6 Tips for a Strong Estate Plan

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Estate planning is an often neglected area of financial planning. This is understandable, as no one likes to think about the worst happening.

But a strong estate plan has a number of benefits:

  • ·       It can help to minimise Inheritance Tax
  • ·       It can ensure that more of your money goes to those you intended, including family or charitable causes.
  • ·       It allows you to plan a legacy and leave an impact on the world after you have gone.

Here are our 6 tips for a strong estate plan:

1.     Make a Will

Everyone should have a Will. They are simple and cheap to set up, and can help to avoid the complications of dying intestate.

The intestacy rules vary throughout the UK, but they broadly aim to distribute assets between your spouse or civil partner and children. If you are not married and do not have children, your other relatives would benefit in a fixed order of priority. If you have no other relatives, your estate passes to the Crown.

The rules of intestacy can be problematic for several reasons. For example:

  • ·       Unmarried partners cannot inherit.
  • ·       There is no provision for carers or close friends to inherit in situations where there is no family.
  • ·       Step-children cannot inherit.
  • ·      The priority order of other relatives who inherit in the absence of a spouse/civil partner or child are set in law. There is no scope to distribute the estate amongst certain relatives, or to exclude family members who are not in contact with the deceased.

The rules of intestacy will not suit the majority of families, particularly if there are unmarried partners, second marriages and step-children to consider.

It is important to revisit your Will when your circumstances change, particularly if you get married or divorced.

2.     Plan Ahead

A financial plan can help to form the basis of your estate plan. This allows you to answer some important questions, for example:

  • ·       What are your goals for your lifetime?
  • ·       How much money do you need?
  • ·       How much can you afford to give away?

Most gifts remain within your estate for seven years, so if you are in a financially secure position, it can be worth making gifts early. Of course, this is a balancing act, as there is a risk of running out of money if you give away too much too early. A financial plan can help you decide how much to give away on an annual basis.


3.     Use Exemptions and Reliefs

Nil rate bands

Every individual has a nil rate band of £325,000, which is the amount that can be passed on free of Inheritance Tax. Couples jointly have a nil rate band of £650,000.

The main residence nil rate band can increase this by up to £175,000 per person (£350,000 per couple), although there are certain conditions:

  • ·       The property must pass to direct descendants
  • ·       The extra nil rate band is capped at the lower of £175,000/£350,000 and the value of the property.
  • ·       The relief is gradually withdrawn for estates valued at over £2 million.


Certain gifts are immediately outside your estate for Inheritance Tax purposes. For example:

  • ·       £3,000 per year, per person is immediately exempt. This can be carried forward by up to one year. So in the current tax year, a married couple could give away up to £12,000 if they had made no previous gifts.
  • ·       Regular gifts from income. This must follow a regular, established pattern and be affordable from genuine surplus income, not capital.
  • ·       An unlimited number of gifts, providing no individual receives more than £250.
  • ·       Wedding gifts of £5,000 for a child, £2,500 to a grandchild or £1,000 to anyone else.
  • ·       Maintenance costs for a child or ex-spouse.

Business Assets

Some assets are eligible for relief from IHT. For example:

  • ·       Your own business. This applies to trading businesses only, not investment companies.
  • ·       Farms and agricultural assets.
  • ·       Shares in your own company, providing it is unlisted.
  • ·       Enterprise Investment Schemes (EIS) and Alternative Investment Market (AIM) investments if they are held for at least two years.
  • ·       Property, land or machinery used in a business owned by the deceased (50% relief).


4.     Set up a Trust

A trust allows you to specify how assets are distributed amongst your beneficiaries. Trusts can be set up:

  • ·       Upon your death as specified by your Will.
  • ·       During your lifetime to receive life insurance pay-outs or pension lump sums upon your death. This ensures the funds remain outside your estate.
  • ·       During your lifetime to ring-fence assets for your beneficiaries. Making substantial gifts into trust can have inheritance tax consequences, so advice is recommended.
  • ·       To provide you or someone else with a regular income, while reserving the capital for another beneficiary.

The main types of trust are described as follows:

Discretionary trust – allows the trustees to distribute assets as they see fit among a class of potential beneficiaries.

Bare trust – an outright gift to one or more beneficiaries, without giving them immediate control.

There are a number of different trust structures, all with different features, benefits and tax consequences. It is worth seeking financial and legal advice to determine the best solution for you.

5.     Make Gifts to Charity

Gifts to charities, political parties or for national benefit are immediately outside your estate for inheritance tax purposes.

But you can also make charitable gifts via your Will. If you designate at least 10% of your estate to charity, your inheritance tax bill will also reduce by 10%, from 40% to 36%. For example:

  • ·       Simon has an estate of £1 million. After deduction of the nil rate band (£325,000), this results in an IHT bill of £270,000. £730,000 available for his beneficiaries.
  • ·       Diane also has an estate of £1 million, but has elected to leave £100,000 to charity in her Will. The IHT bill is reduced to £207,000, leaving £693,000 for her beneficiaries (£793,000 if we include the charity).

Designating part of your estate to charity is a simple way of ensuring that more of your money is passed on as you wish rather than being collected in taxes. 

6.     Don’t Forget Your Pension

Pensions are not included within your estate, and can be passed on free of tax on death before age 75.

After 75, pension death benefits are taxed as income in the hands of the beneficiary, which is often at a lower rate than inheritance tax. Higher rate taxpayers may elect to pass the funds on to their own children.

It can be efficient to defer drawing on your pension for as long as possible and use other assets (which are within your estate) to fund your retirement income instead.

Please don’t hesitate to contact a member of the team if you would like to find out more about estate planning    

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