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IS YOUR WEALTH PROTECTED FOR FUTURE GENERATIONS? Six tips for wealth preservation and transfer planning

Establishing a wealth preservation strategy is a crucial part of any complete financial plan. You have worked hard to achieve your success and you want to be sure you protect it for future generations. We can help you develop a long-term plan to preserve that wealth – please contact us. We look forward to hearing from you.

Whether you have earned your wealth, inherited it or made shrewd investments, you will want to ensure that as little of it as possible ends up in the hands of HM Revenue & Customs.

With careful planning and professional financial advice, it is possible to take preventative action to either reduce or mitigate a person’s beneficiaries’ Inheritance Tax bill – or mitigate it altogether. These are some of the main areas to consider.

1. Make a Will A vital element of effective estate preservation is to make a Will. Making a Will ensures an individual’s assets are distributed in accordance with their wishes. This is particularly important if the person has a spouse or registered civil partner. Even though there is no Inheritance Tax payable between both parties, there could be tax payable if one person dies intestate without a Will.

Without a Will in place, an estate falls under the laws of intestacy – and this means the estate may not be divided up in the way the deceased person wanted it to be.

2. Make allowable gifts A person can give cash or gifts worth up to £3,000 in total each tax year, and these will be exempt from Inheritance Tax when they die. They can carry forward any unused part of the £3,000 exemption to the following year, but they must use it or it will be lost. Parents can give cash or gifts worth up to £5,000 when a child gets married, grandparents up to £2,500, and anyone else up to £1,000. Small gifts of up to £250 a year can also be made to as many people as an individual likes.

3. Give away assets Parents are increasingly providing children with funds to help them buy their own home. This can be done through a gift, and provided the parents survive for seven years after making it, the money automatically moves outside of their estate for Inheritance Tax calculations, irrespective of size.

4. Make use of Trusts Assets can be put in an appropriate Trust, thereby no longer forming part of the estate. There are many types of Trust available and they can be set up simply at little or no charge. They usually involve parents (settlors) investing a sum of money into a Trust.

The Trust has to be set up with trustees – a suggested minimum of two – whose role is to ensure that on the death of the settlors, the investment is paid out according to the settlors’ wishes. In most cases, this will be to children or grandchildren.

The most widely used Trust is a Discretionary Trust, which can be set up in a way that the settlors (parents) still have access to income or parts of the capital. It can seem daunting to put money away in a Trust, but they can be unwound in the event of a family crisis and monies returned to the settlors via the beneficiaries.

5. The income over expenditure rule As well as considering putting lump sums into an appropriate Trust, people can also make monthly contributions into certain savings or insurance policies and put them into an appropriate Trust.

The monthly contributions are potentially subject to Inheritance Tax, but if the person can prove that these payments are not compromising their standard of living, they are exempt.

6. Provide for the tax If a person is not in a position to take avoiding action, an alternative approach is to make provision for paying Inheritance Tax when it is due. The tax has to be paid within six months of death (interest is added after this time). Because probate must be granted before any money can be released from an estate, the executor may have to borrow money or use their own funds to pay the Inheritance Tax bill.

This is where life assurance policies written in an appropriate Trust come into their own. A life assurance policy is taken out on both a husband’s and wife’s life with the proceeds payable only on second death. The amount of cover should be equal to the expected Inheritance Tax liability.

By putting the policy in an appropriate Trust, it means it does not form part of the estate. The proceeds can then be used to pay any Inheritance Tax bill straight away without the need for the executors to borrow.

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Life Insurance Protection

For many of us, projecting ourselves into the future to see what‘s around the next bend is not an easy thing to do. However, without thinking, we insure our cars, homes and even our mobile phones – so it goes without saying that you should also be insured for your full replacement value to ensure that your loved ones and business are financially catered for in the event of your unexpected death.

Making sure that you have the correct type and level of life insurance in place will help you to financially protect them. Life insurance provides a safety net. Ultimately, it offers reassurance that your family and business would be protected financially should the worst happen. We never know what life has in store for us so it’s important to get the right life insurance policy. A good place to start is asking yourself three questions:

  • What do I need to protect?
  • How much cover do I need?
  • How long will I need the cover for?
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Making a Will

We spend our lives working to provide for ourselves and our loved ones. You may have a house or flat (in the UK or overseas), shares, savings and investments as well as your personal possessions. All of these assets are your ‘estate’. Making a Will ensures that when you die, your estate is shared according to your wishes.

Law will decide
If you die with no valid Will in England or Wales, the law will decide who gets what. If you have no living family members, all your property and possessions will go to the Crown. If you make a Will, you can also make sure you don’t pay more Inheritance Tax than you legally need to. It’s an essential part of your financial planning. Not only does it set out your wishes, but die without a Will and your estate will generally be divided according to the rules of intestacy, which may not reflect your wishes. Without one, the state directs who inherits, so your loved ones, relatives, friends and favourite charities may get nothing.

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Comprehensive Guide to Inheritance Tax planning

Whether you have earned your wealth, inherited it or made shrewd investments, you will want to ensure that as little of it as possible ends up in the hands of the taxman, and that it can be enjoyed by you, your family and your intended beneficiaries.

Securing more of your wealth
There are many things to consider when looking to protect your family and your home. Protecting your estate is ultimately about securing more of your wealth for your loved ones and planning for what will happen after your death to make the lives of your loved ones much easier.

If you don’t make the right financial arrangements, your family could potentially have to foot a hefty Inheritance Tax bill in the event of your premature death. Passing assets tax-efficiently to the next generation remains a primary objective for many who have spent a lifetime accumulating their wealth. Providing funds for family members or a charitable interest is also an important way to see the benefit of your wealth during your lifetime, as well as leaving a legacy.

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