Planning your estate

There are two sides to estate planning: making sure your estate is shared out as you would wish and ensuring you do not unwittingly leave your beneficiaries with an unwanted inheritance tax bill.

The importance of a valid will.

There is a common misconception that married couples do not need a will because on death everything automatically passes to the surviving spouse. The reality is different. If you die without a valid will the government decides how your estate is divided. This is done according to some rather archaic legislation known as the Laws of Intestacy.

The only way your entire estate will pass to your spouse is if your estate is worth less than £250,000 – with the average house price exceeding this amount, in most cases this is unlikely.

If you and your partner are not married, your partner will see none of your estate.

A will isn’t only used to divide your estate; it also sets out your wishes for the future guardianship of your children. Without a will the government will decide who looks after your children. If you and your partner are unmarried, the surviving partner does not automatically become guardian.

You can avoid potential problems by creating a valid will.

If you do not have a valid will you should take action without delay. Click here to contact The Financial Practice.

The importance of inheritance tax planning

Inheritance tax (IHT) is the one form of taxation that everyone should take action to reduce where possible.

With widespread home ownership and inflated property prices, IHT is no longer a tax paid only by rich people. With careful planning, you can minimise, or even mitigate altogether, any future IHT liability.

Here is an example of what can happen.

House	£375,000
Other assets e.g. cash, cars, jewellery	£150,000
Total estate	£525,000
Deduct nil rate band (2010/11)	£325,000
Taxable estate	£200,000
Tax at 40%	£80,000

This example is far from extraordinary and shows that a lack of planning has resulted in you leaving your beneficiaries with a tax bill of £80,000. If there is insufficient cash to pay the bill, your beneficiaries will have no option but to sell assets – something they may be reluctant to do.

If the thought of leaving your beneficiaries with a large tax bill worries you, you need to start planning now. Click here to contact The Financial Practice.

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