Guide to Estate Planning

Finance Monthly has published a new Essential Guide to Estate Planning. We’ve summarised it briefly below, see the original article for the full story.

Estate planning and wealth management may seem like complex and confusing topics, but they are essential for securing your financial future.

Understanding Estate Planning

Estate planning is the process of efficiently passing down wealth to future generations while minimizing tax liabilities. It involves making important decisions about how your assets will be distributed after your death, as well as considering factors such as long-term care costs and the potential impact of taxes. Many people view estate planning as crucial because they want to ensure that their hard-earned assets are not subject to unnecessary taxes.

One of the key obstacles in estate planning is the potential loss of capacity. This was exemplified in the recent case of Derek Draper, husband of Kate Garraway, who suffered severe health issues and highlighted the importance of having a Lasting Power of Attorney in place. Without proper planning, a costly and laborious application to the Court of Protection may be required.

Another obstacle is the failure to make or update a will. In the absence of a will, the Laws of Intestate Succession determine how assets are distributed, which may not align with your wishes. For example, without a will, a married couple with young children may find that their assets are divided in a way that is not ideal for their family’s financial stability. Making a will is crucial to ensure that your assets are distributed according to your preferences.

Understanding Inheritance Tax

Inheritance tax can be a complex topic, but it is important to grasp the basics in order to mitigate tax liabilities. In essence, inheritance tax is payable when assets pass through a will or intestacy to a non-exempt beneficiary. The first £325,000 of an estate is known as the Nil Rate Band and is charged at 0% tax. Anything above this threshold is taxed at a rate of 40% (or 36% if at least 10% goes to registered charities). In 2017, the Residence Nil Rate Band was introduced, which increases the threshold by up to £175,000 if a share in a residence passes to a lineal descendant. This additional band starts to reduce when the estate exceeds £2 million.

It is worth noting that only a small percentage of UK estates actually pay inheritance tax, but for those that do, it can be a significant burden. The average inheritance tax bill is £209,000, highlighting the importance of legally mitigating tax liabilities.

Common Mistakes and How to Avoid Them

One common mistake in estate planning is the failure to plan ahead. Some people do not realize that they have an inheritance tax or long-term care problem until it is too late. It is important to seek advice early on and consider options such as gifting surplus wealth during your lifetime. However, it is crucial to survive for at least 7 years from the date of the gift for it to be fully effective for inheritance tax purposes.

Another mistake is not updating your will regularly. Circumstances change over time, and your will should reflect these changes. It is recommended to review your will every 5 years to ensure it aligns with your current wishes.

The Changing Landscape of Estate Planning

Estate planning has evolved over the years, with key landmarks including limitations on the use of trusts in 2006 and the introduction of the Residence Nil Rate Band in 2017. For many, the Residence Nil Rate Band has lifted them out of the inheritance tax net. However, the freezing of the main Nil Rate Band has exacerbated inheritance tax issues for higher net-worth individuals.

Looking to the future, the political landscape may bring changes to estate planning policies. The Conservative Party has hinted at abolishing inheritance tax, while the Labour Party may consider making it more onerous. The Treasury is also considering reforms such as a reintroduction of capital gains tax on death. It is important to stay informed about potential changes and seek professional advice when making estate planning decisions.

The Importance of a Well-Structured Will

A will is a fundamental component of estate planning as it appoints an executor to manage your finances after your death and specifies how your assets should be distributed. Without a will, the laws of intestate succession determine how assets are divided, which may not align with your wishes. For example, a will is essential for unmarried couples, as the laws do not recognize a “common law spouse” and assets may not be distributed as desired.

A well-structured will also takes into account factors such as long-term care costs, divorce or bankruptcy of beneficiaries, and generational inheritance tax. By utilizing suitable trusts and considering the division of assets, these potential problems can be mitigated.

When to Start Thinking About Your Will and Key Factors to Consider

It is never too early to start thinking about your will. As soon as you have assets to leave behind, such as cash or equity in a property, it is advisable to create a will. You can start with a cost-effective starter will and then review it every 5 years to ensure it reflects your current circumstances.

Key factors to consider when creating or updating your will include appointing guardians for young children, considering long-term care costs, and addressing potential issues such as divorce or bankruptcy of beneficiaries. Seeking professional advice is essential to ensure your will is comprehensive and effective.

Understanding Equity Release

Equity release is a process that allows homeowners to unlock some of the value tied up in their property without having to downsize. It can be used to pay off debts, make home improvements, or provide financial support to family and friends. However, it should be regarded as a last resort due to the compounding interest rates and potential impact on your eventual inheritance. It is advisable to consult with family members and seek independent advice before considering equity release.


Estate planning and wealth management are crucial for securing your financial legacy and minimizing tax liabilities. By understanding the intricacies of inheritance tax, the importance of a will, and considering factors such as long-term care costs and potential policy changes, you can effectively plan for the future. Seek professional advice, review your plans regularly, and consider all aspects of your financial situation to ensure that your assets are distributed according to your wishes and minimize any tax burdens.