When it comes to estate planning in Sutton Coldfield, a crucial aspect is determining how you wish to distribute your assets to your loved ones.
With multiple options available, it’s essential to explore each one thoroughly. Your estate plan should also factor in how you intend to utilize your assets during your lifetime and how you want them to be allocated after your passing. In our previous article, we delved into the factors to consider while assessing your estate’s worth and how the value of your assets may fluctuate over time. Once you have a comprehensive understanding of your estate, you can explore the various methods of asset transfer available to you.
Read on to learn more about your options.
Here are three practical alternatives to explore when considering the transfer of your wealth.
1. Leave an inheritance through a will.
A will is a popular method of bequeathing your assets to your loved ones after you’ve passed away. This legally binding document enables you to specify precisely how your assets will be distributed.
There are numerous options for transferring your assets through your will. You may choose to distribute a percentage of your estate to each beneficiary or name specific assets that you want them to inherit.
Regardless of the complexity of your situation, it’s essential to create a will. In the absence of a will, your assets will be distributed based on intestacy laws, which may not align with your preferences. Not having a will can also cause delays in the probate process and create disputes among beneficiaries.
2. Place assets in a trust
A trust is a practical means of transferring your wealth either during your lifetime or after your demise while maintaining greater control over the assets if you so desire.
When you establish a trust, a trustee of your choice manages the assets held within the trust on behalf of the beneficiary. You can specify the terms and conditions for how the trustee should distribute or use the assets.
For instance, you might create a trust for your child and stipulate that they inherit the assets when they turn 25. Alternatively, you could set up a trust to provide a steady income for your loved ones without transferring control of the assets held within it.
Trusts can be an ideal solution for your estate planning if you want to ensure that your assets are utilized in a particular way or if you aim to keep them within the family to prevent the loss of assets in the event of a divorce.
Trusts can however be complex, and you may not be able to reverse the decisions you make. So, taking both financial and legal advice before you proceed can be useful and ensure the trust acts in the way you want.
In some cases, you can use a trust to reduce a potential Inheritance Tax (IHT) bill, as, provided it meets certain conditions, the assets placed in a trust are no longer yours. You may need to consider IHT if the total value of your estate exceeds the nil-rate band, which is £325,000 for the 2023/24 tax year.
3. Gift assets during your lifetime
Although leaving an inheritance is a conventional approach to passing on wealth, making gifts during your lifetime may also have benefits. Not only can it offer financial support to loved ones during critical moments, but it also allows you to witness the impact of your generosity.
According to a report from the Institute for Fiscal Studies, around 5% of adults receive a substantial gift over a two-year period. This rises to around 30% among adults in their 20s and early 30s.
When gifting, it’s crucial to think about your own long-term financial stability. Could your gifting lead to a need to modify your standard of living later in life or make it challenging for you to withstand a financial crisis? Evaluating your financial resilience ahead of time can instil confidence when making gifts.
If your estate could exceed IHT thresholds, it’s important to note that some gifts could be included in your estate for IHT purposes for up to seven years. These are known as “potentially exempt transfers”.
Some gifts are immediately outside of your estate when calculating IHT, so if you’re thinking about gifting to reduce a tax bill, making use of these could be valuable.
Contact us to talk about your estate plan
If you have questions about passing on wealth and creating an estate planning in Sutton Coldfield that meets your unique circumstances and priorities, please don’t hesitate to contact us. There is no one-size-fits-all solution when it comes to wealth transfer, and we can help you navigate the available options and make informed decisions.
Stay tuned for our next blog post, where we’ll explore the topic of Inheritance Tax (IHT) and discuss potential strategies for reducing your tax liability and maximizing the amount of wealth you can leave to your loved ones.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate tax planning or estate planning in Sutton Coldfield.
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