With inheritance tax receipts to HMRC set to reach new levels this financial year, now more than ever families need to plan for their future.
Inheritance tax could take a large proportion of your wealth – 40% of everything above £325,000 -and stop your family members enjoying the results of your hard work. Avoiding or reducing inheritance tax is possible if you have expert advice and plan accordingly. Below are three essentials to mitigate inheritance tax.
Talk To Family About Inheritance Tax
Take stock of your assets
The next step in your inheritance planning journey is creating an inventory of your financial assets: your home and any other property, investments, savings, and any valuable possessions. If you have a surviving partner, they might be your first priority, but you need to look at what happens when they are gone. Your home may be the biggest challenge. It can be difficult to balance its value against other assets and giving it to one beneficiary may lead to resentment. Stipulating that it should be sold, and the proceeds shared is one answer. A shared bequest that allows one beneficiary to buy out the shares of the others is an alternative.
You also need to look at the liabilities or debts that eat into your estate. You want to leave financial security and happy memories, not debts. Knowing what you have now can be the basis for devising a fair inheritance plan that takes into consideration the needs of everyone who survives you. Look at your life insurance as part of this review. It can help ensure equal inheritance for all parties. The payout from a life insurance policy can be divided among the beneficiaries, helping to balance any disparities in the value of your other assets.
Write a will
A well-crafted will is the linchpin of any inheritance plan, and for all families, it is crucial. Work with an experienced solicitor to draft a will that clearly outlines your wishes and specifies the exact percentage or value that each heir, whether biological or stepchild, will inherit. This ensures that your intentions are legally binding and minimises potential disputes later on. Review and update beneficiary designations on retirement plans, investment accounts, and insurance policies. Beneficiary designations override instructions in your will. Failing to update can lead to unintended consequences – money intended to go to a current partner still being earmarked for a previous spouse is not uncommon.
LotusWise can help
Seeking the guidance of a qualified financial adviser is vital for any family. Please talk to us about any tax-related questions you may have and if you need a financial adviser, give us a ring on 020 3367 1106.