If you’ve been fortunate enough to build up a reasonable amount of wealth throughout your lifetime, it’s never too early to start planning what money you need now and, in the future, whilst also making sure any remaining wealth is passed on to your chosen beneficiaries as tax efficiently as possible.
Work out how much you’ll need first
Before you think about passing wealth on to others, it’s important to ensure you (and your spouse or partner) have enough income for your retirement years.
Start by working out your spending requirements in retirement. This includes essential day-to-day living costs, ‘nice to haves’ such as holidays or hobbies, and any one-off expenses that might arise. Armed with this information and your sources of retirement income, our financial advisers will help you build a plan to make sure your wealth lasts as long as you need it to.
Think about long-term care
Your health needs may change as you get older, including the possibility of needing long-term care. Long-term care costs can eat away at your wealth, but there are several options to help you protect it. Long-term care funding is quite complex, so it’s always best to seek financial advice from your Origen adviser about this.
Future-proofing for the family
Once you’ve secured your own retirement needs, you can start to think about what you may want to pass on, when you should do so, and how to do it as tax-efficiently as possible.
Get to grips with Inheritance Tax
Inheritance Tax (IHT) can impact the wealth you pass on to your beneficiaries:
- Nil Rate Band: If the total value of your estate (assets minus debts) is below £325,000, no IHT is payable. Above this, IHT is charged at 40%.
- Spouses/Civil Partners: No IHT is due on assets transferred between spouses or civil partners.
- Increasing your allowance:
- If your spouse/civil partner passes away first, their unused allowance can be added to yours, potentially increasing it to £650,000.
- Leaving your home to direct descendants grants an additional £175,000 ‘residence nil rate band’ (RNRB). This can raise your total allowance to £500,000 (£1,000,000 for couples). For estates over £2 million, the RNRB reduces.
It’s best to work out early how important this is to you and what options are available to help pass on your wealth as tax-efficiently as possible.
Be a gift giver
Making gifts allows you to pass on wealth now and see your loved ones benefit rather than waiting until you die. For example, no IHT will be paid on:
- Up to £3,000 each tax year, or regular gifts from surplus income
- As many gifts of up to £250 per person as you want, provided the beneficiaries haven’t benefitted from other gift exemptions.
- Lifetime gifts of any amount, and if you live seven years after the gift, they won’t count as part of your estate for IHT.
Have trust in trusts
Putting assets in trusts can reduce your estate’s value and IHT bill. They are usually exempt from IHT after seven years.
Trusts are used for larger sums, complex family situations, or if you want control over when beneficiaries receive the money. Speak to your Origen adviser to decide which type of trust is right for you.
Get your papers in order
Having the right legal paperwork protects your estate and ensures your wishes are followed.
Update your Will regularly, especially after significant life changes. Set up a Lasting Power of Attorney (in England and Wales) or Continuing Power of Attorney (in Scotland) to appoint a trusted person(s) to make decisions if you become unable to do so.
Finally, keep your records somewhere secure and don’t forget to let the right people know where to find them!
How Origen can help
Planning ahead ensures that more of your wealth goes to those you want to benefit in future. Our financial advisers will give you the confidence to make complex financial decisions and provide you with peace of mind about the future.
