How to ensure you pass on your wealth effectively

It’s easy to imagine that things will fall into place when you pass away and your money will naturally reach the right people. This common misassumption means that more than half (57%) of the UK with financial concerns for others do not have a Will in place, according to new research*.

So, it may come as a nasty shock to many that intestacy rules offer little protection and, without a Will, family finances can be left open to challenge when an individual passes away. Even if you trust people to ‘do the right thing’ after you’re gone, the legal system provides little flexibility to allow them to do this.

Intestacy rules provide protection only to those married or in a civil partnership. They guarantee that the remaining partner receives all the deceased’s personal items and their estate, or – if they had children or grandchildren – their estate up to the value of £270,000, plus half the excess over £270,000**.

When someone dies without a Will, they die intestate, and their estate is usually administered by the next of kin. The administrator is unable to divide the estate up as they wish and must instead stick to the UK intestacy rules. Without a Will, cohabitees in particular risk not automatically inheriting anything on the death of their partner unless they jointly own property.

Making a Will is the easiest and safest way to ensure your money is passed on to the right people. Considering making one should always be the first step in any financial planning.

Having made a Will, most people would assume their wealth will be fully passed on to the beneficiaries they choose. Unfortunately, these beneficiaries could only receive 60% of the value if inheritance tax hasn’t been thought about.

Inheritance tax (IHT) was once viewed as a tax on wealthier individuals. But with a low starting point for the tax, which applies to wealth and property worth over £325,000**, and soaring house prices, HMRC data shows that many more people are now getting caught out.

Planning effectively to ensure you are passing on your wealth in the most tax efficient way can make a real difference to the amount of your money your loved ones receive.

There are several options available that can be particularly useful if you are keen to provide for your loved ones, including making gifts to them during your lifetime, making contributions to their pension, or placing the money into a trust. All of these methods can help reduce the amount of inheritance tax your beneficiaries pay. As tax planning is a complex area, professional financial advice is crucial (and potentially very worthwhile).

Having put a plan in place, you might think it’s better to spare your loved ones any difficult conversations until the time comes. In our research, nearly half (45%) of people have never spoken or will not speak with family about a pension death benefit nomination, a Lasting Power of Attorney, or a trust*.

Although it may feel like you’re protecting loved ones by not speaking to them, failing to talk about your estate and your wishes with those family members is just adding a layer of risk to your inheritance.

Here are four good reasons to have the conversation:

1. To save as much tax as possible. There are many options available when it comes to passing on your wealth, be that in life or in death, and it is wise to talk openly with your family and consider these options together sooner rather than later. Talking to family members can help you be aware of the tax allowances available to each person, helping you make the most tax efficient decisions possible.

2. To avoid disputes and uncertainty. Everyone has desires for what happens to their money and their possessions when they pass away, so it is vital these are recorded and discussed, and that your family members know where to locate your Will. Not doing so leaves an estate up for challenge, and this will only delay the grieving process for your family members after you die. One in four of those with financial concern for others (25%) said they would be willing to contest someone else’s Will if they felt the estate hadn’t been divided fairly*, highlighting the need to have an inheritance plan well established and communicated with family.

3. To give you control. Whilst a Will is a fantastic way of recording your wishes, it’s important not to forget things like pension death benefit nominations and Lasting Power of Attorney. Talking to your family members about this is crucial in ensuring your affairs are managed in the way that you want them to be following loss of any capabilities or death.

4. To help your loved ones plan for the future. When planning how to pass your wealth to those closest to you, seeking professional financial advice and having an open conversation with your family will not only ensure that your wishes are fulfilled in the most tax efficient way possible, but your family can better understand their possible financial futures as well.

Visit our website to find a financial adviser today and put the right plans in place to pass your wealth on effectively. Find out more about the benefits of financial advice, and how we can help you.

*Wealth Transfer | Kings Court Trust (kctrust.co.uk)

** All figures quoted in this article relate to the 2022/2023 tax year and may be subject to change in the future.