Inheritance tax bills can be managed by the effective use of wills, which can ensure assets are passed onto the correct beneficiaries and that the correct amounts are paid. Many experts in the estate planning field encourage families to create wills as soon as possible and in the UK March is designated to be free wills month, an initiative backed by a number of charities.
Throughout March, charities across the UK will offer free will services to those aged over 55.
Demand for these services are expected to skyrocket this month as Emma Watson, the Head of Financial Planning at Rathbone Investment Management, noted the pandemic has forced many people to come to terms with their own mortality, which has created a spike in the number of people writing wills.
On this, research from Which? found the number of people who made will during the first lockdown in early 2020 surged, with a 682 percent increase seen in April when compared to the previous year.
Creating a will can be uncomfortable but Emma warned they are incredibly important and are crucial for lowering tax costs, with additional research from Rathbone Investment Management finding that:
- 44 percent of investors have made a will in order to reduce their inheritance tax bill
- Over half (55 percent) of parents plan to financially gift to their children and/or grandchildren in the coming years
- Meanwhile 28 of individuals have made a financial gift in order to reduce their inheritance bill
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Emma commented on the need for will creation: “It’s hard to imagine let alone plan for a future that you’re not in but spending time now considering what you would want for your family can save a great deal of heartache for them in the future.
“Of course, this sort of preparation does nothing to protect you against the worst happening but it can make sure that if disaster strikes your family, they don’t have legal and financial troubles at a time when they will be least able to deal with them.”
In light of this, Emma went on to provide a number of tips for families to consider when looking into wills.
Think of your dependants
Understandably, those with children will likely want to prioritise their estate planning, as Emma detailed: “If you have children or step-children, writing a will is one of the most important things you can do to protect them financially and make sure they’re cared for.
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“It’s important not only to consider how your estate is divided up, but also who you would entrust to care for your children (under the age of 18) if you and your partner were to pass away suddenly.
“It’s a huge decision to make, so make sure you speak to those who you’d want to appoint as guardians first, but if this isn’t in a legally binding document then the decision could be left to the courts, which may not reflect your wishes.”
Protect your partner
Changing relationship trends are also set to impact IHT plans and unfortunately, the Government is somewhat lagging behind: “Fewer people are getting married, with ONS finding that cohabiting couple families are the fastest-growing family type.
Sadly, the law hasn’t caught up with this fact, meaning that unmarried couples are largely unprotected if one should die.
“Unlike for married couples or those in a civil partnership, there is no legal right to property not jointly owned.
“If you have children together then this could mean that your partner risks not being able to stay in the family home or have enough money to bring up your children.
“To make sure they are protected, it’s crucial that you have a will in place expressing your wishes regarding children and assets.”
Put assets in a trust and gift to charity
IHT bills can be reduced or avoided all together if certain actions are taken, as Emma concluded: “Putting assets, such as cash, property, or investments, into a trust can mean they’re no longer part of your estate for inheritance tax purposes.
“However, the rules around trusts are complicated and have changed over the years; for example, you could be taxed as you pay in or take money out, so make sure to seek advice if you’re considering this option.
“Anything left to charity is free of inheritance tax, so it’s worth considering as a way to reduce your bill, while also benefiting a good cause.
“Additionally, if 10 percent of your net estate is left to charity the rate of inheritance tax applicable on death is reduced to 36 percent from 40 percent.
“Meaning the taxman would take a smaller cut of your estate.”
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