Financial Awareness Day: Five top tips for Estate Planning

14^th August is Financial Awareness Day, an annual event that aims to promote and raise awareness of financial literacy and effective budgeting, whilst encouraging the public at large to pay greater attention to their financial wellbeing.

Estate planning is one such vital part of managing your finances – and yet it’s all too common for people the leave the long-term thinking until it’s too late.

So, to mark the occasion, here’s five top tips to help you take control of your legacy and plan wisely for a better future for yourself and your loved ones.

Five top tips: where to begin managing your estate

Have a clear purpose to your planning

Like any journey, it’s crucial start with a specific destination in mind so you keep on the right path.

Whether you’re looking to provide for family, support a charity or reduce the Inheritance Tax (IHT) burden on your loved ones after you pass away, having clear goals – and actively tracking progress – will help guide your decisions and ensure your final estate planning strategy truly reflects your wishes.

Understand the Estate Planning cycles

Estate planning isn’t an ‘end of life’ task: it’s split into three sequential phrases (accumulation, consolidation and depletion), together spanning most of a person’s life. We often find that clients have overlooked earlier opportunities to reduce their estate for inheritance tax planning and as a result have compromised what can be achieved for them.

The key middle phase of consolidation is where clients can implement efficient planning strategies to prevent the build-up of surplus assets and income in their estate and instead put them to good use in the wider family context. ‘Trimming the fat’ as you go along is typically much more effective than taking aggressive strategies later in life.

Examples of consolidation strategy could be the gifting of unused income and of capital assets which are not relied upon, and crucially, will not be relied upon to provide the desired standard of living.

Don’t be deterred by paying tax

No one likes paying more tax than they need to – but trying to avoid doing so above all other factors can be counterproductive. Individuals should focus on the value of their assets to them, as opposed to the asset’s market value.

We often have conversations where the ‘cost’ of gifting is mentioned. If the tax liability of an asset is always factored into your valuation of it, the tax liability will not be of relevance and, crucially, will not become a barrier to making a disposal.

Capital Gains Tax (CGT) is often taxed at a lower rate to IHT – and so where an asset is identified as being surplus to requirements, it makes sense to make the disposal as soon as possible, pay the CGT and survive seven years, than it does to hold on to the asset, let it increase in value within your estate and then pay IHT at a higher rate.

Consider whether protection is required

Put bluntly: do you need to protect your beneficiaries from the fund, or does the fund need protecting from them? For example, if a beneficiary was to receive an asset outright, would the fund be wasted, would it be taxed heavily in the beneficiary’s estate or perhaps lost to bankruptcy or divorce?

Or, does the fund need managing for a vulnerable person and kept out of their estate to maximise state provision and to protect them from adverse third-party influence?

If so, there are many wealth protection vehicles available to use – and an experienced solicitor will be able to guide you towards the right tools to further secure your legacy and minimise risks.

Ignore the Estate Planning advice you get in the pub

It’s an unfortunate fact of life that well-meaning but inaccurate advice is everywhere, and your estate is simply too important to rely on hearsay.

While it can be tempting to follow the crowd, you should always seek guidance from qualified Wealth Protection specialists who understand your specific needs and legal obligations.

Independent expert advice cuts through all the various myths and assumptions, which may have developed over the years, and helps you focus on what is going to deliver the best result for your personal circumstances.

Watch Director and Head of Wealth Protection, Gareth Williams, explain the above key concepts below:

How we can help

If your estate planning strategy is overdue a rethink, or you’d like to learn more about how these principles could be applied to your own financial situation, we’re here to help.

Get in touch with our friendly and experienced team of Wealth Protection solicitors today via 03333 058375 or email WealthProtection@psg-law.co.uk to get a better understanding of your options and begin securing your legacy.