Death itself is fairly straightforward for the deceased, it can, however, be both complicated and distressing for those left behind, even when the death involves an elderly person dying quietly in their sleep. The life of those left behind can be made much simpler by some judicious planning. Here are 7 points to consider.
Minimise your tax liability
Managing personal income and assets in later life is essentially a balancing act between making sure you have enough to take care of your present needs while doing what you can to reduce the value of your estate for tax purposes. Good financial advice can easily pay for itself here.
Make a will
In times of stress, such as after a bereavement, people generally appreciate clear and straightforward instructions. A well-written will spares your loved ones the complication and confusion of trying to work out what was intended to be left to whom.
Take out life insurance and place it in a trust
Even when your estate should be more than sufficient to take care of your beneficiaries over the long term, life insurance can still have a valuable role to play. There are two main reasons for this, both of which relate to the fact that placing a life insurance policy within a trust wrapper essentially ring-fences it from the rest of your estate.
Payments can be made before probate is complete
The law does allow for certain payments to be made out of a deceased’s estate before probate is complete, for example, funeral payments, but for the most part HMRC gets their share before anyone else. Given that, however sympathetic companies may be, they usually still want their bills paid on time, it can be extremely helpful to have the proceeds of a life insurance policy to tide them over during the process of probate (which can be extremely lengthy).
Payments are excluded from inheritance tax calculations
Inheritance tax is based on the value of a person’s estate and, as previously mentioned, putting a life insurance policy into trust ring-fences it from the estate and hence from the calculation of the estate’s value. This can be particularly helpful as a means of passing on legacies to people other than legally-recognised partners as it preserves the IHT-free allowance. It should also be noted that at this time only spouses and civil partners can receive assets from a deceased person without any IHT being payable at the time (assuming that the estate is large enough to be liable for IHT). For couples in alternative, committed relationships, inheritance planning takes on a whole new level of importance.
As an added benefit, trusts can permit both control and flexibility
If you simply make a bequest to someone in your will, then it is entirely up to them what they do with it. In many cases, particularly when dealing with competent adults, this is entirely desirable. In some cases, however, especially when dealing with more vulnerable people such as children or even younger adults, it may be preferable for the donor to exercise some degree of control over how their legacy is used. A trust can be written in such a way that it is subject to supervision by a responsible party, who can either act on the beneficiary’s behalf or guide them as to the best course of action. If so wished, the level of supervision can be reduced over time before being withdrawn completely.
A final point on trusts
Trusts can be extremely useful, but need to be set up correctly to be both fully effective and fully legal. Because of this, it is strongly recommended to seek professional advice when setting one up.
Estate planning and Trusts is not regulated by the Financial Conduct Authority.
Tax treatment varies according to individual circumstances and is subject to change.
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