Many of us would prefer not to think about what will happen to our loved ones once we pass away. However, when it comes to money, planning is essential, and knowing that your loved ones will be cared for according to your wishes may provide some comfort to you and your family.
Inheritances are growing in size, and according to new research from the Institute for Fiscal Studies (IFS), they’re on their way to becoming a bigger part of overall household wealth.
It’s also a good idea to start thinking about inheritance tax early in life, with some experts recommending your 40s as a good place to start.
Here are some pointers to help you get started:
Be Aware of Inheritance Tax
Inheritance tax is a tax imposed on a deceased person’s estate, which includes their property, assets, and money. If the value of an estate is less than €388,000, or if everything above that amount is bequeathed to a spouse, civil partner, or charity, such as a nonprofit organization, there is usually no inheritance tax to pay.
The optimum time to begin estate tax planning is before you think you’ll need it. It’s something to consider in your 40s, 50s, and 60s, as soon as you realize that your estate value may result in an inheritance tax liability for your loved ones.
Consider Making Gifts to Loved Ones Before Your Death
On small gifts made out of your regular income, there is normally no inheritance tax to pay. You can, however, execute a potentially exempt transfer if you desire to gift bigger sums of money or assets.
These can be worth anything, but they do come with a ‘seven-year clock.’ This means that if you die within seven years, some or all of the value may still be included in your estate for the purposes of inheritance tax.
Consider utilizing a trust if you’re worried about losing control of money once it’s been gifted, or if you want to make sure individuals don’t get access to your gift before you’re convinced they’re ready to handle it.
Assets placed in a trust that you won’t be able to profit from aren’t included in your estate for inheritance tax purposes, therefore they can be an important aspect of an inheritance tax strategy.
There are many different types of trusts, each with its own set of tax laws, so it’s essential to seek advice from a professional to ensure you choose the one that best meets your and your beneficiaries’ future needs.
Don’t Feel Guilty About Spending Your Money
Spending your money and enjoying life can be a good alternative if the goal is to reduce inheritance tax.
People may feel bad about spending their money rather than donating it, but keep in mind that it is your money to spend; you earned it. It’s also a good idea to make sure you have enough money for yourself now and in the future, before passing riches down to the next generation.
Considering this has become even more crucial as a result of the pandemic; half of grandparents had stepped in to financially help their grandkids during the Covid-19 outbreak, despite their own retirement income concerns.
Talk to Family Members
Estate planning is a significant topic, but it should not be disregarded. Even though the money is yours, wealth transfer is a family matter.
While making substantial gifts or using other planning solutions when the family is still young can be tough, it is important to start thinking about it early.
Even if the outcome of the chat is that you will only do minor things for the time being but aim to do more in the future, the family will at least know where they stand.
This also helps with overall family conversation — if you have dialogues with your children from a young age, it becomes more natural to discuss these topics.
Keep it Simple
Complex solutions aren’t always bad – they have their place – but be cautious about what you agree to and how deeply you commit.
It’s critical that you first grasp all of your options and compare them in terms of cost, complexity, and adaptability.
Seek Professional Advice
You don’t know what you don’t know, and it’s simple to overlook or misunderstand a minor regulation. If you’re unsure, consult a professional. This is a field where financial advisers, private client solicitors, tax advisers, and accountants all have experience.
Make Long-Term Care Plans
Let’s say you or your partner requires expensive long-term care, which depletes the funds you had set aside for your heirs. A financial advisor can assist you in planning for long-term care while protecting your assets. If your health changes, make sure to talk about your options and come up with a few different plans.
Digital Assets Should Not Be Ignored
Most of us have a lot of essential images and documents saved in social media accounts and digital file storage services that others may not have access to.
Service providers frequently refuse to reveal the passwords of a deceased individual, and there are few rules that can help in this scenario. So, what are your options? In your estate plan, name a “digital fiduciary.”
That individual would have access to digital information such as login names and passwords. Don’t forget to engage with an attorney to get your web presence taken down if that’s what you want.
One of the most proactive, organizational steps you can take in your lifetime is estate planning. Furthermore, the advantages will be a part of your legacy.
Check out our tips on how to eliminate stress from your professional life.