Planning For The Inheritance You Leave Behind
Planning for the inheritance you leave and for the inheritance tax you pay can be a tricky business, as well as one that is emotionally tiresome. Ultimately, it is something that must be approached logically and within the full letter of the law – which at least allows for some distance to be maintained. Otherwise the prospect of planning for ones own death can appear daunting.
Who Needs to Plan Ahead
We all need to plan ahead at some point unless we are happy with the law as it stands should you not provide a will (see related article: The Importance of Making a Will) and happy to pay any inheritance tax that is due from your Estate. In short this will usually be the case if: 1) You are happy to leave all of your Estate to your spouse or civil partner; 2) You are not liable for Inheritance Tax as your Estate is valued at less than the nil rate band for Inheritance Tax (£300’000 now rising incrementally to £350’000 by the 2010-11 tax year under changes in the law made in 2007) 3) You are prepared for the courts to decide who is in charge of your tax affairs after your death.
If you do not fit into the above category a plan is needed and it will be worthwhile drawing up a list of those who you may wish to benefit from your Estate. You may wish to discuss with your Spouse or Civil Partner whether you wish to leave money to persons upon your death should you die first, or whether you would wish for the whole of your Estate to pass to them first, before passing on to agreed persons after their eventual death. In this way you may take advantage of benefits in the tax system for married people and Civil Partners (see related articles). You may also wish to consider donating to charities, national galleries or political parties that have meant a lot to you in your life, thus exempting that donation from taxation.
Once you have drawn this list you can make your will, and from there decide how best you may wish to take advantage of Inheritance Tax law. Only when you know where you want your money to go can you then make gifts within your Inheritance Tax allowance and according to the Seven Year Rule. Knowing how much you have and how much you wish to give to whom will allow you to plan, for example, to use your £3’000 per year exemption in single cash gifts successively over s number of years, and so on.
Obviously, things will change over time, so once you have a plan be prepared to be flexible as house prices rise (and perhaps fall, as can happen) and tax bands change. On the same note, be careful not to act over impulsively – removing persons from your will, for example, could be costly, as could adding persons that you have not known for very long or are not related to you.
Whatever you choose start from the position you are in, keep things simple and do not rush, even if you feel time is limited. It is well worth considering your options so that you get to leave things as you would like to see them. One benefit of a well planned will and Inheritance Tax scheme if that you will feel more in control.