Estate Planning

Many people do not consider the benefits of estate planning during their life. They may write a will and leave everything until their death. 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 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.

House model with real estate agent and customer discussing for contract to buy house, insurance or loan real estate background.

Then there are lifetime transfers, also known as a Potentially Exempt Transfer (PET). 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 IHT 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.

Then there are lifetime transfers, also known as a Potentially Exempt Transfer (PET). 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 IHT 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.

Contact us today

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.

© Benman Brown Probate Services Ltd