Brighter Financial Services Limited

Estate Planning and Later Years

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Estate Planning and Later Life....

In later years, getting our financial planning arrangements in order becomes all the more important as we head towards a costly period of life—post retirement and into older age.

At Brighter our advisers help plan this important period of life to make sure that later years can be made all the more comfortable for our clients. Below we have listed just some of the areas where we can help but this list is not exhaustive:

Ensuring we help you meet your financial needs into your later years

When we work with our clients to develop a financial plan for them we ensure that their savings and investments will last them into their later years. We do this by a number of means:

1. Cash-flow modelling—we check that your savings capital and the income in retirement that you would like can be met with your current savings and pension plans.

2. Changing your current savings plan-we may advise you to consolidate pensions, transfer pensions to a different provider or in the case of draw-down make sure that you do this in the most tax-efficient way to make sure that you do not run out of money.

3. Tax allowances – we help people plan for their futures to help manage inheritance tax. We believe that careful tax planning is essential to effectively realise and utilise your savings and investments.

Tax allowances...

The new main residence tax allowance was introduced in 2019/20 and has now risen to £175,000. This coupled with the £325,000 inheritance tax allowance means that a person now has a total of £500,000. The nil rate bands of inheritance and main residence tax can be passed to the spouse or children on first and second death, respectively.

Example

So let’s just say that David and Sheila are in their late 60’s and still live in their family home, although their children have grown up and moved away.

Their house is worth £350,000 and they have assets worth £400,000 (from previous inheritance and savings).

  • Total Value of Estate: £750,000
  • Combined Nil Rate Band: £650,000
  • Amount liable for IHT: £100,000
  • IHT liability at 40%: £40,000

However by using the main residence allowance the calculation is now as follows:

  • Total value of Estate: £750,000
  • Combined Nil Rate Band: £650,000
  • Combined main residence allowance: £350,000
  • Amount liable for IHT: £0

Of course David and Sheila are delighted with this outcome but they have some queries with regards to their own set of circumstances:

Q. What if we want to gift a portion of the value of our home to David’s sister?

A. The main residence allowance can only be applied to direct descendants. As part of Later Life Planning we would therefore help David and Sheila consider how to gift part of their non-property assets to David’s sister. We would also advise how to identify these wishes as part of a will.

Q. We have heard about a 7 year rule which allows us to protect our home against care costs if we have put it into a Trust. Can you tell us more about this?

A. The 7 year rule only applies to IHT, not care costs. When you gift something to another person and die within 7 years of making the gift, inheritance tax may be payable:

  • If you survive for less than 3 years the full 40% may be payable
  • If you survive between 3-4 years, 32% will be payable
  • If you survive 4-5 years, 24% will be payable
  • If you survive 6-7 years 8% will be payable

Of course David and Sheila are delighted with this If you and/or your partner are above the threshold we would work with our will writing partner to advise how to gift monies or write monies into Trust etc.

There are a number of ways that you can consider how loved ones can be supported upon your death...

The new main residence tax allowance was introduced in 2019/20 and has now risen to £175,000. This coupled with the £325,000 inheritance tax allowance means that a person now has a total of £500,000. The nil rate bands of inheritance and main residence tax can be passed to the spouse or children on first and second death, respectively.

Of course David and Sheila are delighted with this outcome but they have some queries with regards to their own set of circumstances:

Q. What if we want to gift a portion of the value of our home to David’s sister?

A. The main residence allowance can only be applied to direct descendants. As part of Later Life Planning we would therefore help David and Sheila consider how to gift part of their non-property assets to David’s sister. We would also advise how to identify these wishes as part of a will.

Q. We have heard about a 7 year rule which allows us to protect our home against care costs if we have put it into a Trust. Can you tell us more about this?

A. The 7 year rule only applies to IHT, not care costs. When you gift something to another person and die within 7 years of making the gift, inheritance tax may be payable:

  • If you survive for less than 3 years the full 40% may be payable
  • If you survive between 3-4 years, 32% will be payable
  • If you survive 4-5 years, 24% will be payable
  • If you survive 6-7 years 8% will be payable

Of course David and Sheila are delighted with this If you and/or your partner are above the threshold we would work with our will writing partner to advise how to gift monies or write monies into Trust etc.

There are a number of ways that you can consider how loved ones can be supported upon your death:

Pension nomination:

It is vitally important that you have identified a beneficiary for your pension so that it does not have to wait to be gifted via probate, which can be costly.

Insurance:

Whole of Life or Term Insurance can help to ensure that your loved ones can manage the main expenditure on death.

A Will:

You should make a will as soon as you have dependants and assets that you wish your loved ones to have on your death.

If you haven’t already made a will, the later years are definitely a time when this should be considered. Some of the problems in dying without one are:

  • It is much more complicated to administer the estate without a will and the law effectively decides who inherits the estate
  • If you do not have any relatives who can inherit your estate you may wish to leave the money to charity, but cannot do this unless your wishes have been expressed in a will
  • Your inheritance could be a real life-line to your loved ones who would really benefit from having support from your estate

Lasting Powers of Attorney:

If you haven’t considered LPA’s now is very much the time to do it, as the donor(person making the LPA) must have mental capacity in which to be able to grant someone else the right (attorney) to make health and financial decisions on their behalf.

There have been cases where young people have been left without physical or mental capacity where, in the absence of an LPA, decisions about their health and financial affairs have been left to the Courts which can be long drawn out and costly.

Executors of wills are different from LPA’s and cannot deal with health and financial decisions on your behalf during your lifetime. As most people do not just die but have an illness before-hand, which could leave them incapacitated, it is wise to consider having LPA’s in place.

Brighter Financial Services Ltd have a partner arrangement with a wills' service to provide wills and LPA’s free of charge to all our Service Plan 1 clients, but for any clients wishing to have a will and/or LPA’s arranged we can help direct you to this service.