Benman Brown Will Writers

Estate Planning

Many people do not consider the benefits of estate planning during their life. They may write a will and then leave everything to be dealt with when they die. But with a little forethought they may be able to give away some of their wealth during their lifetime without incurring any tax charges.

The inheritance tax threshold is currently £325,000 and this threshold is not expected to increase in the near future. Therefore, where a person has assets in excess of this amount it can be useful to consider making lifetime gifts to help reduce any potential inheritance tax liability on death.

The most obvious, but often overlooked, reliefs are the annual exemption and the small gifts reliefs. Everyone has an annual exemption of £3,000 which enables them to give away money or assets up to that amount each year without any inheritance tax charge. Other reliefs are the small gifts relief of up to £250, relief for gifts on marriage, and gifts from surplus income.

The small gift relief of £250 is a one off gift up to this amount and can be given to several people in a tax year.

Gifts given to a couple on their wedding day can also be tax free. A parent or step-parent can gift up to £5,000; grandparents can gift up to £2,500; and any other person can gift up to £1,000.

A gift from surplus income is where a person makes a gift from their normal income that does not affect their usual standard of living.

Then there are lifetime transfers, also known as Potentially Exempt Transfers (PETs). PETs can be exempt from inheritance tax as long as the donor survives for seven years from the date of the gift and the value of the gift is within the donor’s nil rate band (currently £325,000). Should the donor die within the seven-year period, taper relief is available to reduce the inheritance tax charge.

Other available reliefs are gifts to charity, business property relief and agricultural property relief.

Estate planning is especially useful where there is a second marriage and it is important to ensure children of the first marriage receive a legacy. A living trust, managed by chosen trustees, can be set up to protect assets, such as property and investments. A living trust is similar to a will except that it takes effect during the donor’s lifetime rather than just on death. The donor can still enjoy the benefit of the assets in the living trust but they will pass to specific beneficiaries at a future point in time, usually on the death of the donor. However, the trustees can, at their discretion, advance money from the trust to the beneficiaries whilst the donor is still alive. Since the trust is already in existence when the donor dies, there is no need to wait for grant of probate.

Not all trusts and reliefs are suitable for everyone, but they can benefit donors and recipients alike during the donor’s lifetime.

To find out more about estate planning, please call us or send us an email.