Before making a Will you and your partner should consider the value of your estate both now and in the future. Estate planning is straightforward and will help you plan what you wish to include in your Will.
Completion of the process will enable you to calculate the estimated Inheritance Tax liability arising when each of you dies. This knowledge will enable both of you to plan the terms of your wills so that you achieve a sensible balance between the practical needs and tax saving.
If you would like to receive professional independent advice about Estate Creation or Inheritance Tax please contact our Support Team.
You will have to add up the value of your assets and liabilities, which could include the following:
Assets
- Your home – is it in your sole name or jointly owned?
- Bank and Building Society accounts
- National Savings investments
- Life Assurance policies
- Pension Fund and Union Benefits on death
- Stocks and shares
- Unit Trust investment
- Premium Savings Bonds
- Furniture
- Interest in other people’s estates
- Property & bank accounts abroad
Liabilities
- Mortgage
- Credit card debts
- Outstanding Loans
When you have completed this assessment you will have a much better idea of what you are worth, which will invariably be more than you thought!
Pension Fund Benefits and Life Assurance
You may have the benefit of a Pension Plan or Life Assurance Policies. These may be benefits that you have taken out direct, or they may be benefits provided by an Employer.
Generally, these benefits are constructed in such a way so as pass on to your beneficiaries outside the terms of your Will, so avoiding possible Inheritance Tax liability.
Pension Fund Benefits
The benefits from a pension fund on retirement are usually straightforward. They will cease on your death often or reduce with a benefit being payable to your spouse.
The position if you should die before retirement age is a little more complex and it is usual for a lump sum payment to be made, known as a death in service benefit. This is normally payable at the discretion of the trustees of the pension fund and for this reason is usually not brought into account when the Inheritance Tax calculation is made. It is for this reason that you cannot direct the trustees to make the payment to particular beneficiaries but merely record your wishes for them to take into account when they make their decision.
It is important that such benefits are not ‘drawn’ into the estate and potential Inheritance Tax liability by the Will attempting to dispose of such benefits.
Life Assurance
Life assurance provides a simple and often cost effective way of providing funds to pay Inheritance Tax on your death. The liquidity created by such policies should be paid, under simple trust arrangements, to your children or main beneficiaries. This will ensure that the funds are not assessed for Inheritance Tax purposes. The trust provisions will operate outside your Will and should not be referred to in the Will.
It is always important to remember that all policies of assurance on the life of the deceased should be considered as potentially liable to Inheritance Tax. However policies drawn in trust mentioned above will be outside the net so long as certain requirements are complied with. In addition policies that take advantage of Inheritance tax exemptions will also be ignored for calculation purposes.
