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Protecting Your Estate

PROTECTING YOUR ESTATE

Have you worked hard all your life, to build a better future for your loved ones but now face being hit with the dreaded death tax? Are you looking for ways to protect your estate against it? Well fear not, we can help you! Here is a very brief summary of a few things you can do, to shelter your estate for your heirs.

Ways to Protect your Estate and Minimize your Inheritance Tax (IHT)

YOUR WILL & YOUR SPOUSE

A vital element of effective estate planning is to make a Will. Unfortunately 60 per cent of adults with children under 18 fail to do so.

This is particularly important if you have a spouse/civil partner because there is no IHT payable between spouses/civil partners. There could, however, be IHT payable if you die intestate and your estate ends up going to other relatives.

MAKE THE MOST OF YOUR LIFETIME GIFT ALLOWANCES

ANNUAL ALLOWANCE

You can give cash or gifts worth up to £3,000 in total every tax year. These gifts are exempt from IHT when you die. Please note this is £3,000 per annum, per donor and not £3,000 per annum per recipient.

You can carry forward any unused part of the £3,000 exemption to the following year but then you must use it or lose it.

SMALL GIFTS

You can also make small gifts of up to £250 a year to as many people as you like.

GIFTS ON MARRIAGE

You can make larger than usual gifts on the marriage of a loved one without any IHT consequences.  Parents can gift up to £5,000, grandparents £2,500 and anyone else can gift up to £1,000.  These gifts do not use up any of your annual exemption. Such gifts are also discounted from the value of your estate for IHT purposes.

REGULAR GIFTS OUT OF SURPLUS INCOME

You can make gifts of income, to pay for your grandchildren’s school fees, for example. But you have to prove that these payments are not compromising your standard of living (i.e. that you can afford the payments out of income and not out of capital). If you do, then they are exempt.

GIFTS TO EXEMPT BENEFICIARIES

Any gifts to your spouse are completely exempt from IHT. As are gifts to political parties and charities.

POTENTIALLY EXEMPT TRANSFERS otherwise known as PETs

These gifts can be of any value (whether that is cash or an asset) to non-exempt beneficiaries and can potentially be exempt if you survive 7 years. If you die within 7 years of making a gift, it will be included in the value of your estate and may be subject to IHT.

USING TRUSTS

If you put some of your assets into a trust (from which you, your spouse and your children do NOT have an absolute right to benefit), such assets are no longer part of your estate for IHT purposes.

You can set up a trust right away or you can establish one in your will. However, there could be tax consequences and you should contact us for advice.

LIFE INSURANCE

Another great way to deal with your Inheritance Tax liability, is to take out life insurance policy to cover your expected IHT liability. Ok, so it doesn’t mitigate your IHT liability but it does free your loved ones of the burden of trying to find the money.

FAMILY INVESTMENT VEHICLE

For estates over £1m with substantial investments, a Family Investment Vehicle (FIV) may well be appropriate. But this is in addition to and not instead of the preceding ideas.

A FIV is either a limited company or a limited liability partnership (LLP) combined (in some cases) with a family trust to provide a tax efficient vehicle in which to make long term investments where the assets can grow and/or earn income in a lower tax environment.

This is just a snapshot of some of the ways you can protect your estate. For more in-depth information, contact us to book a free consultation.

 

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