Your estate is comprised of everything you own – your property, bank accounts, investments, life insurance, furniture, personal possessions and so on. Everyone has an estate and something in common; you can’t take it with you when you die.
Estate planning is deciding in advance what should happen to the things you own after you die. Good estate planning does this with the least amount paid in taxes, legal fees and court costs.
For British expats, for example, Inheritance Tax (IHT) is currently charged at 40% and is payable on your estate once your net assets exceed the nil rate band. This is announced each budget and is currently £325,000 (2014). Home ownership and rising property values have meant that more and more people are subject to IHT every year.
Writing a Will is an essential part of good estate planning and can help manage the potential tax charge on your wealth. There are also other ways that can help minimize your liability, including:
Gifts: when you are looking to reduce your taxable estate, the first thing you should consider is whether you can afford to distribute any of your assets before you die in the form of gifts.
Life Insurance: this doesn’t reduce your liability but can be used to pay any tax duties that arise.
Offshore Trusts: a trust is a powerful estate planning tool and a common form of wealth structure. Unlike a Will, a trust doesn’t have to die with you. Assets can stay in your trust managed by the trustee you selected until your beneficiaries reach the age you want them to inherit. Your trust can continue longer to provide for a loved one with special needs or to protect the assets from beneficiaries’ creditors, spouses and irresponsible spending.
Old and New Pension Funds: pension planning tools such as SIPPs, QROPs and QNUPs are now being used by expats to ensure their fund values can be passed on to their dependents and to limit their tax liabilities.
Good Housekeeping: Would your family know where to find your financial records, deeds and insurance policies if something happened to you? Planning your estate helps you organize your records, locate deeds and ensure all your expression of wish forms are up to date. Naming the wrong beneficiary for death benefits can lead to devastating tax consequences. It is much better for you to take the time to do this correctly now than for your family to try and fix things later.