means it will not form part of your estate on your death, therefore, it will not be taken into account for inheritance tax purposes.

Making lifetime gifts

Everyone can give away up to £3,000 a year to an individual and separate £5,000 cash gifts to children on marriage without incurring inheritance tax on death. If you have little cash to spare, you can make any number of gifts up to £250 to different people without a potential inheritance tax charge.

Other financial gifts you might wish to make are known as ‘chargeable transfers’ and could attract inheritance tax if you die within seven years of making the gift, though the tax due decreases year on year.

Beware of other tax issues

With any financial planning, tax issues can be complicated. Though there may be other reliefs you can rely on, such as agricultural or business property relief, you may also have to consider whether you could be liable for capital gains tax if you give away property or other valuable assets. There may also be income tax considerations in the context of trusts.

Inheritance tax planning when making a Will and creating trusts is complex and we advise that you consult with an experienced solicitor who specialises in Wills, trusts and inheritance tax planning.

For further information, please contact Claire Wickens in the Wills, trusts and estate planning team on 01732 378971 or email [email protected]. Warners Solicitors has offices in Tonbridge and Sevenoaks, Kent.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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