Inheritance and passing your money on

Have a look at our guide below to find out about wills, inheritance tax and powers of attorney.  Take control and make sure you’re passing your hard-earned money to your loved ones.

Did you know?

  • Last year the UK treasury became £38.5m richer because people didn’t write a will (1)
  • Standard Life research in 2011 showed that 61% of UK adults don’t have a will.
  • If you don’t have a will, your estate might not end up in the hands of your chosen beneficiaries.
  • If your estate is worth over £325,000 – 40% of the excess might be due in inheritance tax, unless an exemption applies.

Don’t lose out and don’t lose control of how your wealth and legacy are passed on.

Read on to see how putting a will in place will let you control how your estate is passed on tax- efficiently.

Sheila McCain

Case Study

Sheila McCain, 67

"Why I recently reviewed and changed my will."

Why would I need a will?

  • You can take control and name your chosen beneficiaries.
  • Having a will protects cohabiting partners, as the surviving partner doesn’t have an automatic right to inherit, unless named in a will.
  • If you have young children and want to delay the age of inheritance beyond the age of 18 (16 in Scotland), you can control this in a will.

How to make your will legal

  • Seek advice from an expert, e.g. a solicitor who specialises in this area :
    • They can make sure all relevant factors are considered
    • They can make sure the will is signed properly, so that it’s valid, and that you’re not being forced into anything.

Standard Life has a referral service which can help you put a will in place. We’ve linked with a law firm in England, in Wales and in Scotland to make it easier for you to take the next step. These firms offer a fixed fee service, to give you certainty over how much it will cost. If you’d like to use this service or request an information pack, call us on 0845 272 8810. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

Inheritance tax

  • If your estate is valued at more than £325,000 (the current nil rate band), your estate will pay 40% tax on the excess (unless an exemption applies)
  • An extra rule applies to married couples and civil partners :
    • The surviving spouse or civil partner can make use of any unused nil rate band, which can reduce the inheritance tax bill
    • For example, let’s assume Mike and Mary are married. If Mike dies and leaves his whole estate to his wife, Mary – her estate will only be taxed at 40% on anything above £650,000 when she dies, because her estate benefits from the nil rate band that Mike’s estate did not use. Mike’s estate did not use any of the nil rate band because the spouse exemption applied on everything which Mike left to Mary.

Minimising your inheritance tax liability

There’s lots of ways to make the most of the exemptions and reliefs.

Make lifetime gifts

You could give family and friends some of your estate now. It could be a win-win, as they enjoy financial support from you sooner rather than later, and you can reduce the impact of inheritance tax on your estate – although there are some things you need to consider:

  • Most gifts only become exempt from inheritance tax once you’ve lived for 7 years after making them.
  • Some gifts carry a 20% upfront inheritance tax charge, but won’t be charged inheritance tax at 40% if you live another 7 years.
  • Some gifts are immediately exempt (eg. you can use the annual allowance of £3,000, which becomes £6,000 if you’ve not used it last year).
  • There’s also an exemption for regular gifts from surplus income, as long as they don’t affect your standard of living. Keeping a record of gifts is really important, to help to prove the exemption applies.

Find out more about gifts on the HMRC website.

Setting up a trust

Giving money outright isn’t always the best solution.

You might want to leave money to grandchildren, but not yet know how many you’ll have. Or, you might worry about how a child would spend the money.

For these situations, you might consider using a trust.

A trust is a way of holding funds for the benefit of others. The trust controls when and how the beneficiaries can access the funds held by it.

Many investments come with the choice of a trust wording, to help you control who inherits it, or who can access it at certain points in time.

You can also have a trust tailor-made for you if your situation is complicated. A solicitor can do this, but there are likely to be additional costs.

Our guide on protecting your assets contains more information about trusts.

Consider granting a Power of Attorney to make life easier for your loved ones

Are you one of the 80% of people we found in our research, who doesn’t have a Power of Attorney in place?

Maybe you have a misconception about Powers of Attorney, and think they’re just for older people? In fact, they are worth considering at younger ages, since accidents and illness can affect people of all ages.

Not everyone is sure about what a Power of Attorney does. It’s a document which grants power to someone else to manage your affairs, for example deal with your finances. It can also cover more personal matters like your care or welfare, but mostly the focus is on keeping your finances ticking over if you’re not well enough to deal with things. We recommend you speak to your solicitor about a Lasting Power of Attorney (Continuing Power of Attorney in Scotland).

Standard Life has a referral service which can help you put a Power of Attorney in place. We’ve linked with a law firm in England, Wales, and Scotland, to make it easier for you to take the next step. These firms offer a fixed fee service, to give you certainty over how much it will cost. If you’d like to use this service or request an information pack, call us on 0845 272 8810. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

Pensions

In most cases, a lump sum is paid out from a pension scheme if the member dies before they take their pension benefits. An Expression of Wishes form gives you the opportunity to record your preference on who should receive this. Look at your pension plan documents to find out if you can record a preference on who should receive your lump sum. This way you’ll be able to let your scheme administrator know what your wishes are. Remember to keep your Expression of Wish up to date if your circumstances change.

Alternatively, depending on the type of pension plan you have, you may be able to set a plan up under trust. Speak to your scheme administrator or check your plan documents to see if this option is available to you.

Lump sum payments made from a pension scheme as a result of your death are not normally subject to Inheritance Tax.

Top tips

  • Make a will and review it regularly to make sure you control how your wealth is distributed in the event of your death.
  • Find out if your estate is likely to be subject to inheritance tax. This way you can make the most of exemptions and reliefs by taking action early, if you are likely to be inside the net for inheritance tax. 
  • Gain control of how you gift money by using a trust, if your chosen beneficiaries are young.
  • Grant a Power of Attorney so your wealth and affairs can be managed if you’re not able to do so yourself

You can minimise stress for your loved ones and control how your wealth is passed on, by following these steps. 

Important information and assumptions

Laws and tax rules may change in the future. The information here is based on our understanding in January 2014. Your personal circumstances also have an impact on tax treatment.

All figures relate to the 2013-2014 tax year, unless otherwise stated.

Standard Life is not responsible for any arrangement(s) entered into based on the information provided here. We recommend you seek professional advice to agree the right options for you.

Source

  1. The Telegraph  (June 2013)

 

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