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How much do you know about estate planning?

As you approach later life, it is important to consider the impact inheritance tax could have on your family. Estate planning provides a viable way to prepare your finances, protecting your assets for your loved ones when you’re gone.

Beneficiaries who are left assets from an estate in a will, which they would prefer to go to someone else, can vary or redirect them under limited conditions. The method is called a deed of variation.

While there are various reasons a deed of variation may be used, including providing for someone who may not be sufficiently provided for due to the Will being written some time ago, for financial planning reasons it can be a useful tool to save inheritance tax (IHT).

As an example, a son inherits his mother’s estate but knows his own estate will already be liable to IHT and his inheritance will only add to the tax bill for his children. He can use a deed of variation to redirect that inheritance to his children or a trust that he can control.

Using the deed moves the money direct from his mother to the children, so HMRC does not view it as a gift from him to his children (or trust), thereby avoiding the rule that says he has to live seven years beyond the date of the gift to exempt it from IHT. By not inheriting the assets himself means they do not become part of his estate and so are not liable to IHT when he dies.

There are set conditions that apply, including drawing up the deed within two years, and having a statement that the variation is to have effect for IHT. Clearly, deeds of variation only apply in very limited circumstances; there are moderate legal costs as well as potentially emotional issues involved, so they need careful consideration. It is important to stress that the best way to properly plan for our legacy is to do so while still alive, as this will almost always avoid the need for this kind of action. Effective estate planning and regular reviews of financial plans, as well as ensuring Wills remain valid and up-to-date should be one of the key strategies of a good financial plan.

At what age should you write a Will?

This is misleading as age should not be the driver for writing a will, yet it is often the biggest inhibitor to doing so, as many people believe they are too young to need a Will.

The writing of a Will should be determined by who and what requires protection – such as children, a home, assets or a partner. A Will should not be dictated to by age.

Wills can help provide security for loved ones and make it clear how an individual wants their assets etc distributed.

For unmarried couples, a Will is required to secure their partner’s financial future, while those clients with children will need to appoint legal guardians. Those who own their own home must also give consideration to whom they would like to pass it on to, along with any savings.

It can also help with tax planning; if all assets are passed on to a spouse, the £325,000 nil rate band for inheritance tax (IHT) can also be transferred to the spouse, protecting £650,000 from IHT. Where a home is then passed on to direct descendants, the residential nil rate band (RNRB) also comes into play, increasing the amount by up to £350,000 (at current IHT and RNRB rates).

Lowes does not undertake Will writing but we can refer you to a recommended firm to undertake the work for you.

Learn how to structure your finances tax-efficiently and use your tax allowances by arranging a free initial Consultation with us:

Call: 0191 281 8811



The Financial Conduct Authority does not regulate on estate or tax planning.

Lowes Financial Management, Fernwood House, Clayton Road, Jesmond, NE2 1TL. Authorised and regulated by the Financial Conduct Authority.

About the author

Ian Lowes

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