Your estate planning checklist

Tax returns

Make sure clients are not paying more tax than they should.

Now that should be simple, but it is not. The UK has a hugely long and complicated tax code system and hiding within it are lots of valuable reliefs, exemptions and allowances. The problem is, it is not always easy to know what a client is eligible for and how to make a claim or how, with a bit of planning, they could be eligible for more.

By really knowing a client and understanding their existing asset base – not just their investments, but also their business and any commercial or residential property they own in addition to their main home – you can find opportunities to take advantage of reliefs across income tax, capital gains tax and inheritance tax.

It is vitally important not to forget the tax return, its completion in conjunction with effectively using available allowances demonstrates the value of specialist planning, with the client seeing the tax savings generated. Having the form completed by a professional should also ensure that penalties and interest are avoided, the correct amount of tax is paid and the client moves into the next year with the right tax code and peace of mind that they are not paying more tax than they should.

Powers of Attorney

Talk to clients about appointing someone they trust to make decisions for them if they can not. 

Rather like tax returns, Powers of Attorney are often seen as something you have to do in certain circumstances. For many, that will be when they have an elderly relative they are concerned might be becoming less able to look after own affairs than they once were. But they are so much more than that. Powers of Attorney can give a client the peace of mind that comes from knowing critical decisions can be made in their absence by someone they trust.

It is not just necessarily about losing mental capacity, it could be about being out of the country on holiday without a decent phone signal or being really busy at work. Whatever the reason, ensuring a carefully structured plan does not become frozen is key. It also protects loved ones from being faced with a long and difficult court process – plus thousands of pounds in costs – to have someone appointed to make those decisions.

Trusts for family assets

Sharing assets within the family while keeping control can have some advantages.  

For some people, sharing assets could be right for tax reasons or simply because of individual family circumstances. Because of those family drivers, people are generally fairly comfortable about sharing with relatives, but they are even more comfortable if they do not have to hand anything over, so they keep control and no-one else can spend the money. That is all possible. This will generally need a trust of some kind. 

Trusts are often discounted based on some misconception that they are expensive, complicated and unpopular with HMRC. That is simply not true. Used in the right way and within the bounds of legislation and established HMRC practice, they can be an effective way of sharing assets while keeping control.  

Succession plan

Do everything you can so that your clients pass on as much as possible to people they choose.

This needs a comprehensive succession plan that encompasses all of a client's assets. A will, kept up to date, is vital – and I will come back to that – but there is a common misconception that you can say what you want to happen to your pension in your will. You can not. You need to capture a client's wishes in a nomination form that is tailored to their pension(s). It has to be kept up to date and needs to sit alongside an equally up to date will.

Despite the fact that a will sets out what you want to happen with what you have worked hard to build up, fewer than half of UK adults have one. That means that the law says who gets what. The problem is, the law is not particularly good at dealing with the huge array of family circumstances we see today and can result in an outcome that does not reflect what the person would have wanted to happen.  

That, in itself, seems like a pretty powerful reason for people to have a will in place, but just in case it is not enough, the residence nil rate band was introduced at the beginning of April. This means having the right will in place can make a substantial financial difference by allowing someone to leave more of their estate free of inheritance tax. For a couple, the tax free amount can be up to £1m instead of £650,000 and for a single person, it can be up to £500,000 instead of £325,000.

But clients need to be aware that the value of their estate, who they choose as beneficiaries and the inclusion of trusts in existing wills, can all get in the way. It is a complicated, but valuable relief, so specialist advice is vital.  

That leads me neatly into inheritance tax (IHT) planning. Many people probably do not know how much they are worth and if they do not know that, they will not know what potential IHT bill their family could be left with. Others know exactly what they are worth and the amount of the IHT bill, but think that, to make any real difference to it they will have to give everything away and sacrifice the lifestyle they have worked hard to secure.  

As advisers, we know that is not the case, but clients often need our help to see that. It is about understanding what is right for the client from the variety of options available: gifts from income; gifts from capital; gifts to people; gifts to trusts; small gifts, large gifts – the list goes on. There is normally something in there that can help and it is best to start sooner rather than later as it can take some years to make a real difference to that IHT bill.

Good advice

That is what I mean by estate planning. It is about making sure your client is not paying more tax than they need. It is about having clear instructions and people they trust to make decisions for them and to ensure their wishes are carried out. It is about reducing their estate value as far as they are willing to, while leaving as much as possible tax free to the people they choose. But it does not really matter what you call it – it is just good advice that helps your clients.

Advising on tax does not have to be taxing.

Shona Lowe is head of private client services at 1825

Key points

By really knowing a client, opportunities to take advantage of reliefs can present themselves.

Powers of Attorney are often seen as something you have to do in certain circumstances.

Many people probably do not know how much they are worth and what potential IHT bill their family could be left with.