National Grief Awareness Week 2022 takes place between 2 and 9 December. It’s a chance to start conversations, normalise feelings of loss, and highlight the charities and organisations offering support. 

Grief will affect us all at some point in our lives. This is one of the reasons why Grief Awareness Week is so important.

But death and loss aren’t easy subjects to talk about. Nor is money. Combine all three and you have the reason why estate planning so often goes undiscussed. 

This can lead to difficult conversations for surviving relatives, potential will disputes, and a huge amount of added stress and worry for family members at an already difficult time. 

Thinking about how and when you leave an inheritance – and who to – is a crucial part of your long-term financial planning. Talking through your plans with the relevant parties is also vital. 

Keep reading for a closer look at how to plan your estate, and the financial and wellbeing benefits of doing so openly and honestly.

Take the time to think about how and when you want to pass on your wealth

While dwelling on our mortality is always easy, you’ll need to take some time to think about how and when you pass on your wealth. 

Traditionally, an inheritance was given on death but over recent years “giving while living” has gained in popularity. Back in September, we looked at 3 important reasons why you might opt for giving while living and found that it could:

• Lower the value of your estate for Inheritance Tax (IHT) purposes
• Allow you to see the difference your money makes to loved ones
• Let your beneficiaries receive the money when they need it most.

You might consider an inheritance on death when you want to leave a charitable legacy. You might have read about the unexpected tax benefits of leaving a charitable legacy in your will in this blog from last year.

You can choose a residuary, pecuniary, or specific legacy to support a cause you care about and potentially lower the value of your estate. Plus, donate 10% or more of your estate’s value to charity and your IHT rate will drop from 40% to 36%.

Once you have an estate plan, we can help you find the most tax-efficient ways to carry out that plan

Potentially exempt transfers and taper relief

IHT is payable at 40% on the value of your estate that exceeds the nil-rate band, £325,000 for the 2022/23 tax year.

If you think your estate will exceed this value, you might consider making gifts during your lifetime to lower your estate value. 

You can make as many gifts as you like during your lifetime. These are known as “potentially exempt transfers” (PET) because they are tax-free if you survive for seven years after making the gift. This is called the “seven-year” rule.

“Taper relief” reduces the rate of tax payable on a gift dependent on how long you survive after making the gift.

Gifting exemptions

Some gifts are free of IHT regardless of how long you survive after making the gift. These include:

• The annual exemption – You can gift up to £3,000 each year, either in one go or separately. The amount is individual to you and can be carried forward for up to one year. You and your partner could gift £12,000 in a single year if neither of you has used last year’s gift exemption.

• The normal expenditure out of income exemption – Use this exemption to make regular gifts into a child’s investment, savings account, or pension, for example. Just be aware that you’ll need to be able to prove to HMRC that the gift is made from income and doesn’t affect your standard of living.
• Gifts between spouses or civil partners – Gifts between partners (a spouse or civil partner) always fall outside of your estate for IHT purposes. Make as many gifts to your partner as you like each year, tax-free. 

Discuss your plans with those concerned to minimise the risk of misunderstandings or disputes 

While the coronavirus pandemic did lead to greater engagement with estate planning, it also led to a rise in contested wills. In fact, Which? reported that a single firm saw a 111% increase in disputes during Covid. 

Discussing your plans with those affected is the best way to limit the likelihood of disagreements or unpleasantness after you are gone. 

If you suspect your plans might be unpopular, you might be reticent to discuss them, but this is exactly the time when it is most important. 

Earlier in the year, we asked: Do you plan to split your estate evenly between your children on death? (45% of UK adults don’t) and looked at this exact problem.

The conclusion: Understand your loved one’s feelings, communicate your wishes plainly, and have confidence in your own decision.

Full understanding from all sides should help to avoid confrontation and allow those left behind to concentrate on processing their grief.

Get in touch

With decades of experience, our Chartered Financial Planners have the expertise to help you plan your retirement your way. If you have any questions, please get in touch and speak to us today.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Taper relief only applies to gifts above the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief. It does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.