
Are You Planning For an Inconvenient Truth?
Without meaning to state the obvious, death inevitably marks the end of life for everyone, and there’s simply no way of avoiding it. Death is an ‘inconvenient truth’.
In over thirty years of helping people make arrangements for their Wills and organise their Estate planning, I’ve come to learn that often their biggest concern isn’t about death per se. Rather, people are usually most concerned when they have to think about passing on their wealth.
But in my opinion, planning for this inconvenient truth can not only be a very positive experience but is often a major component of ensuring someone has a “good death”, knowing that their affairs are in order and knowing that their wishes as to who will get their money when they die, will be carried out. And as we approach the end of the financial year, now is an excellent time to start thinking about or reviewing your Estate planning.
Starting the planning process
There is simply no one-size-fits-all solution in planning for a good death. Your planning will depend on you and your circumstances but often requires you to think beyond what you might consider reasonably possible. Equally, there is never a wrong time to start planning although it is nearly always better to start sooner rather than later.
The first question people often consider is usually about to whom you should bequeath your wealth, followed by questions about how much each beneficiary should receive. More often than not, an individual will leave their Estate, i.e. their money and property (often but not always in its entirety) to their family, to non-family members or to institutions such as charities. As you begin to explore the options more fully, you may be concerned about the impact of leaving a potentially sizeable Estate to your successors, as well as how you might best provide for your own future needs in old age and possibly ill health. If you don’t have any clear idea or know what options are available, including charitable bequests, now is the time to find out more so you can begin to assess those options in full.
Knowing what you own
Surprisingly, most people aren’t fully aware of exactly what they own. They might have a sense of what their wealth is but usually not on a granular level. However, that needs to change as soon as you turn your attention to dealing with the potential liabilities due in a prospective Inheritance Tax (IHT) calculation because at the point of your death, everything you own – either directly or indirectly – needs to be valued and listed. What you own is likely to include a mixture of interests in financial structures, trusts or personal assets and factors such as these make a difference to the value that’s included in your IHT return.
Importantly, knowing this information as you start your Estate planning will go a long way in helping you determine who should receive your wealth when you die and how you should organise your affairs.
Planning for the voluntary tax
The ramifications of death duties, most obviously in the form of IHT liabilities, is one issue that rears its head with predictable reliability. That’s not to suggest that anyone disagrees with the concept of taxation, since its core function is to provide benefits to society as a whole.
It’s just that people don’t really know how to calculate the full potential value of their Estate in advance of their death. This can therefore remain a grey and murky area, which, if not addressed properly, can result in some unpleasant surprises and headaches for beneficiaries to muddle through in the early days of mourning. Under these circumstances, nobody wants HMRC beating down their doors demanding its legitimate share. In fact, much of the aggravation can be ameliorated ahead of the merry dance that follows.
It may surprise you when I say that, while IHT is one of the most hated of all the taxes collectible by HMRC, it is also the most ‘voluntary’ tax; how much your Estate pays over on your death is, more or less, entirely in your control. In fact, it’s not even necessary to die to enjoy the fruits of some of the tax exemptions and reliefs.
It could also be argued that too many people remain unaware of legitimate means by which they can limit the amount of IHT liabilities due upon their death and simply do not know enough about the strategies available to mitigate future tax liabilities within their own lifetime.
Thinking about lifetime giving and leaving a legacy
As you start to go through the process of planning what you want to happen to your wealth, the possibility of lifetime giving often comes as a surprise to those who are in the fortunate position of having more money than they need for themselves. This is where the individual makes a gift while still alive, which then reduces their IHT liabilities upon the occasion of their death.
For some individuals, this option is out of the question, either because they don’t approve of lifetime giving or because they want to retain as much control as possible of their wealth during their life. But if this sounds familiar, you need to be aware of the impact, in respect of IHT liabilities, of all that money sitting in your personal Estate at the point you pass away. As mentioned above, only once that potential amount is quantified can you begin to properly think about the implications of the IHT payable if matters were arranged differently.
What’s more, thinking more acutely about the sort of legacy you want to leave behind sharpens the mind – not only in financial terms but also in respect of longer-lasting memorable matters. Decisions you make at this point can help keep you alive in the memories of others. The notion of leaving a legacy speaks to the fact that it’s possible for your life’s work to continue after you’ve died.
Getting the full picture
I cannot stress enough, however, that you can only carry out your Estate planning effectively with the benefit of professional advice about the legal and fiscal framework in which Estate planning sits. In other words, you will need an understanding of the ever-changing IHT regime, Trusts, a number of complex tax reliefs and a raft of rules that may have an impact on how you structure your finances and approach your planning. That is not to say that you should be daunted by this, far from it, as the role of your adviser is to help you navigate the framework and as I mentioned at the start, the process of estate planning is, more often than not, a positive and surprisingly cathartic one.
Please get in touch if you would like to discuss Estate planning.