The Guide to Estate Planning

All You Need To Know About Estate Planning

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When the word estate planning and trusts come up, most people immediately relate it to the wealthy. What most don’t realise is that you have to be Mark Zuckerberg’s cousin or related to the Royals to consider estate planning1.

Your estate includes everything you possess, and it doesn’t matter the size. Maybe you have 40% shares of a small firm, a Self-Invested Personal Pension2 scheme, or a home worth £10,000. It doesn’t really matter. In the eyes of the law, that’s your estate, and you have the right to make plans necessary to ensure it’s effectively managed when you pass on.

Well, with that said, what does estate planning involve and why is it important? Here’s a comprehensive guide to illuminate the world of estate planning for you.

What’s Estate Planning?

Estate planning is the process of designating who’ll get your assets and investments when you die. It also involves figuring out how your firm or property will be managed when you get incapacitated. One of the main reasons for considering estate planning is ensuring that your beneficiaries receive your assets in a way that’ll reduce estate tax, gift tax3, income tax, and other related taxes.

According to estate planning experts, when you start the estate planning process, you establish a platform that allows you to fine-tune as your personal and financial circumstances change. The process can be tedious and will involve various estate planning costs, so sometimes you can give up. However, you need to ask yourself whether you want HMRC4 to be your beneficiary due to lack of proper planning or you want your kids to be happy and content when you’re gone.

Estate planning involves various assets and options, and here are some of the few that you can expect:

Range of Estate Planning Options

Deed of Variation

If you inherit finances that you don’t need, one of the most significant impacts you can expect is the increase in your inheritance tax5 bill. With professional estate planning advice from an independent estate planning advisor, you can avoid this matter by drawing up a formal deed of variation which governs that the inheritance should pass on to a loved one or a trust.

A deed of variation6 is incredibly valuable to successful persons whose kids are starting their own lives. Therefore, planning for an unwanted inheritance to pass on to the next generation could be an ideal way of funding the deposit of their first house.


Through putting capital in a trust7, you no longer have the right of ownership, so it might not count towards your IHT (inheritance tax) bill when you pass on. A Trust is a legal arrangement where you offer cash to someone else to take care of, for the profit of a third person.

You can use the trust for various purposes which include:

  • Offering an income for your kids while maintaining control of the assets
  • Offering an income to your spouse or civil partner when you pass away
  • Preserving the cash for your kids and grandkids

Whole of Life

If it’s not suitable for you to offer cash way to your kids, to a trust or even a charitable cause, you might want to consider the Whole of Life Policy. As long as you maintain the insurance premiums, this policy will pay the sum assured directly to the executors when you die and will be free from inheritance tax implications.

The capital can then be used immediately to pay your inheritance tax bill or increase the overall inheritance.


Not everyone has dependents, or perhaps your family is independently sustaining their lives. So, you might be confused about what to do with your estate. Well, most estate planning companies will advise on gifting or philanthropy.

Moreover, if your estate is liable for inheritance tax, one of the most effective ways of avoiding these implications is by giving money away to charity organisations, either directly or through setting up your charitable foundation.

When you give away considerable sums of capital to others, there’s up to a seven-year waiting period before any reduction in inheritance tax is offered.

Where Do You Start?

Naturally, the starting point in any estate planning discussion is the assurance that your desires and needs will be catered to. When the estate planning advisor and executor give you this assurance, you then move on to the next issue.

You then discuss your day to day living expenses and any future needs that might require extra income. You may also dive into matters that are out of your hands like the peaks and troughs of the investment market, or if there could be a need in the future for some form of long-term care.

These estate planning firm will talk you through everything and ensure that you understand all the processes and requirements to ensure that you have a solid plan for your future. They’ll help you find a delicate balance between holding finances back to ensure that your needs are catered for and not withholding too much back to generate a hefty inheritance tax bill for your heirs.

When you’ve understood the process and requirements, then you start the process of estate planning.

Various Circumstances for Different Assets

Personal or Private Pension Schemes, including SIPPS, and income drawdown schemes are a unique proposal. Personal pensions and drawdowns are written under a Trust, and so they’re free from inheritance tax. That makes it an efficient investment.

Moreover, the rules concerning getting death benefits from a personal pension scheme or drawdown changed drastically in 2015. Today, if you pass on before you reach 75 years, the fund value can be paid to anyone, free from income tax. It can be anyone from your spouse, kids, grandkids, nieces, nephews, other family members or that creepy guy who lives next door.

After the age of 75, however, the fund will still be available to anyone. Still, the amount of capital received by your heirs will be considered as income and will be subjected to taxation accordingly.

To avoid paying a significant amount of income tax, this capital can be paid into the Nominee drawdown scheme so that income can be drawn more effectively.

Factors You Need to Consider

Most people are so concerned about their cash running out. So, most spend too little or give too little away when they’re alive – a situation that leaves too much in your estate upon death.

The problem with this is that if you don’t consider some serious planning, you might find that the cash you’ve saved so diligently will get distributed in a manner that won’t suit anyone.

Therefore, the best solution will be to plan. While planning for your death might feel a bit weird and uncomfortable, once you come to terms with the fact that you’re going to give these assets away, it’s better to manage the situation and understand the implications.

With that, here some things to need to factor in to help put your personal situation in a better light:

Taking Control

The first question that the estate planning company or advisor will ask is if you’ve already written a Will. According to a recent survey, almost 30% of people haven’t written or even considered writing a Will. Moreover, 15% of those haven’t updated theirs in the last ten years.

It can be easy to assume that all your capital will go to your spouse or kids when you die. However, without a Will, that might not be as straightforward. Sometimes your extended family will cause a stir and instigate lengthy legal procedures, where a judge will decide who the rightful heir is. With a Will though, it can be challenging for others to refute it. It’ll also ensure that your funds and assets will be distributed much more easily upon death.

The second question you’ll be asked, if you’ve written a Will, is if your executor knows where it is. It doesn’t help if you dug a hole to prevent your greedy cousin from accessing your Will or if you kept it someplace secure if your executor or trusted child doesn’t know where to find it when you die. Thus, make sure that you’ve informed your executor8 where it is.

It would help if you also considered where you hold all details regarding your assets. A few decades back, people would find Policy Documents and Building Society passbooks in drawers. However, today, with banks offering safe boxes, with online banking opportunities and PDF documents, are you confident that your executors will find your details quickly? If not, then ensure that you store all this information in one secure place.

Lastly, it would be best if you considered who you want to benefit from your wealth when you pass away. In most cases, it might be your spouse. However, it’ll be more suitable or tax-efficient for you to leave it to your kids or grandkids. When it comes to this issue, it’d be crucial to take advice from a professional estate planning advisor since you can expose yourself to several problems.

For instance, by incorrectly completing a nomination form for your pension fund, it can mean that our heirs will miss out on tax-free income in the future. So, to avoid this and other issues, be sure to get credible and unbiased advice.

Consider Your Emotions

They say nothing is certain in this world apart from death and taxes. So, when it comes to estate planning, it’s better to figure out how you want your property distributed when you can.

One of the best ways to plan for your future is by involving your close family members. They’ll weigh in on the issue and even help you figure out how to do it if you need their help that is. You see, with careful planning you’ll have the chance to see the sort of investments and property you’ll need for your income needs and have an idea of the amount you can give way. And, isn’t it better to offer these gifts to your family at a point when it would be useful for them?

If you’re able to give cash away, you could even consider missing out a generation and offering support to your lovely grandkids for University expenses or deposit on a house. You might also want to consider offering gifts at weddings since it’s (inheritance tax) IHT free within specific limits and you can give way £3,000 every year free of taxation implications.  

Inheritance Tax Planning

Inheritance tax (IHT) is typically a voluntary tax. It can be hefty, but with careful planning, you can reduce or even avoid it entirely. Nonetheless, the advice is vital.

Tax on estates was established in 1796 to assist in the fight against Napoleon, so this isn’t new. It’s been there for a couple of centuries, and with high standards of living, it’s continued increasing from generation to generation.

IHT is also quite penal, with a 40% tax charge levied on property more than the inheritance tax threshold, which currently stands at about £325,000 per person9. Nevertheless, there’s no IHT charged on transfers between spouses or civil partners or other allowances on items like a percentage of your residence, specific gifts and charity.

You should also note that certain assets are also IHT free, like Personal Pensions.  Therefore, if you’re worried about IHT, it might be better to draw your income from other asses like cash accounts or ISAs to avoid using your pension fund for regular income.

All in all, through careful planning over a certain period, can make sure that IHT is of no concern to you. Still, you should also seek advice to ensure that the biggest beneficiary of your property and investments upon death isn’t the HMRC.  

Common Questions

What’s Estate Planning?
How Does Estate Planning Work?
How Much Will Estate Planning Cost?
What Estate Planning Documents Does One Need?

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