3 key elements to consider when creating an estate plan

From 8-14 May, it will be Dying Matters Awareness Week, a campaign designed to encourage everyone to consider what will happen when they pass away. After all, while it might be difficult to think about, it will happen to all of us.

Thinking about your death now is a crucial step in protecting your loved ones, organising your affairs so that you can support their financial futures and relieve stress at what will be a difficult time.

With that in mind, discover three key elements to consider when creating an estate plan.

1. Writing a clear, comprehensive will

Your will is the foundation for your entire estate plan. In it, you can detail exactly what will happen with your wealth, including who will receive what and how much. You can also select your “executors”, the individual or individuals who you would like to administer your estate.

Having a clear and detailed will is crucial, as it means that your wishes will be carried out and you can organise your wealth as you see fit.

It’s also important to keep it updated throughout your lifetime as certain events may change how you want your wealth to be administered. For example, if you become a grandparent or perhaps inherit wealth yourself, this may change how you want your estate to be divided. You can add a codicil to your will to reflect these changes.

Dying without a will, referred to as “dying intestate”, will see your estate divided according to a standard set of rules. This may go against your wishes, and could even see some of your loved ones excluded from their inheritance if you have remarried or have step-children.

So, it can be useful to start with your will when creating an estate plan to provide the bedrock for the rest of your decisions.

2. Mitigating an Inheritance Tax charge

One of the major concerns you might have for the future is leaving your loved ones with an Inheritance Tax (IHT) bill to settle. According to the government, IHT receipts increased to £7.1 billion between 2022 to 2023, a record high, so you may be concerned about the tax your family will have to pay on what you leave behind for them.

Before your estate is subject to a 40% IHT charge on your death, you do have a nil-rate band that allows your beneficiaries to inherit your wealth tax-free. In the 2024/25 tax year, this stands at £325,000.

You can also benefit from an additional residence nil-rate band if you pass your main residence to your direct descendants – such as your children or grandchildren. This stands at up to £175,000 in 2024/25.

Furthermore, you can combine your nil-rate bands with a spouse or civil partner. In total, that means you could pass on up to £1 million tax-free.

However, any wealth in excess of this amount could be subject to IHT, putting a dent in what your loved ones can receive from you when you pass away. So, it can be sensible to consider methods that mitigate your tax liability. This could include:

  • Gifting money and assets under IHT-free allowances and exemptions
  • Holding assets in trust
  • Making charitable donations.

There are many ways you may be able to reduce the size of your estate for IHT purposes. It can be particularly useful to work with a tax specialist when trying to do so, as mistakes could prove costly.

Read more: Why your pension might be your most valuable tool for reducing Inheritance Tax

3. Earmarking funds for the cost of dying

While a great deal of retirement planning focuses on the cost of living, it’s also important to think about the cost of dying, because it may be more expensive than you think.

SunLife produces an annual “Cost of Dying Report”, detailing the average total cost of death including professional fees, your funeral, and any other optional extras such as the party or wake.

In the 2024 edition of the report, the provider found that the cost of dying rose 5% in 2023, up to a record-high of £9,658.

Your death will already be a difficult and emotional time for your loved ones, and the last thing they will need is the administrative and financial burden of settling those costs. As a result, you might want to specifically earmark funds for the cost of dying.

You could retain a portion of your pension savings, or have a specific amount saved in an easy access savings account that your family could use for this purpose. You can leave details for this in a “letter of wishes”, a non-binding document that you can use to supplement information in your will.

Alternatively, you could also consider taking more concrete steps, such as purchasing a funeral plan. This can give you control over your send-off while also settling this cost for your family.

Get in touch

Want to speak to a professional about creating an estate plan that protects your family? We can help at Britannic Place.

As a Chartered financial planning firm, we have the knowledge and experience to help you organise your wealth, both for now and in the future.

Email info@britannicplace.co.uk or call 01905 419890 to find out how we can support you and your loved ones.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.

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