This blog is a summarised version of our e-book “Estate Planning: Protecting Your Home and Ensuring Your Family’s Future”. You can download this e-book by completing the information at the end of this blog.
In this blog we will look at the basics of estate planning that will help you to understand more about securing your family’s future, tackling inheritance tax, and how to manage your finances in the event that you become incapacitated.
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Table of Contents
Protecting Your Home and Reducing Inheritance Tax
Inheritance tax can significantly diminish the value of your estate. To safeguard your family’s future, it’s important to understand and act on these critical steps through the estate planning process:
- Understand the IHT Threshold
- The standard IHT threshold is £325,000 per person, with an additional £175,000 residence nil-rate band (RNRB) for passing your home to direct descendants.
- Any value exceeding these thresholds is taxed at 40%.
- Strategies to Reduce IHT
- Spousal Transfers: Assets passed to a spouse or civil partner are exempt from IHT.
- Gifting: Take advantage of the £3,000 annual gifting allowance. Gifts made over seven years before your death may also be exempt.
- Trusts: Placing assets in a trust reduces their taxable value in your estate while maintaining control over their distribution.
- Life Insurance in Trust
- Writing a life insurance policy in trust ensures the payout doesn’t form part of your estate, providing funds to cover IHT liabilities without increasing the tax burden.
Safeguarding Your Home with Life Insurance and Mortgage Protection
Your home is likely your most valuable asset, and mortgage protection is vital to keeping it in the family.
- Mortgage Protection Insurance
- Decreasing Term Insurance: Covers your remaining mortgage balance if you pass away during the policy term.
- Level Term Insurance: Provides a fixed payout for broader financial security.
- Critical Illness Cover
- Protects against the financial impact of serious illness, ensuring mortgage payments and living expenses are manageable.
- Life Insurance for Long-Term Security
- A comprehensive life insurance plan ensures your family can maintain their quality of life and retain ownership of key assets.
Lasting Powers of Attorney: Protecting Your Wishes
Estate planning isn’t just about posthumous decisions. LPAs allow trusted individuals to manage your affairs if you become incapacitated.
- Types of LPAs
- Property and Financial Affairs LPA: Appoints someone to handle financial matters, including mortgage payments and property maintenance.
- Health and Welfare LPA: Covers healthcare decisions, ensuring your preferences are respected.
- Why LPAs Are Critical
- Without an LPA, loved ones may need to apply to the Court of Protection to make decisions—a costly and time-consuming process..
The Role of Pension Planning
The 2024 UK Budget introduced new taxation rules for pension death benefits. Unused pension funds will be included in your estate for IHT purposes from April 2027, potentially increasing tax liabilities. Reviewing your pension arrangements during the estate planning process is essential to protect your beneficiaries.
The Cost of Failing to Plan
Without proper estate planning, your family could face:
- Unexpected Tax Bills: IHT could force the sale of cherished assets.
- Loss of Control: Intestacy laws might distribute your estate contrary to your wishes.
- Financial Hardship: Lack of life insurance or mortgage protection may leave loved ones unable to manage ongoing expenses.
- Legal Complexities: Without an LPA, families may struggle to manage your affairs, adding emotional and financial strain.
Taking Action
- Review Your Estate: List your assets and assess potential IHT liabilities.
- Consult Professionals: Work with estate planning advisors to explore trusts, gifting, and insurance options.
- Update Your Will and LPAs: Regularly ensure they reflect your current wishes.
The Bottom Line
Estate planning secures your legacy, ensures your loved ones are cared for, and prevents unnecessary financial and emotional burdens. Don’t leave your family’s future to chance—start planning today.
Disclaimer
The information contained within was correct at the time of publication but is subject to change. Estate planning is referred to a third party. Neither Liddle Perrett Ltd nor PRIMIS are responsible for the service received. These services are not regulated by the Financial Conduct Authority and may have limited consumer protection. This information is provided as a general guide and should not be taken as financial or legal advice. Your individual circumstances may vary, and we recommend consulting with a qualified financial advisor or solicitor to discuss your specific needs. Mortgage, protection, and estate planning solutions are provided by a third party and subject to eligibility, terms, and conditions, and the value of financial products can go down as well as up. Tax treatment depends on individual circumstances and may change in the future. For life insurance, inheritance tax, and pension planning, always ensure you understand the policy terms and how they fit into your wider financial goals. Lenders’ and providers’ criteria apply.
Your home may be repossessed if you do not keep up repayments on your mortgage.