Succession planning – four ways to protect your estate and pass it on

Having an agreed, formal succession plan can help to ensure your wishes are met, as well as allow your family to avoid unnecessary taxes
Claire McCombe

HAVING an agreed, formal succession plan is important for everyone.

It can help to ensure your wishes are met, as well as allow your family to avoid unnecessary taxes which can otherwise eat into the value of any money you wished to pass on.

These can include an inheritance tax (IHT) bill which may have to be paid before any remaining money is left to your family. In such a circumstance, finding what can be a sizeable lump sum to pay this charge can be difficult and cause significant upheaval.

Other concerns can be around the uncertain timing of any inheritance and the impact it can have on family members’ tax bills.

So what can be done to avoid unnecessary taxes or, in some circumstances, the loss of your estate in its entirety?

We have outlined four key considerations for anyone looking to plan for their family’s future when they are no longer around.

1. Make a will

Let’s briefly consider why writing a will makes good sense. To start with, you as an individual can currently leave up to £325,000 free of inheritance tax to anyone in your will.

There is normally no inheritance tax liability if all of your estate is left to a surviving spouse or civil partner. However, it is worth considering that if you are not married or in a registered civil partnership, your partner will not automatically inherit anything unless there is a will in place. As a consequence, your partner could be left with serious financial or practical difficulties.

Therefore, making a will could be one of the most important things you could do for them.

2. Granting gifts

Gifts are free-of-tax payments you can make to family members, and can include wedding gifts, small regular gifts of up to £3,000 a year, and other allowances such as maintenance payments. These so-called lifetime gifts are normally a good way to pass on your wealth if you are concerned about breaching the £325,000 allowance.

You can make outright capital gifts to any individual with no upper limit which are potentially exempt from IHT if the grantor survives seven years from the date the gift was made. This is called a Potentially Exempt Transfer (PET) and have specific rules but can be an effective way to see family members share in the wealth during your lifetime. Gifts out of excess income are exempt from IHT with immediate effect and subject to meeting the definition are a valuable and underused method of passing on wealth and mitigating increases in your estate for IHT.


3. Life assurance

Life assurance is a type of insurance which can be claimed by your family when you die, and which they can use to pay any inheritance tax which is incurred.

It can be a sensible option to consider for those with larger estates to pass on to family, and it can be calculated accurately to ensure the policy you take out matches up with any IHT bill you expect to end up paying.

4. Trusts

A trust is a flexible financial arrangement that lets you hold assets for family members, and which they can then receive at a pre-determined time. There are various types of trust and they are subject to specific rules, but they can be an effective way to pass on assets to family members without incurring IHT.

While no one likes to consider what happens when they die, there can be significant issues for family members in the event that there is, for example, no will dictating your wishes around your finances and your wider estate.

:: Claire McCombe is a private banker at Barclays Wealth & Investments NI

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